Health Insurance Carrier Profits

In my last post, I explained the Minimum Loss Ratio (“MLR”) requirement.  Today I am going to revisit the topic of “health insurance carrier profits” as, again, this seems to be an issue that is wildly misunderstood (even before the MLR came into play) and I think it is worth doing some more client education on the subject matter. Once again, the biggest disconnect between the “healthcare utilizing public” and the facts is that people do not seem to comprehend the cost of healthcare.  People do not seem to understand or make the connection that health insurance premiums are expensive because THE UNDERLYING COST OF HEALTHCARE IS EXPENSIVE and it is getting more expensive everyday (new treatments, new medications coming to market, new technologies and our aging population–just to name a few).  Since many plans have copays ranging from $20-$50 for doctor office visits (or Rx), people seem to think that equates to the cost of the visit but that is not the case.  The insurance carrier is paying many multiples of the copay even after you have paid your “copay”.  Since the average insured consumer usually has little idea what healthcare costs, the assumption is that because premiums are so expensive, the carriers must be wildly profitable.  Large premiums=large profits.  Although I cannot argue that premiums are quite high (and rising), I would like to dispel the myth of large profits.  Truthfully, according to Fortune Magazine in 2009, “Health Care: Insurance and Managed Care” ranked 35th on the list of profitable industries (Top industries: Most profitable), and the level of profit was only 2.2% margin.  Note that is well behind “Pharmaceuticals” (ranked 3rd at 19.3%), “Medical Products and Equipment” (ranked 4th at 16.3%) even behind “Health Care:  Medical Facilities” themselves (ranked 34th at 3.4%).  The products available in the marketplace also are indicative of this fact because the margins are so thin, many companies simply cannot make money and thus have left the market–and because the margins are so thin, no carriers are entering the market to replace them!  If an industry was super profitable, wouldn’t you think that companies would be flocking to it in order to reap the profits?  At the beginning of 2009, Illinois lost one of its largest insurers–UniCare–and since the legislation has passed, at least three of the longest term players have exited the health insurance market (The Principal®, Guardian, and Pekin).  So the next time the conversation comes up about “the profit taking insurance companies”, hopefully you will be able to shed some light on the realities versus the myths.

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