Health Care Reform!!!!, Part 2

I didn't plan on harping on health care anymore, but reading this Bloomberg article got me kind of pissed, so here we go…

One of the main themes of this debate centers on the insurance companies being immorally profitable. After all, if those companies weren't so bent on making a profit and staying in business, then everyone could get coverage for less. Damn them!

Robert Menendez, one of my state's Senators (not that I'm proud of it), accused the companies of making their sordid earnings "on the backs of American families." Well, I realize how effective emotionally-charged statements like this are. It's despicable. These guys are just manipulating you by painting a picture of Big Insurance pitted against the poor, uninsured children.

While it's true that insurance companies and all other companies are able to continue in business by taking money from their customers, how exactly else should we expect them to render their services to us? Should we expect every company to self-immolate to serve these people's sense of fairness?

The article mentions the firms' embarrassing profit growth from 2000 to 2007. Firstly, 2007 was a peak year in profits for United Health Group. Using more appropriate, recent data, 2000 to 2008, the growth rate for United Health Group amounts to 336%, or an impressive (but not that impressive) 20.2% annualized growth rate per year. Although this is above average, it's not really that notable.

Further, if you want to establish that a company has been gouging the public, you should look at revenue instead of earnings, because revenue is the amount it receives for its services, earnings are that revenue minus what it must pay to its suppliers in order to provide those services. Looking at revenue, the annualized growth rate for the same period comes to 18% - still good, just not very remarkable, especially during a period of relatively solid economic expansion.

While inspecting the revenue, I noticed a few jumps: in late 2004 through 2006, United Health Group acquired several smaller health insurance companies (see page 58 and 59 of this annual report). That means, around the time cited by the article, United Health added the revenue from several other insurance companies to its financial reports. That's not genuine growth – it's like taking 3 cookies, smushing them together, and being amazed that the original cookie has grown. Amazing!

This document published in late 2006 by the New York State Assembly discusses an industry-wide health insurance industry consolidation, meaning many companies were making similar acquisitions. Therefore, I think it's safe to say that United Health Group's situation during this period was not unique.

What does that mean? This ridiculous, incorrigible growth is probably mostly an illusion brought about by a lot of acquisitions (i.e., mashing many cookies together into fewer, much larger cookies).

I don't know if Menendez knows this as he chastises these companies for doing, well, basically what every company in the United States does – I'll give him the benefit of the doubt – but spending just an hour or so looking into these remarks, using nothing but free resources (which I have fully linked) all but proves that he's just being silly. Or manipulative. Surely the resources of our public servants are enough to cover the cost of internet access and a little time to look into where this growth is coming from.

All that aside, even if the post-acquisition earnings shown by these insurance companies were comparable to earlier periods (which they are not), what Congress is asking them to do is to help build their own gallows. In effect, the government health insurance will compete with the private companies. It will be able to charge much lower prices because its goal is accessibility, not profit, so the taxpayers will cover the losses (an estimated $1 trillion over 10 years). Some proponents of the plan even want to penalize the insurance provided by private companies in order to fund the government plan's advantage. The unavoidable result of this, and indeed any case where the government incurs losses to compete with private companies, is to completely take over the industry. Think TVA during the Great Depression.

The government insurance plan, as the cheaper alternative, will cause great harm to the private insurance industry, if not obliterate it altogether. For this reason alone, it is wrong. The government will compete, using unfair advantage, with its own citizens! And on top of that, Senators have the chutzpah to decry the insurers for not contributing to their own demise.

Does it get more ridiculous than that?