Tuesday, November 10, 2009

Health Insurance Profits: Not So Outrageous After All?

A cursory glance at third-quarter earning results from major insurers could put the lie to the "they're not money trees" defense: WellPoint late last month reported a net income of $730.2 million, less than last year but better than expected. UnitedHealth, Aetna, Humana and Cigna all saw double-digit percentage increases in their profits. The latter three all reported earnings above $300 million each, while UnitedHealth's third-quarter earnings were just north of $1 billion.

But the companies' profits still represent a miniscule percentage of the $2.5 trillion Americans spend every year on health care.

"Insurance company profits in the large picture have very little to do with the overall rising cost of health care," said health care expert Henry Aaron, a senior fellow at the Brookings Institution.

Carroll and others pointed out that the profit margins the health insurance companies report -- often below 5 percent -- pace some industries and lag behind many others.

"From a net margin basis, it's not that much," said Steve Shubitz, an analyst at Edward Jones. "The bottom line is any business needs to make money. That's why you're in business."

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