The Instigator
RoyLatham
Pro (for)
Winning
32 Points
The Contender
badincubus
Con (against)
Losing
22 Points

Health insurance profits are not a major part of health care costs in the U.S.

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Post Voting Period
The voting period for this debate has ended.
after 9 votes the winner is...
RoyLatham
Voting Style: Open Point System: 7 Point
Started: 10/26/2009 Category: Health
Updated: 4 years ago Status: Post Voting Period
Viewed: 3,625 times Debate No: 9843
Debate Rounds (3)
Comments (9)
Votes (9)

 

RoyLatham

Pro

Advocates of increased government involvement in health care frequently cite the profits of private health care providers as a major part of the costs of health care.

An example of the criticism is that of Representative Anthony Weiner (D-NY), speaking on the Rachel Maddow show, who said, speaking of proposed legislation that would heavily tax the health insurance industry:

"Well, the one behavioral change we are clearly not going to see is the insurance companies aren't going to suddenly start saying, 'You know what, we are going to stop making 30 percent profits and cut it down to 10 percent or 5 percent because of this bill.' " http://www.msnbc.msn.com...

So are the insurance company profits really 30%, as claimed?

Fortune magazine http://money.cnn.com... rated the health insurance industry as the 35th most profitable of 53 industries surveyed for 2008:

35 Health Care: Insurance and Managed Care 2.2%

In 2006, in better economic times, health insurance company profits were 7.1%. http://money.cnn.com...

In the Yahoo Finance ranking of industries (they divide ndustry into more categories than Fortune) by profitability, "Health Care Plans" rank 84th, with a profitability of 3.3%. http://biz.yahoo.com...

Total insurance company profits were $12.87 billion in 2007 and $8.40 billion in 2008. http://www.politifact.com... Total health care spending in the United States was $2.2 trillion in 2007. http://www.kaiseredu.org... Insurance company profits were therefore 0.59% of total health care costs in 2007. Since total costs have been rising at about 6%, the insurance company profits would be about 0.36% of total health care costs in 2008.

Because insurance company profits are much less than 1% of health care costs, they are not a major factor in healh care costs in the United States.

The resolution is affirmed.
badincubus

Con

First, let's define the some issues. How do we define profits? Merrian-Webster Online defines profit as follows:
Profit
1. 1profit (noun)
2. 2profit (verb)
Function: noun
Usage: often attributive
Etymology: Middle English, from Anglo-French, from Latin profectus advance, profit, from proficere
Date: 14th century
1: a valuable return: gain
2: the excess of returns over expenditure in a transaction or series of transactions; especially: the excess of the selling price of goods over their cost
3: net income usually for a given period of time
4: the ratio of profit for a given year to the amount of capital invested or to the value of sales
5: the compensation accruing to entrepreneurs for the assumption of risk in business enterprise as distinguished from wages or rent

We have a pretty vast definition here. How can we actually find the definition we are looking to apply to the health insurance industry? What if the definition we apply and the definition insurance companies apply are two different concepts? For example, is a $2 million dollar bonus to a top executive profit? No, it is actually an expense. When we focus on the company itself and separate the individuals profiting from the company it is easy to lose sight of the trees for the forest. Anyone who has ever run their own business, from a small landscaping company with one employee to a multibillion dollar insurance corporation, all know how to portray financial information in whichever light is most favorable to the outcome they desire. For instance, if I owned a company where I was the only employee and I wanted to make it look like the company was making a lot of money; what would I do? One easy method of boosting profits on paper would be to simply draw less salary from the company. Wow! Profits went up 75% in the third quarter! Nobody has to know I took a part-time job for a couple months to offset the money I stop taking from my landscaping company. Now I can go get that loan for the new mower and trailer. Wait; now its tax time and I made a lot of money plowing snow this winter, what would I do if I wanted to make the company look less profitable? Why I could simply increase my salary. Oh no, the company is losing money! We are going to go out of business! Funnytown Landscaping is going bankrupt.
Must I go on with this? I think we all realize that these corporations have teams of lawyers, accountants, public relations professionals, and statistical engineers working round-the-clock to spin data in whatever manner serves current interests.
The definition of profit is broad and expansive, particularly with huge, multinational corporations. Perhaps, round two will include historical insurance profit percentages and not the "latest" in engineered statistics.
Debate Round No. 1
RoyLatham

Pro

Con's arguments are (1) to redefine "profits" to include executive compensation and (2) to claim (or imagine) that historically health care industry profits used to be much higher than thy are now. He provided no evidence that either allegation was true. Because these are unsubstantiated claims I could ignore them until proof is offered, but I will do the research that Con should have done. The claims are clearly false.

Ten companies account for the health insurance company profits [1]. The highest paid executive received about $11 million, and the others much less, going down to a few million. In each company the top guy gets by far the largest compensation. The pattern I've seen is that the top person at any large company gets about half of the total pay. To be generous to Con's contention, I will suppose that the average top pay is $8 million, and that it is only a third of the total executive pay. So that would make the total for the industry 10 x $8 million x 3 = $240 million. The industry profits were $12.87 billion and $8.4 billion, so $0.24 billion would be added using Con's definition of profit. that would make the contributions to total health care costs rise from 0.59% and 0.36% to 0.596% and 0.37%, respectively. Even if one were to indulge fantasies that executive compensation were much higher than I had supposed, it would not approach being a major part of health care costs.

Critics counting the numbers from public records for top execs claim that compensation was about $115 million in 2007 and less in 2008. [2] That's much less than the $240 million I've estimated. My estimate includes second-tier execs.

It's worth noting that executives earn their pay by reducing costs. In Medicare, some put fraud as 20% of the programs costs. That would be 20% of $440 billion, $88 billion. Private insurance companies police fraud, so their losses to fraud are much less.

The reference [1] says that the health insurance industry profits rose "from $2.41 billion in 2001 to $12.87 billion in 2007." Thus contrary to Con's speculation that I picked the low profit years, I included the highest profit year. Critics uniformly ignore the decline in profits since 2007. The profits in health insurance vary between about 2% and 8%. The historical average for the stock market as a whole is about 9%.

I have helped Con by doing the basic research he should have done as part of building his case. His charges are false. If he wants to claim different numbers, he should now produce them with proof they are valid. Congressman Weiner and his fellow critics are indulging fantasies.

The resolution is affirmed.

1. http://www.politifact.com...

2. http://www.healthreformwatch.com...
badincubus

Con

According to U.S. Securities and Exchange Commission filings the 10 major private health insurance companies reported a 428% increase in profits from 2000 to 2007 (the companies are listed in the Corporate Library�€™s �€œInsurance Health and Disability�€� category).
In the simplest terms, profit represents the difference between revenue and cost of production. So what are health insurance providers selling? Administrative services.
A major accounting difference between other types of business and private health insurers is the inclusion of policy holder money held in �€œtrust funds�€� for the future payment of medical claims. This money is represented by a medical loss ratio, a number that usually ranges from 75 percent for the most cost-effective and efficient plans to more than 100 percent for the losing plan (Washington Post). Business costs associated with the services offered are typically around 15% of their revenues.
It would therefore be more appropriate to calculate profit margin based on a business model of providing only administrative services, and not on funds held in trust which incur only slight expenses and provide long-term investment income for the company.
The 2% to 8% profit margin alleged by my worthy rival includes the funds held in trust. If the accounting methods used were attuned to include only the costs associated with the operation and marketing of their administrative services, the reported profit margins would be much closer to 25%.Moving private health insurers onto the Fortune 500 list of profitable firms and placing them in front of the network and communications equipment industry (reporting 20.4% profit).
My opponent is correct; reducing national health care expenditures by 1% would have an insignificant impact. However, the elimination of a 25% incentive on a product designed to limit access to health care we all need would have a considerable impact!
Debate Round No. 2
RoyLatham

Pro

Let's suppose that Con's bizarre definition of profit is correct. If so the percentage profit of the insurance companies would be much higher than 2.2%, Con says 25%. Fudging the definition more creatively could make it a bazillion percent. Yes, that much! However the dollar amount of the profit would not change at all. The industry profits were $12.87 billion and $8.4 billion, and adding $0.24 billion for executive compensation as Con insisted, would make the contributions to total health care costs 0.596% and 0.37%, respectively for 2007 and 2008. They remain insignificant, exactly as before.

Con's definition of profit is nonsense because the main way that insurance companies make money is by investing the funds held in trust. That's true of life insurance and virtually all forms of insurance. An insurance company may actually pay out in benefits more than it receives in premiums. The profit comes from investing the reserves, and an insurance company that does a better investment job earns more profit. That's what they do for a living.

Con's definition of profit is also not what any reasonable person refers to as profit. People like Congressman Weiner are obliged to use the standard meaning as used in the financial community, not some double-secret meaning they divined for themselves.

Health insurance company profits ran up about 400% from 2001 to 2007, then they fell by about 30% from 2007 to 2008. To make a more dramatic story, critics ignore the 2008 data. It's likely 2009 will be even worse, so of course that will have to be ignored as well. What the large percentage changes mean is that the industry is volatile. Anything that can go up rapidly is subject to coming down just as rapidly. Profit margins of 2% to 8% are well below the 9% average for the market as whole, so the picture is not particularly attractive.

All of Con's arguments about percent profit and trends in profits are irrelevant to the debate. I've explained them in an attempt to avoid confusion among those following the debate. (Rachel Maddow, Rhodes Scholar that she is, has never figured it out either.) The facts are that health care industry profits were 0.37% (that's 0.0037) of total health care costs in 2008, and they were less than 0.6% in the industry's most profitable year, 2007. Con has not disputed any of the dollar numbers I have presented, and in fact has presented no references whatsoever.

At well under one percent, health insurance profits are not a major part of health care costs in the U.S.

The resolution is affirmed.
badincubus

Con

"Fudging" seems to be the nucleus of this debate, interesting. As the challenger in this debate I am merely responding to the initial argument and use of potentially "fudged" statistics. I reiterate my early point that statistics can and will be manipulated to provide support for any argument. Pro's insistence on sticking with his "1% percent profit margin" theory illuminates the health care industry's desire to beguile the people into ignoring the fundamentals of capitalism. Who would invest in a company producing 1% profit?
As an example, strong companies like Alliance Health and Life Insurance attract investors wanting a piece of their profits (certainly more than 1%) and the less successful companies posting weaker profits flounder and slowly die. Before these "losers" fold up they do service to the winner by lowering the industry profit average. The "Top 10" are making huge profit gains while the "Bottom 10" lose millions, even billions, with the latent consequence of making the "Top 10" look less profitable. Unless, we focus on the providers we actually use, the "Top 10". The fact that these less successful providers are entering the market, and ultimately failing, exposes the tight grip the "Top 10" have on the sector and lack of competition in the private health insurance market. Lack of competition drives profits up, not down. The same problem is occurring with public utilities, banking, and oil companies. All of which are claiming severe financial difficulty.
To answer the claim that I have not provided statistics to counter pro's claims. 40% of private health insurers did not exist in their present form a decade ago, making it a little difficult to track their long term profit growth. 100% of the researched companies show massive increases in revenue, spiking around 2006.
The following health insurance companies/managed care organizations are shown with their overall Fortune 500 ranking as a US company (2008) and I added the first year they showed up on the NYSE using their current stock symbol:
1. UnitedHealth Group - 25 *
2. WellPoint - 33 (2002)
3. Aetna - 85 (2001)
4. Humana - 98 *
5. Cigna - 141 *
6. Health Net - 179 *
7. Coventry Health Care - 266 *
8. Amerigroup - 555 (2002)
9. Universal American - 669 (Investing firm turned health insurer, not sure when this change occurred, likely during the Bush years.)*
10. Centene - 685 (2002)
*companies older than a decade
The bottom line here is; does a strong business atmosphere for private health insurers transform into valuable, yet inexpensive health care for its members? Major carriers are seeing record gains in profits while providing coverage for fewer people. Business costs may be rising, but it is unlikely that they have gone up 400% in the past decade. Some portion of the 400% increase must represent profit. I find it highly improbable that medical expenses, administrative expenses, or even executive salaries have increased by even a fraction of 400%. Profits could indeed be a bazillion percent as you so mockingly remarked my friend.
I find myself in the position of the old man by sea, trying to reel in a huge fish. To find evidence of such a large and expansive scheme to steal the wealth of a nation is a difficult task for 100 men, let alone this one.
Debate Round No. 3
9 comments have been posted on this debate. Showing 1 through 9 records.
Posted by RoyLatham 4 years ago
RoyLatham
bad, I do take most debates seriously, and I definitely want opponents who take it seriously -- unless it's an obvious joke topic. However, it's not usually the opponent who bothers me so much as voters who work by rote, without seeming to have read the debate. No one expects an opponent to end up agreeing, so that's never a problem. People who know nothing about topic A can also turn out to be really sharp on topic B, and I expect that to happen. Comedian Larry the Cable Guy had a good line, "People think rednecks are really stupid, until they need us to start their car."
Posted by badincubus 4 years ago
badincubus
Relax Roy, you're winning. I think I did pretty good for my first debate, ever. What are you are rocket scientist or something? Yeah, I have a GED and 30 community college credits. I did the best I could. I could have done much better, maybe during winter break I'll have more time. Rematch? I can tell you're an intense kind of person, so you'll probably be offended by my jocularity and post something rude about me now. Anyway, thanks for letting me debate you, you are a formidable debater!
Posted by RoyLatham 4 years ago
RoyLatham
I request that those who voted for Con give reasons for their decisions. Does someone believe that health insurance industry profits are really, say, $300 billion of the $2.2 trillion in health care costs, rather than $8.4 billion reported? Where did that come from in the debate?
Posted by I-am-a-panda 4 years ago
I-am-a-panda
It seems CON tried to pull stats from where the sun don't shine and tried to distort what is and isn't profit.
Posted by mongeese 4 years ago
mongeese
Conduct: PRO
CON made a new argument (disregarded) in the final round.
S/G: TIE
Arguments: PRO
Disregarding new arguments, PRO was the only one with any.
Sources: PRO
Landslide.
Posted by Haezed 4 years ago
Haezed
I would add to RL's list of causation, the growth of managed care. When we were paying 20% of everything up to a high deductible, we combed the bills looking for errors. With our current policy, there is no incentive for consumers to look into the bills or ever make a cost based decision. Insurance has paid hundreds of thousands of dollars for our medical care (e.g my son's six knee surgeries) but not once have I made a decision based on cost.

Of course, we'd want the best care for our son; but, if all things were equal and one doctor was cheaper, the system should, somehow, nudge the consumer in that direction.
Posted by RoyLatham 4 years ago
RoyLatham
Volkov, The costs of health care in the US are skyrocketing because of an aging population that consumes more health care, advances in technology that make more treatments available, and the extremely poor health lifestyles of the American people. All the developed countries have aging populations, and all of them a health care costs increase substantially for that reason. The U.S. does not ration care as much as other countries, so the technological costs are higher here. Expensive new treatments that extend the life of cancer patient by two years for $40K are not ffered in many places, but they are covered by insurance here. The greatest factor is lifestyle. About 70% of all health care costs are due to lifestyle. This includes: traffic accidents, drugs and alcohol, suicides, violence, exercise, and diet. Costa Rica spends $350 per person on health care, compared to over $7K in the U.S., but life expectancy is only two years less in Costa Rica thn the U.S. They have enough money for basic public health measures, but not enough for fast food, high speed driving, and so forth. the Japanese have the longest life expectance in the world. If they didn't drink they'd live forever.
Posted by mongeese 4 years ago
mongeese
AMA and FDA.
Posted by Volkov 4 years ago
Volkov
This would be interesting if you offered an alternative explanation for the sky-high cost of health care in the US, Roy.
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