Good day, family and friends!
Lets continue our look at the costs associated with healthcare insurance...
Thanks to knee-jerk reactions by both the courts and the insurance companies to the actions of a handful of miscreants, modern healthcare insurance policies are engorged with fine print designed to severely limit what the policy covers while balancing the need to provide a value to the customer with that of making a profit for the company's shareholders. Unfortunately, all this fine print creates a burden on everyone...from the customers who have to track what is and isn't covered, to the medical providers who have the additional cost of hiring dedicated specialists to handle the jungle (excuse me...'rain forest') of policies and paperwork created by the fine print, to the insurance companies themselves who are also saddled with the costs of having entire departments dedicated to handling the paperwork and interpreting the policies created by the fine print. Depending on which study you read, between 14% and 32% of the cost of healthcare are the administrative costs associated with the fine print.
Believe me, if the insurance companies thought it would be safe to operate without the fine print and its concomitant costs, they would scrap it in a heartbeat. After all, as with any publicly-traded company, they have a duty to those investors who hold shares of the company's stock to be as efficient and profitable as possible. And do you honestly believe that doctors enjoy spending any part of the capital of their practice on the clerical necessities of insurance claims?
It will probably surprise most of you that the premiums paid for insurance policies make up only a portion of an insurance company's capital. The rest of it comes from the sale of stock in the company and from investments the company makes with its capital on hand. This is why making certain the shareholders get some sort of return on their investment is so important. If the company makes no profit, there are no dividends for the stockholders. If there are no dividends, there will be no new stockholders and existing ones will begin to divest themselves of their shares. The end result is that, without the working capital provided by investors, the insurance companies will go out of business.
This is the point where I expect to hear politicians and progressives start whining about "the obscene profits insurance companies make on the suffering of the American public." How does one define "obscene profit"? Currently, there are just over 1,300 insurance companies operating in the United States that offer some sort of healthcare policy. The average profit for all of these companies in 2008 was 2.2%.
*GASP!* How obscene!
It gets even worse. The 16 largest insurance companies that account for right at 80% of the net worth of the insurance industry averaged a whopping 3.4% profit, with the single highest profit in the healthcare insurance industry for 2009 being (drumroll, please) 4.6%.
O! The Humanity! Say it isn't so!
Let's compare that to the average profit margin of...oooh, let's say...professional politicians. These fine, upstanding, selfless individuals make a profit of 100%. Or how about that planetary champion of the climate, Al Gore. His projected profit for 2009 for his 'humanitarian' efforts to fight 'global climate change' is 290%. If the 'Cap and Trade' Bill is signed and put into effect in the next 6 months, then Vice President Gore stands to make a profit of nearly 500% in 2010.
So, which profits are the most obscene?
Next time: Insurance Fraud and special interest legislation...litigation's ugly stepsisters.
Until then, best regards...
© James P. Rice 2009
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