Corrections And More

After the last post, I attended a town hall and engaged a retired gentleman who had worked as a salesman for a health insurance company. He told me there was no way insurance companies were making 25% profit. He was right. The 25% to 30% number listed on Wikipedia is gross profit, which includes losses due to cost of goods, but, if I understand correctly, does not include the cost of services (wages to employees). In another blog ( http://www.lockergnome.com/swordofdestiny/2009/08/13/are-these-evil-for-profit-health-insurance-companies-really-so-evil/ ), the profits after paying employees and other expenses are accounted for, showing that health insurance companies, at least the ones listed, make more like 2% to 4% net profit on their revenue. So for every $100 they bring in, they make $2 to $4. As the blog points out, plenty of other well known companies make much more than that. The numbers are confirmed at another site: http://the-american-catholic.com/2009/08/03/excessive-health-care-profits/

The blog above does point out that the drug companies are making between 16% and 26% net profits. This is a huge amount of profit and is therefore a group that I would say is getting preferential treatment. The document from which Wikipedia gets its estimates of how the health care dollars are spent, http://www.phrma.org/files/PhRMA_annualreportFianl.pdf, shows Rx Drugs getting 10% of the health care budget. If 25% of that is profit, then the profit made by the pharmaceutical companies can be estimated as:

0.1($2.26 trillion)(0.25) = $56.5 billion.

If the rest of the health care industry were making 3% profit, we can estimate the net profits for them at:

0.9($2.26 trillion)(0.03) = $61 billion.

From which we see that, if these assumptions are correct, the pharmaceutical companies ARE MAKING ALMOST AS MUCH NET PROFIT AS THE REST OF THE INDUSTRY!

So, the total net profits of the industry are far less than the $565 billion I calculated in my first post. And I would say that the 3% net profit being made by the industry, barring pharmaceutical companies, is not what I would call a greedy amount.

But, and there is a but, at what cost profit? If insurance companies were acting in good faith and providing a fair service while making this profit, I would be grateful they are willing to work so hard to provide such a vital service at such a low return. But there are a few weaknesses in health insurance in the U.S.: pre-existing condition clauses, and the rleated recission activity.

Let's say you had knee surgery while working at your current job, and you want to take a new job. The new employer is offering great insurance, but they will not cover anything to do with your knee injury. So, if there's a complication from the previous surgery, or even a new problem with your knee, you get to pay for all medical help.

Recission is related. It's the practice of canceling someone's insurance for failing to disclose some medical information. Please, please have a look at the short article in Mother Jones listing a few of the sickening examples of people whose health care insurers dropped them when they most needed it for horribly weak reasons:

http://www.motherjones.com/kevin-drum/2009/06/healthcare-ceos-shoot-themselves-foot

So, now that I understand the margins on health care profits are small, I also understand why they have some distasteful practices that leave people who have payed for their health care for years hanging out to dry when they finally need care. And then we can all begin to understand why having a for profit health care insurer between us and our doctors is the last thing we should want!

Unfortunately, there is no silver bullet that the government can load in the chamber to solve the skyrocketing costs of health care. The congressional budget office (CBO) performed an independent analysis for the Obama administration, making many assumptions that are preliminary, but that I would call the most trustworthy analysis of the government option overall cost. The cost they estimated over the next ten years is $100 billion a year. This certainly doesn't help sell the government option as a cost reduction. The challenge, then, is to sell an expansion of health care, in terms of covering everyone, while not breaking the federal budget. Since end of life care eats up a great deal of the health care budget, there is a fear that the government plan will limit the options for people near the end of life. There are studies showing that many of the tests and treatments given to the elderly near the end of life do little to prolong their lives. So, understandably, people are worried this group will be targeted to save costs.

Having read the CBO report and also having realized my mistake in understanding the health care profit margins, I understand now that (go figure), this is a complex issue. If the government plan comes in to effect, we are very likely to see deficit spending increase.

But, you know, I never hear the conservatives saying, "Until we can bring deficit spending go to zero, we need to stop spending money on defense." In fact, the same person who told me at a town hall meeting recently that poor people will just have to suffer if they can't afford health care, also told me she believed we need to increase defense spending. Her arguments are to my mind indefensible!

The good news this week, though, is that the lies about death panels that were dominating the landscape have been thoroughly debunked. Sarah Palin and those who supported her B.S. claims, such as Newt Gingrich (among the most surprising backers), have lost a great deal of credibility. At least on ABC, where I saw Newt taken to task for trying to continue the lies. I don't know what's happening on Fox news, as I would risk destroying my television if I watched their lies at home...