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More Misleading Tripe on Health Insurance Profits

By July 29, 2010Commentary

Every now and then we see something that is so outrageous that it is hard to respond rationally.  A lot of that occurs in regard to health insurers, an easy target in health cost discussions.  A New England Journal of Medicine article is particularly egregious in its selective and misleading use of data.   (NEJM Article) The article opens by saying that insurance company profits have increased by 250% over a decade and noting recent double-digit increases in premium rates.  The only citation for the increase in profits figure is one of the administration’s health reform advocacy pieces.

It is the 250% figure that is designed to catch attention and bring down scorn on the health plans.  No matter that over the same period, revenues have increased even faster, so that the net profit margin hasn’t actually gone up.  And that is what should count, how much of each dollar goes to net profit.  By that measure, health insurers have much smaller profits than most industries, including almost every other sector of health care.  Drug companies are much more profitable, as are medical device firms.  And hospitals and physicians have higher margins.   In regard to the rate increases, every well-done study has demonstrated that health premium rises are caused by increases in provider prices and utilization, and health plans are unable to control those increases in the face of continuing growth in provider bargaining leverage.

While the article notes that insurance premiums are affected by increases in provider costs, it then expresses concern that if insurance rates are controlled, the poor providers might see reimbursement cuts or deal with more administrative hassles!   It then picks up the fiction promulgated by the Administration and its apologists that provisions in the reform act relating to use of health information, cost-effectiveness research and payment reform will save hundreds of billions of dollars, a notion thoroughly debunked by actual experience and credible research.

NEJM is an excellent publication with many great studies and articles.  It should be embarrassed, however, to publish articles which are so clearly misleading and lacking in any rigorous exposition and analysis of the facts.  And the public is not served by continuous trashing of health insurers, which undermines confidence in them and detracts attention from the real sources of cost and quality problems–the providers, who just coincidentally are the publishers of NEJM.  We should press health plans to be as administratively efficient as possible; to improve people’s health as part of their mission and to control provider utilization and prices; but all too often it is government which interferes with those objectives.

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