America’s Health Insurance Plans (AHIP) — the lobbying arm of the insurance industry — maintains that “for every dollar spent on health care in America, approximately 1 penny goes to health plans’ profits.” The group’s health care reform website offers the helpful visual of a subdivided dollar bill: “Fact Check: Setting the Record Straight on Health Plans’ Profits,” one blog post exclaims. Only one one-hundredth of the premium dollar is pocketed by the insurer, the rest is spent on providing medical care.
But as NPR’s All Things Considered points out the group’s “fact check” is itself misleading, since insurers are measuring their profits against total health care spending, not company revenues. “All that statement says is, if you eliminated all our [insurance company] profits, national health spending in America would be 1 percent lower. It has meaning only in that context,” health care economist Uwe Reinhardt explains. Within the context of companies’ revenues, insurers skim off 15-20 percent of premium dollars for administrative costs and profits. In fact, an examination of insurers’ medical loss ratio — the fraction of revenue from a plan’s premiums that goes to pay for medical services– suggests that within the last 10 years, insurers have been spending less on medical care and more on administrative costs or profits:
Moreover, a report by Families USA found that “insurers in the individual market sometimes maintain medical loss ratios of only 60%, retaining 40% of premium dollars for administration, marketing and profit.” “For the 10 biggest insurers in the year 2006 (the year the insurers used for the 1 cent out of every dollar depiction above), profits were anywhere from 2 to 10 percent, or two to 10 pennies on the dollar. That’s two to 10 times as much as what the insurance industry group suggests in its illustrations.”
The top five earning insurance companies averaged profits of $1.56 billion in 2008 and reported spending an average of “more than 18 percent of their revenues on marketing, administration, and profits.” That year, CEO compensation for these companies ranged from $3 million to $24 million.” Below is a partial list of insurer/CEO profits:
|Insurer:||Company Profits:||CEO Total Compensation:||CEO 5 Year Compensation:|
CEO compensation seems to be decreasing, if ever so slightly. A survey by Modern Healthcare “of compensation for the health care CEOs” failed — for the first time in seven years — to turn up a healthcare CEO who raked in more than $15 million in compensation last year.” The performance of the stock market in 2008 was a big reason that the compensation of the 30 CEOs covered by the survey was relatively low, Kaiser Health News noted. But the “relative down year” for these executives “probably won’t generate much empathy” for them because “the median compensation… was still a bit more than $4 million. Moreover, as the detailed disclosures on executive pay required by the U.S. Securities and Exchange Commission show, every CEO has stock options that could be worth millions as the equity markets recover.”
Despite lower than expected profits, insurers are not holding back. The industry already set records from January to March, “when health-care firms and their lobbyists spent money at the rate of $1.4 million a day” on campaigns designed to influence the health care reform legislation now moving through Congress.