The Insurance Myth :The Insurance Myth Today we will be looking at the finances of the Health Insurance industry:
What money they make
What they spend it on
What would it look like if the government took over
AETNA :AETNA The numbers you see here come from financial statements the company filed with the SEC. The number of employees comes from the company website.
AETNA :AETNA These financial statements are from 2004 - 2008
AETNA :AETNA In Red is the amount in millions they collected in premium payments. In 2008 they collected 27.3 billion dollars in premium payments from different policy holders.
AETNA :AETNA Other Revenue is the amount they collected in non-premium fees for managing self insured policies that many companies use to lower health care costs.
AETNA :AETNA Total Revenue is of course the premium payments plus the fee payments and any interest they may collect from investments, etc.
AETNA :AETNA Claims paid is the amount of money they paid in claims paid. So in 2008, they paid out 22.7 billion in health care, term life, disability claims.
AETNA :AETNA Operating expenses includes salary, marketing, and a large number of people assisting with claims and of course a fraud department.
AETNA :AETNA According to their website, Aetna has about 35,000 employees. So their operating expense is about $160,000 per employee.
AETNA :AETNA The total pay for all of their executives in 2008 was $8.456 million. Seems like a lot until you look at the overall picture.
Five Companies :Five Companies I ran the numbers I just demonstrated for five companies: Aetna, Cigna, Humana, UnitedHeath, and Wellpoint which you may know as BCBS in 14 states. I will now go over the averages
Premium Payments :Premium Payments On average, the five companies received premium payments of 41.923 billion dollars each in 2008. This is a 108% increase from the 20 billion they received in 2004. Some of this increase is due to merging with smaller insurance providers during the 4 year period.
Non-Premium Revenue :Non-Premium Revenue On average, the five companies received administrative payments of 2.199 billion dollars each in 2008. This is an 80% increase from the 1.2 billion they received in 2004. Remember, this revenue is administrative fees they receive for self-insurance plans.
Total revenue :Total revenue On average, the five companies Total Revenue was 44.287 billion dollars each in 2008. This is a 101% increase from the 22 billion in 2004.
Claims Paid :Claims Paid On average, the five companies paid claims of 33.603 billion dollars each in 2008. This is a 115% increase from the 15.610 billion they paid in 2004.
Operating Expenses :Operating Expenses On average, the five companies had Operating Expenses of 7.792 billion dollars each in 2008. This is an 84% increase from the 4.2 billion in expenses in 2004. This includes salary, marketing, and a large number of people assisting with claims and of course a fraud department.
Salary :Salary I'm now highlighting the number of employees which is about 40k each. This means that their operating expense is about 202,000 dollars per employee. The Executive pay was over 23 million in 2008.
Percentage of Premiums :Percentage of Premiums Here I show the percentage of Premium Payments that went to pay claims and the percentage that went to pay Operating Expenses. The percentage to claims has increase by from 77.8% to over 80% while the percentage to Expenses has decreased from 21% to 18.5%.
Quick Recap :Quick Recap So lets recap some important numbers.
Quick Recap :Quick Recap From 2004 – 2008 Premiums revenue increased 108% while non-premium revenue increased 80% which means that total revenue increased 101%.
Quick Recap :Quick Recap Interestingly, with revenues increasing 101%, the amount paid to claims increased 115% which means that the percentage of premiums that went to claims has increased 3%.
Quick Recap :Quick Recap Despite the rapid increase in clientele and the rapid increase in dollars paid to claims, the operating expenses of the company increased only 84% which means that the percentage of premiums that go to operating expenses has DECREASED by almost 12%.
Quick Recap :Quick Recap And of course, the greedy immoral executives who have been finding ways to lower the operating costs of these companies are running up your premiums by taking home .06% of the premiums that you pay.
For those who are confused, this is sarcasm. For those who are still confused, if the greedy immoral executives worked for free, it would mean a decrease in your annual health insurance premium of .06%. This of course would be considered “Calculator Abuse” by the White House.
Assumption of Gov Run System :Assumption of Gov Run System Lets pretend that the government takes over these companies and see if we save money. What I have done is added the average salary of Social Security Administration employees to the claims paid in 2008 by the 5 companies. This assumes that we do not take any other cost factors into account such as fraud, computer systems, telephone systems, buildings, etc. This gives us a savings of 14.5% over private systems before you subtract any other cost factors.
Additional Costs :Additional Costs Again, in the previous assumption we did not account for any cost other than salary. Projected Medicare revenue for 2009 is $477 billion. $60 billion will be wasted on Medicare fraud. That is 12.58% of the Medicare Revenue.
According to the Coalition Against Insurance Fraud, every dollar spent by the US government returns $1.55 that was wasted on Medicare Fraud. The insurance industry returns $8.65 in fraud for every dollar they spend. Some of this is due to the fact that many insurance companies have simple insurance detecting software, while the government is busy writing a 2,000 page tragedy they claim will cut costs.
Additional Costs :Additional Costs Also consider the following when you try to decide if the government is more efficient than the private sector.
The House Republican Conference has compiled a list of all the 118 new boards, bureaucracies, commissions, and programs created in H.R. 3962, Speaker Pelosi's government takeover of health care
http://www.gop.gov/policy-news/09/11/05/nov-5-2009
Additional Costs :Additional Costs Also consider the following when you try to decide if the government is more efficient than the private sector.
The House Republican Conference has compiled a list of all the 118 new boards, bureaucracies, commissions, and programs created in H.R. 3962, Speaker Pelosi's government takeover of health care
http://www.gop.gov/policy-news/09/11/05/nov-5-2009
What Does This All Mean :What Does This All Mean It is simple, the only way to cut the cost that people are paying for health care insurance is to find a way to cut the cost of Claims Paid.
What Does This All Mean :What Does This All Mean The current proposal in Congress today
Increase in taxes to Insurance Companies
Increase in taxes to Medical Device Companies
Increase in taxes to Pharmaceutical Companies
Increase in services that must be covered by Insurance Companies
Increase in Risk to Insurance Companies
This is an increase in costs that will result in an increase in Claims Paid.
How to Save A Half Trillion :How to Save A Half Trillion The current bill in Congress also limits Contributions to tax deductible accounts that people could use to pay small claims.
It is estimated that over $200 billion is spent on claims processing, and about $50 billion is on claims of less than $100.
High deductible policies mixed with Health Savings Accounts would save billions of dollars.
How to Save A Half Trillion :How to Save A Half Trillion The US also wastes over $200 billion a year on testing done for the sole purpose of avoiding a fraudulent lawsuit by a criminal known as a trial lawyer (see John Edwards).
Add to that number malpractice insurance and the overcrowded doctor offices, and then try to figure out how much we are wasting.
Saving A Half Trillion :Saving A Half Trillion Assuming we save the overall industry a Half Trillion dollars a year, you have cut the cost per person in the US by over $1500 annually.
This is the value of encouraging high deductible accounts and tort reform.
Not to mention that a high deductible policy would also cost less by nature. Also, if you owned your own policy instead of getting it from your employer, it could save you about 30%
What I Don't Know :What I Don't Know I don't know.
What I Don't Know :What I Don't Know But I can tell you that instead of figuring this out, Obama, Pelosi, and Reid will continue to tell you that .06% is immoral and that Primary Care doctors are chopping off your feet for cash.
Summary :Summary Insurance companies are becoming more efficient with your money
Government run health insurance will cost more than private insurance
Tort Reform and high deductable policies would save billions
If Obama, Pelosi and Reid were serious about cutting costs, they would consider the Republican alternative
Summary :Summary But they are not, because their objective isn’t to lower cost, it is simply to drown private insurance companies and orchestrate a government takeover of the health care industry, just like they are taking over the auto and banking industries.