Wellpoint (Anthem Blue Cross Blue Shield’s parent company) has put together a very informative report on the cost drivers for health insurance premiums. The dollar bill visual representation that they included is particularly eye-opening, in terms of detailing where our health insurance premiums go. A lot of the report centered around what we already know: health care costs are what drive health insurance premiums. But I was especially interested to read that a full 60% of consumers surveyed thought that profit margins for health insurance companies are more than 20%, and 25% of consumers pegged insurers’ profits at more than 40%!
This is astounding to me. If we look at all industries, only two show profits greater than 20% for 2007 (network/communication equipment, and mining/crude oil production). Further down the list we see “Insurance: Life, Health (stock)”, with profits at 10.6% of revenues. Stick with me here, and click on the life/health insurance industry link, where you’ll see a list of 15 individual companies. Nearly all of them focus on life insurance, disability insurance, long term care, annuities and other retirement planning services. AFLAC stands out as a recognizable player in the health insurance industry, but their product is supplemental, and not designed to be stand-alone health insurance coverage (and they also focus on disability and life insurance products). From what I could determine, three other companies on the list provide some type of health insurance coverage (but seem to be mainly focused on other insurance products): Conseco, Torchmark, and American National. Conseco and Torchmark both sell supplemental and “a la carte” policies. American National is still a mystery after my few minutes of researching. Their website says that they sell major medical plans as well as accident and sickness plans. But they don’t provide any plan details that I could find, and instead direct consumers to an 800 number to talk to a sales rep. I don’t know for sure, but I’m going to hazard a guess that health insurance isn’t their mainstay if that’s how they’re marketing it.
The industry as a whole chalked up a profit margin of more than 10% in 2007, but that was carried by the life insurance side of the industry. Health insurance companies don’t fare nearly as well when it comes to making profits. Far more of their revenues are eaten up by claims, which continue to grow year after year as health care costs increase.