1^st article of 3 covering Health Care and Potential Health Care Reform

“Obscene profits,” a typical accusation by the Pelosi Democrats in the past few years.  First oil companies, then banks and/or financial firms, and now this meme is being directed at the health insurance industry.  It’s nice that the AP decided to fill their 1 conservative fact check every two months quota by exposing this recent claim for what it is, and what is obvious to many investors, that health insurance corporate profit margins are actually low compared to other industries*.

Here are a few links that should provide some useful information about the topic:

1)     http://news.yahoo.com/s/ap/20091025/ap_on_go_co/us_fact_check_health_insurance (the AP fact check itself)

2)     http://money.cnn.com/magazines/fortune/fortune500/2009/performers/industries/profits/ (the Fortune 500 industry by profit margin ranker)

3)     http://biz.yahoo.com/p/sum_qpmd.html (a yahoo business tracker of industries and profit margins that is more diverse than the Fortune 500 list and a few months more recent than the Fortune 500 list).  [Thank you to Dr. Mark Perry of Carpe Diem for a condensed version of the list http://mjperry.blogspot.com/2009/08/health-insurance-industry-ranks-86-by.html]

Out of the 53 industries ranked in the Fortune 500 list health insurance was ranked 35^th. What does that mean?  In 2008, out of 53 industries like food services, internet services and retailing, aerospace and defense, etc, health insurance was the 35^th most profitable industry out of 53 with its profits as % of revenue number coming in at 2.2%.  Using a different and more diverse metric provided by yahoo Health Care Plans are rated as the 86^th most profitable industry out of 215 so far in 2009 with a 3.3% profit margin.

Why is this important?  Two reasons:

1)      It explains why the health insurance industry supports an individual mandate.

2)      It shows that the health insurance industry shouldn’t be demonized for high profits **.

With an individual mandate the health care industry will be able to profit from young and/or healthy uninsured people because 1) the potential bills would force everyone to buy plans that cover even rare diseases which drive up the costs of the plans and 2) many young and/ or healthy people choose not to buy health insurance, thus they are not part of the adverse selection problem, and hence when they are forced to purchase health insurance it will result in higher profit margins for health insurers.

What you should take away from this is that the Pelosi Democrats are attacking health insurers’ profits for rhetorical and political reasons – claims like “profits while the bodies pile on” is merely a strategic invocation of pathos, but it is not logically sound.

*  When the Democrat’s attacked oil profits they were also off base – Exxon Mobil and the industry on the whole had a modest profit margin of 8.9% at the time.

** No industry should ever be demonized for its profits.  Attacking a company or industry for being successful is an utterly left wing idea.

You should all take some time to read this article.

http://news.yahoo.com/s/nm/20091017/us_nm/us_washington_summit_economy_geithner

The basic premise, inter alia, is that future deficits are too high and the government has to, “live within its means” after the recession.  A couple of things to ask here initially:
1)      If future deficits are too high then why is the administration pushing for increased domestic programs like health care, stimulus, and green energy projects?
2)      If future deficits are too high and the administration is focused on raising domestic spending then how can they accomplish cutting the deficit without excessive taxation?

Before conservatives brandish their torches, pitchforks, and, now officially constitutionally protected, firearms they should acknowledge that Geithner is right; the government does need to live within its means after the recession.  But how the government gets there is where conservatives and liberals disagree.  Deficits are going to rise because of three

or four entitlement programs (the fourth would be the healthcare bill floating around in the senate), the interest on the national debt, and the increasing, read bloated, baseline that is discretionary domestic spending.  This graph by Centrists.org provides a conservative estimate of the increased burden of the three largest mandatory entitlement programs such as social security, Medicare, Medicaid, and the interest paid on the increasing national debt.  It is conservative because these programs could cost much more.  In fact the CBO has estimated that social security, Medicare, and Medicaid alone could total 20% or higher of US GDP by the 2030’s (higher estimates, provided by the CBO, hover around 28% of US GDP).  Add the defense budget, the interest on the national debt, every other federal government program, and then all the state and municipal government expenditures to the mandatory triumvirate and all of a sudden the US is France (Government 50% or higher as % of GDP) – Oh mon dieu!

Clearly Geithner’s rhetoric is out of kilter with the current and future situation unless 1) Geithner and the administration plan to cut net government spending (the evidence is clear that they do not), and/or 2) Geithner and the administration plan to raise taxes substantially (the evidence is clear that they do), and/or 3) Geithner and the administration conceive that tax revenues will naturally rise and spending will naturally fall or plateau.  There is some evidence of 3, but even in a best case scenario that evidence would still result in a much larger government and immense yearly deficits.