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Is profit driving health-care costs?

I wrote this in response to a letter to the Editor in The New York Times.  The subject is self-explanatory.  It was not published.

For reference, the author of the letter, David A. Balto, was identified as “a senior fellow at the Center for American Progress”.  A bit online research reveals that he is also a well-known anti-trust crusader.

19 June 2009

Letter writer David A. Balto (19 Jun) points out that SEC filings report profits at the 10 largest insurance companies rose to $12.9 billion in 2008, and uses that fact to pin the blame for rising medical expenses on insurance industry greed.

That $12.9 billion sounds immense, but let’s put it into perspective:

  • According to the National Coalition on Health Care total U.S. medical spending in 2007 was $2.4 trillion. The $12.9 billion insurance company profit represents half a percent of that.
  • According to the National Coalition on Health Care the average employer health insurance premium for a family of 4 was $12,700 in 2008. If we assume that those 10 large insurance companies insure only 1/3 of Americans the profit would represent about $129/person, or about 4% of that premium.

By either measure, eliminating insurance company profit entirely would barely make a dent in the cost of health care. It may feel good to blame the “middlemen”, but merely feeling good doesn’t solve the problem.

Insurance companies, indeed, have much to answer for in terms of poor customer service and denied claims.  But, it is not their profits that are driving the system into ruin.

© Copyright 2009, Augustus P. Lowell

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