Healthcare

To fix healthcare in America, we have to start with the profits

A study of publicly available financial statements for several health insurers shows that they are taking roughly 30% profit.

Medicare operates on a much debated 4% margin. Detractors say that since so many beneficiaries are receiving end-of-life care, the costs are higher so the percentage consumed by overhead appears lower. To me, that's a great argument for a single-payer system since it reduces the average cost per beneficiary since more would be younger and healthier. If private insurance worked that way, we’d save hundreds of billions of dollars per year.

Don’t believe me? Check the financials yourself: Here are the ticker symbols I used: LOW, CVH, AET, UNH, CI, HNT, HUM, PFG, AFL.

Healthcare delivery operates the same way but profits at hospital management corporations are even larger, near 40%. Here are the ticker symbols I used: HCA, CYH, THC, UHS, AGP, WCG, VHS, HMA, MOH, LPNT, TMH, MD, HWAY, IPCM, HMSY.

I’m not saying that doctors, nurses and other healthcare workers are overpaid. To the contrary, their contributions to society outweigh their compensation.

In addition, many hospitals are non-profits.

However, the potential upside of a 40% reduction in Medicare and Medicaid expenditures (Part A - hospital charges) is HUGE at all levels of government: roughly $400 billion/year at the federal level alone.

In fact, since  Medicare Advantage plans cover about 20% of all Medicare beneficiaries, and these plans are effectively subsidies to private insurers, there's another 7% reduction on the table if profiteering is banned. Further, in 2006 enrollees in Medicare Advantage Private Fee-for-Service plans were offered a net extra benefit value (the value of the additional benefits minus any additional premium) of $55.92 a month more than the traditional Medicare benefit package; enrollees in other Medicare Advantage plans were offered a net extra benefit value of $71.22 a month more. This puts even more on the table since Medicare itself is only $100 per month and the program pays out $155.92 to $171.22 per month to the private insurers. This looks to me like a direct 30-35% subsidy for insurance company profits!

In addition, while writing  my post on Public Employee Pensions, I discovered that federal employees' health insurance plans (more than 200 of them!) are all offered through private insurers to the tune of $47 billion per year cost to taxpayers, $15 billion is profit. This has to be about the most idiotic thing I've ever learned about government finance.

This doesn't include the 30% savings on health insurance premiums for the rest of America. This will increase employment and boost tax revenues: win-win.

The insurance companies can still make their shareholders rich with all of the other types of insurance: life, homeowners, disability, auto, just to name a few.

I don’t fault the drug companies: they pay to invent drugs and as entrepreneurs they deserve their compensation. I just wish they’d stop advertising (that goes for lawyers too, but I digress).

Obamacare has the beginnings of a fix with the Medical Loss Ratio (MLR) provision of the law but much more can be done. A fair health care insurance law would enforce an MLR on both insurance and delivery.

Speaking of MLR, since insurers raked in 30% of more than $1 trillion in premiums, why were the rebates only $1.1 billion instead of $30 billion? We all know that congress is mathematically challenged but this is blatantly obvious.

To summarize, the profiteering on healthcare is unconscionable and is costing the US economy trillions of dollars.