Thursday, August 27, 2009

Health Insurers: Are they really that greedy?

It is in vogue to berate and ridicule the ‘greedy’ insurance companies as the debate rages about health care reform. Democrats in Congress, led by Henry Waxman, have asked the nation’s principal health insurers to provide details on executive pay, spending on entertainment, and other financial records—however it appears that they are not that adamant about receiving data on the earnings of these companies. President Obama has vilified insurers as being the parties responsible for bankrupting families and making care unattainable for millions.

They say a picture is worth a thousand words: Perhaps the graphs shown here will reveal that it may not be the insurer's 'insatiable greed' that is responsible for the escalating costs of health care.

Return on Assets is a measure of a company's profitability, equal to a fiscal year's earnings divided by its total assets, expressed as a percentage. This comparative graphic reveals that the health insurer’s return is modest-perhaps even miniscule—compared to other sectors of the economy. In fact, the health care insurers rank below all of the other sectors depicted. (Note the relative ratios of the pharmaceutical and medical equipment companies)

Return on Equity is a measure of how well a company used reinvested earnings to generate additional earnings. Once again the graph illustrates that the health care industry has lower returns when compared to other sectors of the economy.

Net Profit Margin is a ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings. This statistic is usually used when comparing companies within the same sector but when being used to compare different sectors other considerations such as the ratios illustrated above should also be considered.

These ratios certainly suggest that the health care industry is not making the grotesque profits some politicians would have you believe. While the fringe of the conservative camp makes preposterous claims about death panels, euthanasia and the impending arrival of National Socialism, the liberal faction are just as culpable with their hyperbole and unjustified witch hunting: One side uses fear mongering while the other side uses vilification. Fortunately the truth is revealed by resolute individuals who have the patience and fortitude to allow the loony contingent on both sides to be heard. As is typically the case, the truth is usually expressed by those who exercise the virtues of tolerance, integrity and courage.

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