hugo
New member
Eliminating Insurance Profits Yields Limited Savings
Rate: 0 Flag Email.Click "Submit Abuse" if you feel this post is inappropriate. Explain why below if you wish. Cancel
Lately, you've heard a lot of politicians railing against the health insurance companies. Speaker of the House Nancy Pelosi went so far as to call insurance companies "immoral" and "villains."
One of the selling points of the public option is that since it won't have to provide profits to shareholders, it will be able to provide health insurance at a lower cost. And, while this is true, it likely won't produce the huge savings that advocates for it imply.
That's because while insurance company profits are in the billions of dollars, they aren't a large percentage of the revenues those companies book.
According to the Wall Street Journal, for every dollar of revenue, the insurance companies pay out 83 cents to doctors, hospitals, and pharmacies. Much of the rest goes to cover overhead. Total profits equal only a few cents of the total.
Wellpoint, one of the nation's biggest insurers, was used as an example. Wellpoint reported $694 million in profits for its most recent quarter. Revenue taken in to produce those profits was $15.5 billion. This works out to a margin of 4.6 percent. That's not too bad, but Microsoft, as an example, has margins of 25.1 percent.
So, if the public option eliminates profits from the equation, that will cut four percent from the cost of health care. Now, when you're talking about spending of $2.4 trillion, a savings of four percent is a decent chunk of change. It works out to $96 billion. But that figure assumes that everyone will opt for the public option, which isn't going to happen. Let's say that ten percent of the public does. Savings will amount to $9.6 billion, which would pay for the cash for clunkers program three times over.
These savings, while certainly a plus, are the equivalent of a person saving money by eliminating one trip to Starbuck's a week. It will help, but it's not going to put the budget in the black.
If health insurance costs really are going to be addressed then the focus needs to be on the pay for service system. A report from the Commonwealth Fund shows that the United States spends two to three times more that other countries on doctor's fees, drugs, and inpatient acute care.
An economist from Dartmouth says that the system provides too many incentives for waste. Doctors get paid to prescribe MRIs and hospitals get paid to put in expensive proton beam accelerators. He added that the incentive structure is pushing costs.
That is the discussion that needs to take place. While a public option would cut costs, until the fee for service payment system is addressed, health care reform will not provide the savings we are looking for.
This is another case of the conventional wisdom being conventional, but not very wise. Buy and Hold Plus urges those reading this blog to think things through and not accept the conventional wisdom. The politicians are railing against insurance companies and various factions are fighting over the public option, but all that rhetoric misses the mark. Until the payment system changes, health care costs will continue to rise.
Rate: 0 Flag Email.Click "Submit Abuse" if you feel this post is inappropriate. Explain why below if you wish. Cancel
Lately, you've heard a lot of politicians railing against the health insurance companies. Speaker of the House Nancy Pelosi went so far as to call insurance companies "immoral" and "villains."
One of the selling points of the public option is that since it won't have to provide profits to shareholders, it will be able to provide health insurance at a lower cost. And, while this is true, it likely won't produce the huge savings that advocates for it imply.
That's because while insurance company profits are in the billions of dollars, they aren't a large percentage of the revenues those companies book.
According to the Wall Street Journal, for every dollar of revenue, the insurance companies pay out 83 cents to doctors, hospitals, and pharmacies. Much of the rest goes to cover overhead. Total profits equal only a few cents of the total.
Wellpoint, one of the nation's biggest insurers, was used as an example. Wellpoint reported $694 million in profits for its most recent quarter. Revenue taken in to produce those profits was $15.5 billion. This works out to a margin of 4.6 percent. That's not too bad, but Microsoft, as an example, has margins of 25.1 percent.
So, if the public option eliminates profits from the equation, that will cut four percent from the cost of health care. Now, when you're talking about spending of $2.4 trillion, a savings of four percent is a decent chunk of change. It works out to $96 billion. But that figure assumes that everyone will opt for the public option, which isn't going to happen. Let's say that ten percent of the public does. Savings will amount to $9.6 billion, which would pay for the cash for clunkers program three times over.
These savings, while certainly a plus, are the equivalent of a person saving money by eliminating one trip to Starbuck's a week. It will help, but it's not going to put the budget in the black.
If health insurance costs really are going to be addressed then the focus needs to be on the pay for service system. A report from the Commonwealth Fund shows that the United States spends two to three times more that other countries on doctor's fees, drugs, and inpatient acute care.
An economist from Dartmouth says that the system provides too many incentives for waste. Doctors get paid to prescribe MRIs and hospitals get paid to put in expensive proton beam accelerators. He added that the incentive structure is pushing costs.
That is the discussion that needs to take place. While a public option would cut costs, until the fee for service payment system is addressed, health care reform will not provide the savings we are looking for.
This is another case of the conventional wisdom being conventional, but not very wise. Buy and Hold Plus urges those reading this blog to think things through and not accept the conventional wisdom. The politicians are railing against insurance companies and various factions are fighting over the public option, but all that rhetoric misses the mark. Until the payment system changes, health care costs will continue to rise.
