In his address to Congress on health care reform, Barack Obama cited Alabama as a state in which almost 90% of health insurance is controlled by one company. “[A]n additional step we can take to keep insurance companies honest is by making a not-for-profit public option available in the insurance exchanges.”
The “People Before Profits” slogan also reflects the belief that it is not only inefficient and costly but morally wrong to make a profit from providing health insurance or medical care. (Also see Myth 22.)
A reality check on health insurers and profit:
- By far, the dominant players in the health insurance market are nonprofits, especially Blue Cross and Blue Shield. The largest insurer in virtually every state is a nonprofit (John Lott, FOXNews.com 9/16/09).
- About 55% of insured employees receive coverage through their employer’s “self-insured” plan. For Alabama, the correct percentage insured by one company is 36%, not 90%, when the employees of self-insured companies are in the denominator.
- Getting rid of profits would not reduce costs, Lott writes. Costs would go up because without profits there would not be the same incentives to hold them down. Profits are the reward for figuring out what consumers want. “Profit maximization combined with competition is the only reliable way we know to keep costs down,” states Baylor economics professor Earl Grinols (ibid.).
- Non-profits obtain the success they do largely because of their tax and regulatory advantages—i.e. because of government favors, not because of superior performance.
- Health plans are the 86th most profitable industry (DownsizeDC.com 9/21/09), with a profit margin of 3.3%, about the same as home furnishing stores and heavy construction. Hospitals are 77th (with a margin of 3.6%). Brewers have a margin of 25.9%; major drug manufacturers, 16.5%; networking and communication devices, 16.3%; education and training services, 11.7%; and general entertainment, 6.8%.
Dr. William Summers of Albuquerque provides a contrast between two California hospitals in the 1980s. At one, the cost of a room started at $850/day, plus extras adding up to more than $1,000. They had plastic utensils, styrofoam cups, and surly nurses. Across town, there was a hospital that charged $115, with few extras. It served food on china with real silverware and linen tablecloths. It had an excellent chef, a polite staff, and a swimming pool. The first hospital took government insurance; the second was cash-only.
Additional information:
- Cash-only ambulatory surgery center with prices posted: www.SurgeryCenterOK.com
- “Nonprofit Hospitals Accused of Overcharging, Denying Care,” AAPS News of the Day 9/19/09.
- “Why the United States Should Reject Socialized Medicine (a.k.a. ‘Single Payer) and Restore Private Medicine,” AAPS; September 2003.
