Is it Really the Insurers

I am fortunate enough (I say that because although I sometimes disagree with him, but always think he’s brilliant) to know a man who retired as a high ranking executive in an insurance company. Every once in a while, I get a fact-laden email from him to his friends telling us not to blame the insurance companies. I reprint it here, because I trust his command of the facts, and it tells me how complicated the whole issue of health care reform truly is. I don’t agree with much of what he says, but those unruly facts can’t be disputed. The part in italics is italicized because I think it’s the heart of the issue. We can’t have tax cuts and universal insurance.

You, the loyal audience, get to decide how we fix this. But here are the facts, ma’am, just the facts:

Health insurance companies are not making a fortune. The big 4 (United Healthcare, Aetna, Cigna, and Wellpoint) earned $7.8 billion in the latest 12 months. That is less than 4/10 of 1% of health care spending in the US. So, even if we destroy all the health insurers, we will save only about 1%.

As for executive salaries, insurance companies don’t pay like Goldman Sachs. The top 5 at Aetna made $9 million last year. Suppose options tripled that to $27 million, although the stocks of the health insurers have not done well. The pay at the others is in the same ball park, so let’s say the big 4 pay their top guys $100 million. I don’t know the market share of those 4 companies, but let’s say it is 20%, implying that the entire senior executive corps of the health insurance industry makes $500 million. That is 2/100 of health care spending. Even if we made them all slaves, it wouldn’t save enough to show up as a rounding error.

Ask yourself, Mr. President, and Madam Speaker, why do you think insurance companies raise their premiums so much and deny coverage and claims that you all talk so much about? Actually, they hate doing that. They are painfully aware of their unpopularity. The reason is to keep their losses under control.

What the President and Congress and the American people want is universal coverage of everything at low (or no) cost and with all claims paid, without exception. With a “public option” to buy insurance from the government, that is exactly what they would get. Losses would not be under control and fraud (as with Medicare and Medicaid) would run rampant. The only attempts to stay solvent would come at the expense of doctors and providers.

Everyone loves Medicare. But Medicare is BANKRUPT. Big time. It’s deficit represents a claim of hundreds of thousands of dollars on every single family in the US. If we add another 40 million uninsured that will add roughly $2,000 a year to the tax bill of every American family. And since Congress will pretend it doesn’t cost anything, the Medicare bankruptcy will rise.

Let’s put the blame where it belongs: (1) on the American people who believe that they really can have something for nothing, and (2) on Congress who believes they can make dreams come true.

But don’t blame the insurance companies. The Big 4 insurance companies collected $197 billion last year and earned less than $8 billion (4%), for a return on equity of 14%. By contrast, the Big 5 pharmaceutical companies earned $32 billion on only $178 billion (18%) in revenues for a 28% return on equity. How about eliminating all those ridiculous ads that show geriatrics engaging in orgies and letting Medicare negotiate prices? That would save more than killing off the insurance companies.