Fact Checking The Democrats – Private Health Insurance

25 Oct, 2009 by McQ

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Private health insurance companies have been demonized by the Democrats and the administration as modern day “robber barons” who are raking in obscene profits mostly by denying you coverage. But a simple fact checking dispels that sort of an attack as negative propaganda with no basis in 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.

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.

In other words, the methodical demonization of private insurance by government has put the industry on very shaky footing. Should a public option – defined as the government selling insurance or, as the Democrats are trying to rebrand it, Medicare part E – be placed into law, there’s a distinct possibility that the private market may dry up. Another untruth the government is pushing is that it’s entrance into the market will offer “choice and competition”. In fact, with the unlimited borrowing power of the US Treasury backing the public option and no requirement to make an profit, there will likely be less competition and at some point no real choice.

A little reality check pertaining to the industry:

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.

Congress v. Insurance Industry

It is pretty tough to characterize an industry making an average 2.2% profit margin as one which is exploiting its customers. As a comparison:

The railroads brought in a 12.6 percent profit margin. Leading the list: network and other communications equipment, at 20.4 percent.

Can anyone point me to the government characterization of those two industries making obscene profits or exploiting their customers? Apparently the government has no plans to take them over – yet.

In fact, the private health insurance industry isn’t at all in the ‘obscene profit’ category and falls more in the “average” category when it comes to comparison to other industries in various sectors:

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.

In this case the devil isn’t in the details, it is instead in the factually incorrect and disingenuous attack of politicians.

[Crossposted at QandO]