Insurance Companies Are Not The Cause Of Rising Premiums, You Are😡

During the health care reform debate there was much vilification of insurance companies and their profits. Much of this was misleading and based on political rhetoric, not fact.

Now that premiums are rising under Obamacare, we are once again into hunting season for the culprit. As expected, it is insurance companies again. No matter that the non-profit (government-funded) co-ops are also asking for hefty increases (or going bankrupt).

The fact is that insurance companies have profit margins no greater and often less than your government regulated electric utility. Their premiums are scrutinized by regulators and their non-claim expenses are limited by law. To the extent their revenue has increased under Obamacare, it is the result of volume. Like a Wal-Mart, your profit on each item may be tiny, but if you sell a zillion of them, you make a lot of money – while the customer benefits.

Below are the financials of Aetna taken from Bloomberg.com  Look at the revenue and the profit margins. Do you see outrageous profits? In fact, the profit margin is about 5%. 

 Proposed premium increases are a direct reflection of health care utilization which is a reflection of the health care needed by the insured population – and the prices charged for each service. Even today you are not seeing an accurate picture of premiums because there are several provisions of Obamacare that are subsidizing premiums and reinsuring the risks for insurance companies during the transition period.

The call for competition is misguided. The competition we need is among health care providers, not insurance companies. There is no competition to hold down prices, meaning the price we pay for health care. Today that comes from a strong insurer able to negotiate prices with the strength of a large volume of patients behind it. Or, it comes from government (Medicare/Medicaid) simply setting the price it will pay, both of which argue for collective regional negotiations on prices rather than a system where different programs set different payments for identical services.

We haven’t fixed our health care system, that’s for sure. Those who call for a government run system or even a public option should realize that the 5% profit margin of private carriers will merely be replaced by the inefficiency of a government bureaucracy which is clearly evident with Medicare. They should also explain that such systems, in one way or another, also ration care… which may be where we are headed in any case.

As you can see from the letter below, the reason for growing health insurance premiums is still widely misunderstood.

Letter to the Editor New York Times 7-8-15

Surveys show that at least 15 percent of us oppose the Affordable Care Act from the left, because it doesn’t go far enough in addressing the dysfunction of American health care financing. Your headline illustrates why.

Rather than addressing the root reasons that Americans pay over twice as much per capita in health care costs as most Europeans, the Affordable Care Act ceded any debate on the health care industry’s ransom demands and simply looked for ways to pay it. Yes, there is funding for small pilot projects looking for cost savings, but in large part the insurers’ sacrosanct profit margins and spending priorities were never allowed to be questioned.

Is it any wonder that insurers’ stock prices shot up when the act was signed into law? Far from being the socialist nightmare portrayed by Republicans, the Affordable Care Act is the epitome of a free-market solution. Open competition was supposed to hold down prices and benefit consumers. But without competition from a truly nonprofit, government-funded option, the act simply feeds the insurance companies’ insatiable appetite for profits.