NCPA - National Center for Policy Analysis

HEALTH INSURER PROFITS NOT SO FAT

October 27, 2009

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."  Ledgers tell a different reality.  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, says the Associated Press (AP).

The debate is loaded with intimations that insurers are less than straight, when they are not flatly accused of malfeasance.  But in pillorying insurers over profits, the critics are on shaky ground, says the AP:

  • Health insurers posted a 2.2 percent profit margin last year, placing them 35th on the Fortune 500 list of top industries; as is typical, other health sectors did much better -- drugs and medical products and services were both in the top 10.
  • Leading the list: network and other communications equipment, at 20.4 percent; the railroads brought in a 12.6 percent profit margin.
  • HealthSpring, the best performer in the health insurance industry, posted 5.4 percent; that's a less profitable margin than was achieved by the makers of Tupperware, Clorox bleach and Molson and Coors beers.
  • The star among the health insurance companies did, however, nose out Jack in the Box restaurants, which only achieved a 4 percent margin.
  • UnitedHealth Group, reporting third quarter results last week, saw fortunes improve; it managed a 5 percent profit margin on an 8 percent growth in revenue.

Were the Bush years golden ones for health insurers, as critics claim?  Not judging by profit margins, profit growth or returns to shareholders, says the AP:

  • The industry's overall profits grew only 8.8 percent from 2003 to 2008, and its margins year to year, from 2005 forward, never cracked 8 percent.
  • The latest annual profit margins of a selection of products, services and industries: Tupperware Brands, 7.5 percent; Yahoo, 5.9 percent; Hershey, 6.1 percent; Clorox, 8.7 percent; Molson Coors Brewing, 8.1 percent; construction and farm machinery, 5 percent; Yum Brands (think KFC, Pizza Hut, Taco Bell), 8.5 percent.

Source: Calvin Woodward, "Health insurer profits not so fat," Associated Press/Yahoo.com, October 25, 2009.

 

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