Hyperbole in the Health Debate

By Jeff Jacoby (Archive) · Monday, November 2, 2009

First of two parts

Two things supporters of a government-run "public option" for health insurance know for sure. One is that private health insurers are raking in obscenely high profits. The other is that only a government rival can force them to compete on price.

In a clever new commercial featuring actress Heather Graham as an agile sprinter named "Public Option," the left-wing pressure group MoveOn combines both themes, describing insurance companies as "lazy" and "bloated from the profits of raising our health care costs sky-high." Why, it asks, should anyone resist the competition a public option would generate? After all, "competition is as American as apple pie." In a less amusing print ad a few weeks ago, MoveOn charged that "insurance companies are willing to let the bodies pile up, as long as their profits are safe."

President Obama also attacks health insurers as avaricious profiteers.

"The insurance industry is making this last-ditch effort to stop reform," he declared on Oct. 16, "even as costs continue to rise and our health-care dollars continue to be poured into their profits [and] bonuses." When he addressed Congress in September, Obama insisted that only a public option will "keep insurance companies honest." On the White House blog, ObamaCare opponents are accused of "fighting to protect insurance industry profits."

Indeed, there is no shortage of voices characterizing health insurers as greedy villains. Earlier this year, House Speaker Nancy Pelosi praised her party for highlighting "the immoral profits being made by the insurance industry." On CNN last week, Senator Sherrod Brown of Ohio demanded a public option "so the insurance industry can't continue to game the system and discriminate" against women and the disabled - tactics insurers have used to "quadruple their profits in the last five years." If quadrupled profits don't seem rapacious enough, the union-backed Health Care for America Now! ups the ante, claiming, according to the AFL-CIO's news blog, that "during the past five years, health insurance company profits have soared by 1,000 percent."

Senate majority leader Harry Reid, meanwhile, doesn't even try to put a number on it. Health insurance companies "are so anticompetitive," he said last month, "because they make more money than any other business in America."

To such overheated agitprop, the only useful response is a cold shower of facts, and the Associated Press supplied a timely one last week. For all the impassioned talk about obscene profits and bodies piling up, reports AP's Calvin Woodward, "health insurance profit margins typically run about 6 percent" of revenue, a return "that's anemic compared with other forms of insurance and a broad array of industries."

On the Fortune 500 list of top industries, health insurance companies ranked 35th in profitability in 2008; their overall profit margin was a mere 2.2 percent. They lagged far behind such industries as pharmaceuticals, which showed a profit margin of 19.3 percent, railroads (12.6 percent), and mining (11.5 percent). Among health insurers, the best performer last year was HealthSpring, which showed a profit of 5.4 percent. "That's a less profitable margin," AP noted, "than was achieved by the makers of Tupperware, Clorox bleach, and Molson and Coors beers."

For the most recent quarter of 2009, health-insurance plans earned profits of only 3.3 percent, ranking them 86th on the expanded Yahoo! Finance list of US industries. Makers of software applications, by contrast, are pulling in profits of nearly 22 percent. Strangely, however, MoveOn and the Democrats aren't demanding a "public option" to compete with Oracle and Adobe to drive down their "immoral" profits.

There are certainly industries doing worse than health insurance - airlines and newspapers, for example - but the notion that health insurers "make more money than any other business in America today" is preposterous. Advocates of a public option may find it tactically expedient to paint insurers as insatiable predators, swollen with ill-gotten profits. The reality is otherwise.

The critics do have one thing right: More competition would bring down health care premiums. But the way to increase competition is not by adding a government-run health plan to the 1,300 private firms already providing health insurance. We do have a highly competitive national market for auto and life insurance, after all, and with no public option. There's no reason we can't have the same for health insurance.

Next: More competition, less government

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