As a medical practitioner, I can’t really say that I like health insurance companies very much. In their dealings with doctors and hospitals, insurance companies often seem arbitrary, stingy and inflexible. As a doctor, I’m generally not the first person in line to defend insurers or their dealings.
Based on recent rhetoric from Capitol Hill and the White House, it seems that politicians don’t like health insurance companies much, either. Insurers are often blamed for denying coverage, charging too much for premiums, and making exorbitant profits. According to President Obama, insurance companies need to be “kept honest” by any health care plan that is passed by the federal government. President Obama has repeatedly asserted that we need to make insurance companies more “competitive” by creating a governmental health insurance plan, which will force insurers to provide adequate coverage and to keep premiums in check by virtue of having to compete with a federal plan.
But, as often happens in the health care debate, a close examination of the facts shows that this reasoning is very flawed. The largest insurers in the US include companies like Aetna, CIGNA, Wellpoint/Anthem, Humana, UnitedHealth Group, and Coventry, among others. Between these companies, they cover a large fraction of Americans who currently have private health insurance. If we add up the profits of all of these firms, we find that they made, in toto, somewhat less than $10 billion in 2008. Most of these insurers quoted profit margins of roughly 6-8%.
Ten billion dollars in profits is a big number. But it pales in comparison to the roughly $500 billion that Medicare will spend this year to care for elderly and disabled people. It’s also paltry compared to the $2.4 trillion in total health care expenditures in the US last year. In fact, private insurers’ profit of 10 billion dollars is only 0.4 percent of the total health care bill for last year.
These financial facts mean that if we were to turn all of the health insurance companies in America into non-profit entities, and funnel all of their profits back into the health care system, then we would recoup less than 1% of the total health care bill. Private insurance profits are such a small piece of the total health care pie, that it’s just not possible that these sums are bankrupting American health care. The numbers just don’t add up.
Because insurers’ profits are such a small piece of the puzzle, it’s interesting to consider the Democrats’ strategy on health insurance. President Obama repeatedly asserts that we need to keep insurers “honest”, and force them to reduce premiums and provide broader coverage in competition with a more affordable, federal plan. The subtext here is that insurance companies are making too much money. But even forcing all of the private health insurers to a point where they made no profits at all would still not impact the bottom line in health care very much. Ten billion dollars is barely a drop in the bucket of American health care.
It is likely that President Obama understands these numbers, which is sobering, because this means that his reasons for providing a low-premium national plan extend well beyond keeping private insurers “honest”. In all likelihood, the goal of providing a low cost (read: subsidized) federal plan is to pull people away from private sector insurance and into a federal insurance system. Pulling tens of millions of patients out of the private insurance market would lead to collapse of the private system. We would be left with single-payor health care, under Washington’s control. Then, the medical care we all receive would be under the stewardship of the federal government. From the point of view of someone trying to exert control over 17% of the nation’s economy, this is Mission Accomplished. And while I don’t like private insurers very much, I like the idea of centralized control over all of health care even less.
Dr. Niklason is a Professor of Anesthesia and Biomedical Engineering at Yale University. She is a world leader in the development of advanced cell therapies for cardiovascular disease.
