Obscene Profits

In any hotly contested debate, it is often difficult to separate the rhetoric from the facts. House Speaker Nancy Pelosi has decried the “obscene profits” of the insurance industry. How obscene are those profits?

Profits are, in fact, obscene – obscenely low, that is. On average, health insurers posted a 2.2% profit margin in 2008. Stodgy railroads made 5 times the profit margins that the health insurance companies did. In a good year, health insurance companies have not made more than 8%.

So why do health insurance premiums continue to rise by 7 – 8% each year, far above the average 3% rise in the Consumer Price Index? Because the insurance companies continue to pay out ever increasing amounts of money to health care providers. Some of that additional money is due to increased tests, more care, and an aging population but some is – dare I say it – fraud?

A doctor who works for a large health organization was recently admitted to an affiliated hospital for several days to have her baby. Familiar with the cryptic billing codes, this doctor noticed many discrepancies between the care she actually received and the care that was billed to her employer. As one example, a “hello, how are you doing” visit from her physician that lasted less than a minute was billed as a 15 – 20 minute check up. Therapies were billed but not received. Over the counter medication was billed at a 100+ times of the retail price. This was not a tale of Medicare fraud but of one member health provider gouging the group it belonged to, an indication that the practice might be both systemic and widespread. How many billions of dollars are “greased” from the system each year?