Profit Margin - Health Insurance Industry Ranks #86
by Marilyn Mackenzie
Liberals keep talking about how the insurance industry makes so much money off of us. I have always doubted that. We have more and more people in the U.S. who have chronic illnesses. We're a nation with many obese people. We eat poorly and exercise little. The insurance industry is not in business to lose money. They have to make money, since that's the nature of businesses. They have to pay the stockholders something.
The figures I've seen have shown that the average insurance company today makes only 3.3% profit.
This blogger shows a list of 86 industries, with health insurance being the lowest in profits at 3.3%.
While I might not always consider a blogger to be the best resource for statistics, this blog is by a man who is has some impressive credentials.
Dr. Mark J. Perry is a professor of economics and finance in the School of Management University of Michigan. Perry holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University near Washington, D.C. In addition, he holds an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota. Since 1997, Professor Perry has been a member of the Board of Scholars for the Mackinac Center for Public Policy, a nonpartisan research and public policy institute in Michigan.
Professor Perry's blog entry says:
As the table of Profit Margins by Industry shows (click to enlarge, data here for the most recent quarter), the industry "Health Care Plans" ranks #86 by profit margin (profits/revenue) at 3.3%. Measured by profit margin, there are 85 industries more profitable than Health Care Plans (included Cigna, Aetna, WellPoint, HealthSpring, etc.).
Click here for Prof. Perry's blog and to see the list of industries and their profit margins. The graph is small, but if you click on it, it will enlarge so you can read it.
CARPE DIEM -Prof. Mark J. Perry's Blog for Economics and Finance
Here's where he got the information - from Yahoo Finance. Health Care Plans/Profits
If you bother to click on this link, you'll see that CIGNA has the highest profit percentage at 9.69%. The next is Health Spring at 4.67%. The worst one is Universal American Corp at .4%. And, as I've said before, the average is 3.3%.
3.3% is not a high profit margin for any business. Most small business people would give up if that was all they could achieve.
recommend this
email
print
link to this page
Comments: 65
For most businesses a 3.3% profit margin won't attract enough investors to start a company, much less provide capital for growth.
Danielle, if Wal-Mart has a 28% gross margin on sales, it could well earn a net profit of 3.3%. The latest S & P data shows a gross margin of 24.3% and a net profit of 3.4%
What matters is how much of a return they earn on their shareholders' investment (ROI). According to S & P data, Wal-Mart's latest ROI was 19.9%, compared to 18.5% for the retail industry and 16.1% for the S&P 500.
The ROE for Unitedhealth is 15.04% (ROE) Per Share -- not as humble as 3% huh?
Don't you know insurance companies don't consider the return on their investments as income, at least not when they want to raise the premiums.
2007-
Thomas Wilson, CEO, AllState: $960,000
Danny Hale, CFO, Allstate:$609,312
Eric Simonson, president of Allstate Investments: $609,312
Edward Liddy, chairman, AllState: $1.1 million
2005--
William W. McGuire, CEO, UnitedHealth Group: $54.1 million
Wilson H. Taylor, Retired chairman, Cigna: $24.7 million
Ronald Williams, Exec. VP, WellPoint Health Networks: $13.2 million
William Donaldson, chairman, Aetna U.S. Healthcare: $12.6 million
William Pastore, President, Cigna Healthcare: $6.7 million
These annual salary figures includes actual paychecks, stock options, perks (jets, limos, homes, etc.), bonuses, 'incentive payments', etc.
Sources: Forbes Magazine, Managed Care Magazine
Ed Hanway, 57, 10-year chairman & CEO, Cigna: 12.2 million/year. ($5,883 an hour!) He will retire this December 31 with a $73 million-dollar "golden parachute".
Reps. John Dingell-D and Sander Levin-D sent a letter to the chief executive of Michigan's Blue Cross affiliate to provide details about the company's recently approved premium hikes.
Check any realsources you like.
Dangerous thinking people require restraint.
What if the insurance executives dip into the profits and take stock options? Not only do they their benefit from the ROE, but this would not appear as part of the company's net profit. To make things more interesting, what if the insurance company fronted the money for purchase of the stock and then backdated the transaction to hide it from investors? This is what happened at UnitedHealth and why it was investigated by the SEC. "...The Commission alleges that between 1994 and 2005, UnitedHealth concealed more than $1 billion in stock option compensation by providing senior executives and other employees with “in-the-money” options while secretly backdating the grants to avoid reporting the expenses to investors. ..." ( http://lawprofessors.typepad.com/securities/2008/12/sec-settles-bac.html)
Insurance companies are businesses, and they are quite profitable.
It is photoshop for numbers.
GBU
English is a tricky language and being born and educated in a Country which has no standard teaching methods in place you arrive at different conclusions based upon the bias one holds prior to reading even a stop sign.
Thank you for sharing your feelings on this matter.
Let me suggest that what is immoral is our Medicaid program. It was established to help the poor and funded by the taxpayers. But, it is so poorly managed that it offers reimbursement to health care providers below their cost of doing business, so most providers don't participate in the program and patients must wait too long for health care.
Don't criticize private companies for the way they run their business when our government, which we fund to help the poor, does such a lousy job. The government's track record is the reason I oppose Obamacare.
Medicare has saved more lives than private Ins. Co’s have and what drives up the cost of Medicare is Ins. Co’s and Pharmaceutical Co’s. The cost of administrative fees and kickbacks to facilities for NOT providing care which not much is said also contributes to the high cost. Add to that the cost of the uninsured using the Emergency Room for routine health care which can be serviced by Primary care. Some of the name calling bloviating anti this and that’s screaming about health care reforms are as out of touch as dial up is to Broadband.
Some of your same arguments are rehashed from when Medicare was enacted in the 60’s--yet, here is and so many are grateful. Where will you be at retirement--receving Government Health care just like millions. I hope you make it.
Private insurance covers the majority of the country, some 85% (+/-) and Medicare covers what? Less than that anyway. How can Medicare save more lives than private insurance Johnice, is that statically possible?
Marilyn is correct that I was talking about Medicaid. As for the "what drives up the cost of Medicare is Ins. Co’s", there are no insurance companies involved in the Medicare program. The government pays the bills.
I agree that drugs are expensive, but they also keep a lot of seniors out of the hospital which isn't cheap these days, and I pay for the Medicare drug plan. It is not free.
But we were talking about insurance companies and their failure to cover preexisting conditions. You did not refute any of my arguments.
ROE for the top sectors of the health care industry are all high (not just the evil insurance bandits). Of that list, health insurance was 4th to last (out of 16). Furthermore, there are many industry sectors that have similarly high (or higher) ROI. Are they all evil? I suppose you think so. What should their ROI or profit be?
Don't you see the fallacy of the central planning path that you applaud but which has never worked in the history of man!
The President must have "demons" out there to sell his programs managed by a government with a terrible track record at managing anything.
On Tuesday, union employees went on strike against SK Hand Tool Corporation. According to union representatives, the decision to strike after months of negotiations came when employees’ health plans were revoked without notice. Employees didn’t even realize anything was wrong until one of them happened to take a close look at his paycheck and realized the company was no longer contributing to their health plan.
SK Hand Tools has done business in the Chicago area since 1921. A company press release blames the insurance provider for revoking coverage, emphasizing it was not responsible for the decision.
The position SK Hand Tools employees now find themselves in only serves to underscore the need for healthcare reform. It is a local, tangible example of how vulnerable even the employed and insured are under the healthcare payor system currently in place.
American Enterprise Institute's Aparna Mathu testified before the House Committee on the Judiciary in July. He has said, "To summarize, data from surveys, including the Himmelstein et al. studies, would suggest that by the respondents' own estimates, the fraction of bankruptcies caused by medical debts ranges from around 16 to 29 percent. The upper bound may be an overestimate since the respondents in the Himmelstein et al. survey also do not specify whether medical bills were the immediate cause or the most important cause of the filing. The only survey that asks the right questions is the PSID, which estimates that between 1984 and 1996, an average of about 16 percent of filings were due to medical bills. Given that "goods and services" debt, which includes medical debt, as a fraction of all debts has actually declined between 1998 and 2007 from 6 percent to 5.8 percent of all debt (SCF, 2007), it is hard to imagine that medical bankruptcies have increased tremendously over this period."
Here's a link showing his entire speech. I suggest that you read it.
Medical Debt - Is Our Health Care System Bankrupting Americans?
Further, if there are hospitals in your area (and I've read that there are) that are sending people off with a band-aid when they should be getting treatment, those are the people you should be angry with. (And, Michelle Obama did help create the policy at one hospital that does that in Chicago. Is was probably part of their plan to see that we eventually get nationalized health care.)
But not Obamacare.
There is nothing in our government's track record since 1945 that suggests that they have the ability to control costs, much less develop a quality system. The IRS and the FAA failed to upgrade their computer systems at tremendous expense, and their operations are now outdated. The federal highway system has not been properly maintained, and the federal budget is a mess.
No thinking person would give the White House and the Congress anything else to run.
It also takes money to maintain roads and computer systems. Money that is usually classified as pork by conservatives who are too cheap to see the long term benefit of present versus future dollars.
Good post by the way!
Ed Hanway, 57, 10-year chairman & CEO, Cigna: 12.2 million/year. ($5,883 an hour!) He will retire this December 31 with a $73 million-dollar "golden parachute".
I'm listening. Explain the parsing or show where my figures are wrong...
You'd rather have a government system that can't possibly sustain itself like in other countries?
The government systems in other countries seem to be sustaining themselves just fine. Ask the Gather members from Canada or Europe if you think otherwise. One suspects that they have a better idea of how things are going there than we do.
Besides, we're not them. In most cases, we have more people. We have 40 million who don't pay taxes. And we have idiots in Washington.
What service does the insurance company provide? They don't provide health care. They provide a means to leverage the benefits of shared risk. Health insurance inflates the cost of health care beyond what insurance companies take in a revenue. That is the problem.
What caused this change in pay structure?