Recently a friend sent me a link to an article regarding Kathleen Sebelius, the secretary of health and human services, who fired off a sharply worded letter to Anthem, a California healthcare insurer, who went up on their rates by as much as 39% for individual policyholders. The increases, according to Anthem, were risen to cover rising health-care costs. Of course the policyholders were livid, and, of course, Sebelius used this as an opportunity to flagellate the insurance industry for raising premiums while their profits have been “soaring.” But let’s think for a moment before we proclaim that insurance companies are profiting at the expense of the insured. Insurance companies offer a service that people choose to buy, even though they may feel it is a necessity. One can always pay out of pocket, yet when given the choice of paying out of pocket versus paying for insurance, most choose the latter because it is far less expensive. This leads to my second point, which is the fact that much of the anger is directed towards the insurance companies instead of the actual providers that are the source of the high costs that insurers must pay on behalf of the insured. So the anger, in my mind, seems wholly lopsided. Now I’m no shill for the insurance companies, and have my own issues with them, but I can’t lay all of the blame for the problems of healthcare at their feet.
WellPoint is the parent of Anthem, whose profits Sebelius took issue with. As I reported in a previous blog, the average profit of healthcare insurers is 3.3%. So there is no such thing as "soaring" profits when you don’t make much profit in the first place. In 2009, WellPoint made $61 billion in revenues, but only had a net profit of $4.7 billion, as reported in Business Week. That’s a 7.7% profit. Sales have been flat, but they have been able to grow profits by cost cutting. Now to make a comparison, Microsoft makes about 25% in net profits (on about the same total revenue), and Coca-Cola about 27%. So why is it that Sebelius takes issue with WellPoint when their profits pale in comparison to most other companies, and in a high risk business at that? It seems to me that if Sebelius really wanted to lower costs, she would work to increase competition in the insurance industry (and not just add one more competitor, the government), and do something about medical tort reform. But apparently, that is not on President Obama’s agenda or hers. Yet they have the support of some well-meaning Hollywood celebrities clamoring for universal healthcare that they would find some way to circumvent anyway.
I continue to ask the question why won’t someone like Oprah or some “A-list” celebrity, with massive wealth that dwarfs that of any insurance company executive, start a non-profit insurance company? It is very easy to collect big bucks as long as you’re not in an industry where everyone thinks you’re making too much money even when you’re not. I don’t think anyone who has gone into the insurance industry have motivations any different than someone who goes into the entertainment industry. But someone in the entertainment industry can be as greedy as they want to be (and I’m not saying that about Oprah), yet lob all manner of bombs at the insurance and oil industries from the relative safety of an industry that is not considered a "must have,” though many can’t seem to get enough of it. An enviable position for sure. Unlike Oprah, who has to make a payroll, others in the entertainment industry who have every negative thing to say about capitalism made their money through the capitalist system. They show up on a set, work for a few months out of the year, and are responsible for nothing other than a great performance. Yet they walk away with millions, and spend the remainder of the year preparing for the next red carpet. Now that’s what I call soaring profits.
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