Tuesday, February 23, 2010

2009 health care profit-- and the unhealthy stink about it

From Patrick Howington and Laura Ungar in the C-J...

Despite a struggling economy, the nation's five largest health insurance companies increased their profits by a combined 56 percent last year, to $12.2 billion, even as they lost nearly 2 million members.

But as Congress considers health care reforms, those profits and Anthem's premium increases of up to 39 percent for some California members have intensified criticism of the industry....

Industry spokesmen said it's unfair to simply compare 2009 profits with the year before, when the recession was at its worst....

Insurers also said while their 2009 profit gains in raw dollars might seem large, their margin of profit is modest compared to many other industries, including others in the health care sector.

They noted that Fortune magazine's list of the 53 most profitable industries placed health insurance and managed care at No. 35, based on 2008 profits that were 2.2 percent of revenue. That compared with, for example, 19.3 cents profit on each dollar of revenue for pharmaceutical companies and an 8.7 percent profit margin for gas and electric utilities...

If you want to assert and then work to reduce artificially high profits, then you do that by increasing competition. Arguably, the government looks to provide competition, but it is subsidized and thus, could easily be abused. Moreover, there are easier ways to increase competition by decreasing labor and insurance market regulations.

If you want to reduce prices beyond that, you must lower to costs to those providing the service. Current reform efforts only exacerbate this problem.


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