Are health insurers profitable? Yes they certainly are, even the nominally non-profit ones. Mark Farrah Associates issues information on the level of profitability. (MFA Report) Many insurers are public so you can see profitability in their released financial statements. They all have to file statutory reports with state insurance commissioners which detail revenue and costs. 2020 was an odd year in health care, but even then the insurers made lots of money. The individual segment is the most challenging for insurers, with high sales and marketing costs and some adverse selection by consumers, but even that segment was profitable in 2020. The insured group segment picked up a couple of percentage points of profit, as medical costs declined due to care avoidance. Medicare Advantage business experienced a 2.5 percentage point profit improvement and managed Medicaid a 3.5% one. Do health insurers make too much money? How would that be determined? If you think the market is competitive, you would accept that profits are at the level competition determines. It is only quasi-competitive, however. Do health insurers deliver value? Probably, they have improved many quality of care measures over the years and they probably have controlled spending better than a completely wild west of fee-for-service plans. But I think consolidation has gone too far and the lack of real competition means that health plans don’t really try very hard to control provider prices or premiums.
Health Insurer Profitability
About this Blog
The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry. Mr. Roche is available to assist health care companies through consulting arrangements through Roche Consulting, LLC and may be reached at [email protected].
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I had written before suggesting that all healthcare be taken out of the corporate benefit programs, everyone put on the street to shop the full width of the marketplace with PUC style limits on profitability for healthcare insurers. Any thoughts on how this would play out, improve user costs and services?
J Thomas, what you are asking for is a return to the mutual company version of insurance where every customer was also a shareholder. That method ensured each person was insured in the proper risk pool either the commensurate premium and would share in company profits with either a dividend or a premium reduction.
But government – the historically worst evaluator of risk – thought they could make it better/equitable (and also wanted more of that mutual company investment dollar) and interfered.
The old saying “in government nothing succeeds more than failure” is apropos. The more government interference makes things worse, the more government increases its interference.
Thanks for the feedback Rob.
It’s dizzying to conceive how to disconnect/unwind the existing structure. I was hoping that while Obama had the door open, insurance exec’s at the table and willing support for passage of legislation, he’d take on this type of structural change. Another opportunity wasted by a boy with a man’s job … To your point about government intervention, we got another half-baked scheme with the added kiss of more IRS entanglements. These Dem’s just can’t envision any public structure without them at the helm.