Health care legislation benefits insurers, but annual profits are not so hot

The health insurance industry is likely to benefit from a health care overhaul, but industry profits are not as high as many seem to believe.

"As President Obama's push for a healthcare overhaul moves toward its final act, the oft-vilified health insurance industry is on the verge of seeing a plan enacted that largely protects its financial interests," The Los Angeles Times reports. Legislation that includes an individual mandate and subsidies for those who can't afford coverage would mean "millions of new paying customers" for the insurance industry, representing a major lobbying success. "What's more, there are likely to be no limits on what insurers can charge, while at the same time the plan is expected to limit competition from any new national government insurance plan that lawmakers create."

"These anticipated wins -- from an initiative that has at times been portrayed as doomsday for health insurers -- is the result of a strategy developed by one of Washington's savviest lobbyists, Karen Ignagni." Many are surprised "that lawmakers have not wrung more from an industry that, surveys show, is held in low regard by the public," but "[f]or much of the last three years, industry leaders have been laying the groundwork for this battle." The industry's push for universal coverage was a shift from the early 1990's but has allowed them to shape proposed legislation in favor of insurers (Levey and Girion, 10/26).

American Medical News reports that managed care companies are also angling to get a piece of the expanding Medicaid market. Enrollment in Medicaid has swelled, thanks to unemployment rates topping 10% in many states, a trend that also has sent commercial membership diving. … Even under best-case scenarios, the profit margins are more modest for Medicaid than for commercial insurance or Medicare Advantage. But Goldman Sachs investment analyst Matthew Borsch predicts the smaller managed care organizations that specialize in Medicaid will be gobbled up by the big national plans, which want to expand their presence in the growing business without having to start from scratch" (Berry, 10/26).

Meanwhile, The Associated Press reports that health insurance company profits are not as high as many believe. "In the health care debate, Democrats and their allies have gone after insurance companies as rapacious profiteers making 'immoral' and 'obscene' returns while 'the bodies pile up.'" But actual profits tell a different story. "Health insurance profit margins typically run about 6 percent, give or take a point or two. That's anemic compared with other forms of insurance and a broad array of industries, even some beleaguered ones. Profits barely exceeded 2 percent of revenues in the latest annual measure. This partly explains why the credit ratings of some of the largest insurers were downgraded to negative from stable heading into this year, as investors were warned of a stagnant if not shrinking market for private plans" (Woodward, 10/25).

Kaiser Health NewsThis article was reprinted from khn.org with permission from the Henry J. Kaiser Family Foundation. Kaiser Health News, an editorially independent news service, is a program of the Kaiser Family Foundation, a nonpartisan health care policy research organization unaffiliated with Kaiser Permanente.

Comments

  1. Dan Smith Dan Smith United States says:

    Full-blown competition will only occur in the healthcare field if service provider contracts between the doctors/hospitals and insurance companies are eliminated. These contracts limit access, quality, competition and raise prices. Also these contracts make it harder for new insurance providers to enter a state since these contracts are used to build the insurance companies’ service provider network. A new insurance company would lack the network and find it difficult to recruit local providers who are already fully booked by established insurance carriers. The key is to eliminate the service provider contracts and require the doctors and hospitals to accept patients with any valid state licensed insurance until their full patient load is reached.

    It is only possible to eliminate service contracts in a Medical PSC environment since there has to be some mechanism for negotiating prices. The Medical PSC would set fair pricing based on actual average costs plus a reasonable mark-up which all state insurance carriers would pay for the exact same medical provider services. Since all insurance carriers would pay the same, the Medical PSC would require that all doctors/hospitals accept all valid state licensed health insurance without prejudice. Anyone could walk into any doctor’s office or hospital accepting patients in the state and receive medical attention and pay a fair price for service. (The insurer may still require an authorization to see a specialist, but the choice of specialist would not be limited.) This would equally apply to the non-profit co-op plan so that it would not be cost effective for this plan to invest in its own medical facilities.

    In the Medical PSC environment the insurance carriers are all the same except for the uniqueness of the policies they sell. The carriers only collect premiums and pay-out claims according to the terms of the individual policies. Their former network is no longer a selling point. Their patients no longer get preferential treatment if the carrier paid the highest. The common denominator becomes competition over which carrier can sell the best coverage at the cheapest price to out sell the others. Then the more carriers selling insurance in the state, the more competition you have. The level of healthcare access and quality available to the customers of these insurance carriers would be equal. Then everyone in the state could purchase the best healthcare they choose to afford. This is the basic healthcare operating environment which should be operational in each state now. A few cents can be added to the state tax tables to cover the cost of the Medical PSC. Spread over the millions of state tax returns makes the cost practically negligible. (Other states without a state income tax will have to decide how to cover these costs, but the best way is via the state income tax since all payers should have insurance and share these costs.)

    Common sense, which seems to be lacking in Washington, should tell you that the Medical PSC solution would increase access, quality, competition and policy coverage while lowering patient costs. These benefits are independent of any law changes in Washington. This idea should be echoed across the nation. Any “appropriate” law changes in Washington to glean money to subsidize the disadvantaged is an aside to creating the Medical PSC environment. If we had created the Medical PSC environment earlier, we probably would not have the healthcare crisis we have now. Like I said, if you do not eliminate the service contracts between the doctors/hospitals and the insurance carriers, you are subsidizing the problem by feeding it more money to absorb. A real solution requires fundamental change in the mechanics of the system. A Medical PSC is needed in each state to form the platform on which a workable national healthcare system can be built. The Medical PSC's are the missing pieces of the healthcare puzzle.

The opinions expressed here are the views of the writer and do not necessarily reflect the views and opinions of News Medical.
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