Bryan Clapper: Why is profit in healthcare bad?

Published 3:31 pm Friday, August 14, 2009

bryanOne of the driving forces behind the healthcare reform that President Obama’s administration is pushing seems to be an all-out assault on “big profits.” The thinking seems to be along the lines of, “If we remove big profits from the game, the cost of healthcare will go down.”

Insurance companies make huge profits, right? They get rich off the premiums most of us and our employers pay, right? If you believe the president, health insurance executives are sitting back, laughing and counting their $100 bills while denying cancer treatment for 10-year-olds.

“Insurance companies are already really profitable,” the president said during a virtual town hall meeting July 28. And every speech he gives recently references the idea that people who are resisting reform are doing so because they’re profiting from the status quo.

So take a guess: How big are health insurance companies’ profit margins? Would you guess 25 percent, like the beer brewing industry? How about 20 percent, like the internet retail industry? Fifteen percent, like the agricultural chemicals industry? Ten percent, like “Big Oil?” Would you be willing to guess as low as 3.75 percent, the industry profit margin for grocery stores?

You’d have to lower your guess all the way down to 3.4 percent – that’s the profit margin that the healthcare insurance industry managed in the last 12 months. Especially for a recession-proof industry like healthcare, that’s anemic.

Pretend that you’re a healthcare company and I’m your entire customer base. Give me $96.60 and a year from now I’ll give you $100 back. In the meantime, you could have put that money into a savings account for a year and made almost as much.

Obviously, health insurers work on a much larger scale, so the dollar amount of their profit sounds huge. That’s why politicians will rail against a company’s – UnitedHealth Group, for example, with its 4.14 percent profit margin – $6 billion in profits on $82 billion in revenue, rather than pointing out that UnitedHealth Group SPENT $76 billion to employ 75,000 people and serve 70 million people. Think you’ll ever hear a politician screaming for healthcare reform say, “Look at this greedy company, they made four cents on the dollar and only served 70 million Americans?”

It’s not the hospitals that are “getting rich” off of healthcare, either. The hospital industry in the last 12 months had a profit margin of negative 4 percent. Even Tenet Healthcare, one of the best-performing publicly traded hospital companies, only squeaked out a 6.92 percent profit margin.

The only segment in the healthcare sector whose profit margins are actually impressive are major drug companies, with an industry profit margin of 16.4 percent. That’s still a weak profit margin compared to many industries in non-recession years. For the record, if you want to make money off of something people ingest, make cigarettes instead; that industry squeezes past major drug companies with a 17.4 percent profit margin.

This notion that profit is somehow bad is one of the biggest problems plaguing our society. Profit is the only true long-term motivating factor for anything outside of survival. Apparently most politicians in our current administration don’t understand this reality.
People don’t start restaurants only because they like to cook; they do it to turn a profit. Waste management companies don’t pick up your trash out of the kindness of their hearts. Automakers don’t just make cars so that they can employ tens of thousands of people (although these days many car manufacturers have forgotten what profit feels like).

Once healthcare “reform” has stripped out all profit from private insurers, there will be no reason for them to provide coverage, and eventually the government will be the only provider left.

If you think that’s a good thing, ask anyone who is cared for through the Veteran’s Affairs system, where appealing a decision takes 645 days, according to the system’s own web site. Or ask the tens of thousands of Canadians who seek medical treatment in the United States – at least 15 companies exist in that country with the sole purpose of organizing travel for people seeking medical treatment elsewhere. And, yes, those 15 companies operate for profit.

Bryan Clapper is the general manager of Leader Publications. He can be reached at