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The truth about health insurance profit margins

Posted by Richard on March 16, 2010

As the President continues, in speech after speech, to demonize the health insurance industry as greedy exploiters of consumers raking in inordinate profits, it seems like a good time to look at the actual data, which refute such demagoguery.

Dr. Mark J. Perry did exactly that last month in a Carpe Diem post. He found that the Health Care Plan industry ranked 88th out of 215 industries, with a profit margin of 3.4% (and even that was inflated by one outlier, Wellpoint, due to a one-time surge in profits from the sale of a division).

Perry did the heavy mathematical lifting of calculating just what that profit margin means for the typical consumer (emphasis added): 

America's Health Insurance Plans (AHIP), the industry's trade association representing 1,300 members, reported last October that annual health insurance premiums averaged $2,985 for individual coverage and $6,328 for family plans in 2009. Using the industry average profit margin of 3.4% means that insurance companies make about $100 per policy in profits for individual coverage, and a little more than $200 in profits for each family policy.

So even if we could strip away 100% of the health insurance industry's profits, it would only save patients between $100 and 200 per year in health insurance costs.

Wow. $100 to $200 per year. So if the government take-over of health care is enacted and completely wipes out the private health care insurance industry (and make no mistake, that will be the long-term consequence), it might save each of us $100 to $200 per year. But only if a bunch of government bureaucrats can deliver the same quality of service with no increase in overhead or decrease in efficiency. 

If you believe that will happen, you're not familiar with the Postal Service. Or the Social Security Administration. Or the Veterans Administration. Or the Department of Education. Or the DMV. Or …

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