Marketplace of Ideas Blog

I received this news release in my email last week:

CONGRESSMAN KAGEN STANDS UP TO WALL STREET--AGAIN

Dr. Steve Kagen released the following statement this morning regarding record insurance company profits:

“Outrageous. Wall Street health insurance corporations made record profits this year by laying off their workers and picking the pockets of my patients.”

“Everywhere I go people are saying the same thing: We want our money back from Wall Street. I am working hard to fix our broken health care system and will keep fighting to guarantee access to affordable care for all of us.”

Well. Does Dr. Kagen mean Humana, employer of nearly 4,000 people in Northeast Wisconsin? What about American Medical Security Group? They are both publicly traded companies, so do they fit in Kagen’s blanket condemnation of the companies in which about half of Americans own stock?

For that matter, since Kagen seems to enjoy attacking “Wall Street” businesses, what does Rep. Dr. Kagen feel about Associated Banc-Corp? Or Badger Paper Mills? Or Baylake Corp.? Or Integrys Energy? Or School Specialty Inc.? Or ShopKo Stores? Those too are publicly traded companies based within Kagen’s Eighth Congressional District, all of which are major employers of his constituents.

I know what the answer to this question will be: No, Kagen’s not attacking those companies, only those greedy companies that exceed his concept of properly sized profits. Or something like that.

I suspect Kagen hasn’t done any deeper research before his staff fired off this pseudopopulist news release. Someone else did; consider this analysis of the profits of UnitedHealth Group, AMS’ parent company:

Man! These insurance companies are making such an obscene amount of profits! Let’s have at ‘em boys! Burn ‘em to the ground! We’ll show these brutes what’s coming to them for profiting on our misery! …

Wait a second. That’s all gross profit. Sort of like, when you get your check, you have gross income before all the taxes, social security, etc gets taken out. What we really get in our pocket is our net income. To really see how much these companies make, and their real profit margins we need to use their net profit figure. …

So, let’s plug in our healthcare companies, shall we? …

Unitedhealth Group, Inc. (UNH):
* Revenue: $84.27 Billion
* Profit Margin: 4.14%
* Net Profit: $3,488,778,000

So two of the healthcare insurance companies have broken the billion dollar mark the other makes a quarter billion. Even that is not so obscene in my opinion. Also, keep in mind that this net profit is after everyone has been paid, after corporate taxes, interest payments, etc. This money is used how the company sees fit.

More from NewsBusters, which notes an Associated Press report:

Profits barely exceeded 2 percent of revenues in the latest annual measure. This partly explains why the credit ratings of some of the largest insurers were downgraded to negative from stable heading into this year, as investors were warned of a stagnant if not shrinking market for private plans.

Insurers are an expedient target for leaders who want a government-run plan in the marketplace. Such a public option would force private insurers to trim profits and restrain premiums to compete, the argument goes. This would "keep insurance companies honest," says President Barack Obama.

... Health insurers posted a 2.2 percent profit margin last year, placing them 35th on the Fortune 500 list of top industries. As is typical, other health sectors did much better - drugs and medical products and services were both in the top 10.

... were the Bush years golden ones for health insurers?

Not judging by profit margins, profit growth or returns to shareholders. The industry's overall profits grew only 8.8 percent from 2003 to 2008, and its margins year to year, from 2005 forward, never cracked 8 percent.

… Woodward’s point that taking every penny of profit out of the health insurance industry would do little to lower premiums stands, while Democrats continue to cynically exploit public ignorance about the size of profit margins achieved at companies in general and in the insurance industry in particular.

A comment on NewsBusters takes on Kagen’s views about the evils of health insurance profits:

The truth about Insurance is that like any industry there are good and bad players. Health Insurance, like any form of Insurance, operates under strict guidelines. Rates are determined largely by total number of insured factored with the risks (actuaries determine this) and overhead. Insurance companies make investments with a large portion of premiums paid and hold a fixed percentage of assets in reserve that percentage being fixed by state regulators. The difference in rates between Insurance companies are then caused by how well the Insurance companies can control overhead costs and manage the risk pool.

Once the new Health Care gets passed the ability of Insurance companies to manage thier risk pools will be taken away which will lead to higher costs at the same time a Govt. Option if included will offer unfair competion at lower costs.

Perhaps a Govt Option for pre-existing conditions could be set up, I do not know, as the Govt. has no track record of effective management. The idea of putting all of these individuals in special risk pools similar to the way auto insurance is done sounds good but the rates would be unaffrodable to all but the wealthier segments of our population.

The demonization of the Insurance Industry is just cover for being able to get the Govt. to take over the whole thing. No real measures in the Govt. Health Care Bill really addresses costs which have continued to rise. Tort reform when only looking at Malpractice Insurance claims cannot address this issue. We also need to look at product liability law which is the real hidden reason behind the higher costs of everything used in medicine. This would require a change in the way we view everything. We can still hold manufacturers responsible for producing quality products but we should never hold them responsible for someone who uses their products incorrectly.

The real outrage is the idea that elected officials think they deserve to have an opinion about the profit levels of a privately owned business. The only people whose opinions about a business' profits count are that business' owners.

Kagen needs to figure out that business — regardless of who owns it, and regardless of how much money it makes — is not the enemy of his constituents. Every time, it seems, that he comes up with a potentially good idea, he then swerves back to his usual pseudopopulist spouting off that helps no one.