What Does Pelosi Define as "Immoral" Profits? Greater than Zero?
Nancy Pelosi said this the other day (emphasis added)
I'm very pleased that our Chair of our Democratic Congressional Campaign Committee and member of the leadership will be talking too about the immoral profits being made by the insurance industry and how those profits have increased in the Bush years. We all believe in the profit motive; we all want to reward success. But having that success come at the expense of America's working families "” have that success come by withholding care, when a person becomes ill, is just not right and we're going to take this issue in a new direction.
In the past, other leftish pundits have been even more direct:
It means the health insurance industry is scared that we might actually do something in 2009 and they want to be seen as something other than completely obstructionist. That means only one thing: they've shown fear, and now it's time to bore in for the kill and gut them like trouts. Let's get to it.
I don't have time to redo the analysis, but for the third quarter 2008 (the last quarter of the dreaded Bush years that increased insurance profits so much) I looked up on Google Finance the profit margins of major health care insurers, providers, and HMO's. I am not sure who the Democrats would consider the real Satan of health insurance (ala ExxonMobil or Wal-Mart) but if I left a key company off you are welcome to suggest it in the comments. Anyway, 3Q08 profit margins were:
Cigna: 3.50%
United Health Group: 4.56%
Aetna: 3.64%
WellCare: 4.08%
Amerigroup: 3.51%
Humana 2.56%
WellPoint: 5.49%
So, if you are a business owner (and that includes those of you who own equities, which are ownership shares), be very afraid. Look at your company or your favorite stockholding. If they have margins of 2.5% or more of revenues (and that includes just about every profitable company in America -- I think the industrial average is in the eights) then Nancy Pelosi and the Democrats consider your profits immorally high and they intend to gut you like a trout.
Update: OK, I had a bit of time to update numbers, so I took Cigna, which is the first on the list, and looked at their net profit margin over 4 years:
2005: 7.6%
2006: 7.0%
2007: 6.4%
2008: 1.5%
Hmm, not sure I see the profits increasing in the Bush years -- looks like they are going down to me. I would also observe that they never in the last four years even rise to average for a large American public company.
tomw:
Does Kaiser Permanente belong in this group?
tomw
July 28, 2009, 10:52 amSean:
Also, Also, Also
These profit ratios are based on TOTAL revenues. Total revenues includes both premiums for customers as well as investment income.
People often get angry that only ~70% of insurance revenues actually go into healthcare. The rest is siphoned off in salaries and other opex. This is why you hear complaints of the industry so much. However, usually close to ~90% of insurance premiums go directly to healthcare. This is the ratio that people need to pay attention to. Almost nobody acknowledges that these companies are one half healthcare rationing and one half investing.
July 28, 2009, 11:07 amChris:
My favorite game to play with liberals:
Tell them that the CEO of Cigna (or Aetna or whomever) is planning to run for President in 2012, and that he says he's not going to give up his CEO job while he runs, and probably will try to keep it even if he gets elected.
After they express horror at a the idea of the head of an insurance company running the government, ask them this: If it is bad to be running the government and the largest health insurance company at the same time, does it make any difference in what order the jobs were obtained?
July 28, 2009, 11:25 amMethinks:
I'm willing to believe that insurance companies are earning excess returns...
....because state regulators have lots of nice regulatory barriers to entry to insulate insurers from competition.
If Nancy Pelosi is so pissed off about these economic rents, she should deregulate the industry and force them to compete to death.
But excess returns don't bother her (she can't even understand most of what she reads in the comics). This issue is the Core Democrats' (i.e. Socialists) Reichstag fire. Control over you ability to obtain health care for your family is basically control over life and death. Imagine what that kind of power is worth to a politician!!
July 28, 2009, 11:30 amElliot:
This reprises one of my favorite nonsense terms, like settled science, that is the term "Excess Profits". Returns or profits are never excessive in any economy, but only when they are being judged by socialists, students and other children who have never worked for a living.
Whatever happened to the best five words of the constitution; Congress shall pass no law?
E
July 28, 2009, 12:47 pmilovebenefits:
Perception becomes reality. If they say it long enough and no one challenges the facts, it becomes the public reality. Keep exposing the facts no matter what position they expose. That's the basis of credibility. Follow the healthcare debate at http://www.ilovebenefits.wordpress.com
July 28, 2009, 3:21 pmDr. T:
This health care bill started with the idea of creating a federal health insurance plan that would be available to uninsured not-quite-poor people (with reduced premiums) and to anyone else who wanted this tax-payer supported boondoggle instead of a private insurer.
Within weeks, the announced Democratic agenda is to eliminate all private health care insurers. "No, we're not Socialists, we just think it's unfair for those insurers to profit from your pain."
The only 'good' thing is that Democrats are fighting among themselves about who gets the biggest slice of pork from the nationalization of health insurance. But, the infighting probably will end soon after the August recess, and yet another sector of the economy will be under government control.
July 28, 2009, 4:24 pmtomw:
OT. If she moans and gripes about the mean insurance companies making too much profit, she should surely be mad at BigOil making all those obscene profits. Oh, wait, they pay more in tax to Uncle Sam than they make in profit. Perhaps she should give back some of the Government 'profit' from the works of other, no?
Sure.
July 28, 2009, 4:46 pmtom
Mesa Econoguy:
I find everything Nancy Pelosi says to be immoral, so let’s apply the same standard to her, take away her government jet, offices, staff, and various other accoutrements.
Then let’s take it one step further, preventing her from abusing anyone else by imprisoning her.
July 28, 2009, 5:00 pmSBABG.org:
There's another, better way to get those "obscene" profit margins down. Pay out bigger bonuses to executives!
July 29, 2009, 10:35 amNancy Pelosi:
@Sbabg.org Not so fast on those executive bonuses. We're going to do away with those, too.
July 29, 2009, 12:27 pmJohn Moore:
What IS immoral is the outrageous salaries and bonuses their executives (like executives of most big countries in the US) pay to themselves.
Of course, the "victims" in this case are as much the stockholders as the customers. It's an agency problem that we need to address somehow.
The idea that an executive is worth $100,000,000 for a couple of years work is just not supportable. Unlike an actor, who may earn an equivalent and totally undeserved amount, the executive is replaceable (while the actor is a "brand" and the brand is worth a lot).
July 29, 2009, 8:26 pmPino:
Correct me if I am wrong, but what free market folks want in respect to "profit" is not so much a guy getting what he deserves, but rather that profit acts as the single best indicator of how best to allocate scarce resources.
If we don't allocate via profit, then we allocate via..., via...what? Politics? Regulators ala Soviet Russia and food?
Right?
July 30, 2009, 7:36 amAnother guy named Dan:
Seems about right to me. The health insurance business is a heavily regulated industry with fairly large barriers to entry, in the form of the establishment of a provider network and claims processing system, and the size of the market is largely fixed and controlled by forces outside of the control of the companies.
The government regulations and mandates are going to ensure that every policy is going to cover essentially the same set of services, and the ubiquity of computerization is going to make the claims processing systems similar in terms of efficiency. this leads to two major factors: high marketing costs to attempt to differentiate your product, and generally low profits, as the only way to compete is on price
July 30, 2009, 8:04 amTomB:
I calculated the annual margins for health care companies a month or two back:
http://unintendedeconomist.blogspot.com/2009/06/health-care-company-margins.html
I did the past 5 years for Humana, Cigna, Aetna, United Health, Wellpoint, and Coventry.
August 1, 2009, 8:09 amHondo:
Any word from Nancy Pelosi on whether Microsoft's profits are immoral or obscene?
August 4, 2009, 1:23 pmsmall business owner:
you all just hate Pelosi and the Democrats. Forget about her 'comment'. The important point is this country needs an answer to health care.
49 million Americans do not have health care. The US spends 16% of our Gross Domestic Product on health care versus 10% in Canada. Something is wrong with our system.
What is your answer?
August 6, 2009, 3:52 pmartemis fowl:
Small Business Owner:
If you remove cars and homicides, we also have a longer life expectancy. So I guess the problem with our system is that we keep people alive.
% of GDP expenditure is about the most useless measure I can think of for determining where we stand with healthcare.
August 12, 2009, 4:38 pm