Health in­sur­ance com­pa­nies make mas­sive prof­its by cheat­ing con­sumers.

The Washington Post Sunday - - OUTLOOK -

To strengthen the case for re­form, pro­po­nents of the ACA scape­goated pri­vate in­sur­ers in the de­bate lead­ing up to its pas­sage, blam­ing out­size pre­mi­ums and skimpy cov­er­age on un­eth­i­cal be­hav­ior. In a 2009 ra­dio ad­dress, Obama cited in­sur­ers’ un­due “prof­its and bonuses.”

In­sur­ers, how­ever, were not earn­ing par­tic­u­larly high prof­its then. A 2010 Con­gres­sional Re­search Ser­vice study showed that among large, pub­licly traded health in­sur­ers, prof­its av­er­aged 3.1 per­cent of rev­enue. In com­par­i­son with other health­care play­ers, that put them in the mid­dle of the pack — well be­low phar­ma­ceu­ti­cal and biotech com­pa­nies and med­i­cal-de­vice man­u­fac­tur­ers, on par with phar­macy com­pa­nies, and above hos­pi­tals.

Yet this rhetoric has per­sisted in both lib­eral and con­ser­va­tive out­lets. “The ACA gets blamed for ris­ing pre­mi­ums, while in­sur­ance com­pa­nies are reap­ing mas­sive prof­its,” a Sa­lon ar­ti­cle de­clared in Oc­to­ber. A Weekly Stan­dard piece pub­lished around the same time pointed to ris­ing prof­its among the health in­sur­ers on the For­tune 500 as “an­other fine ex­am­ple of the nat­u­ral al­liance be­tween Big Gov­ern­ment and Big Busi­ness.”

But the be­gin­ning of the ACA co­in­cided with the end of the re­ces­sion. From 2007 to 2009, 8 of the 10 largest in­sur­ers had dou­bledigit losses, and one — Wel­lCare — had triple-digit losses. In a phe­nom­e­non economists call “re­gres­sion to the mean” and fi­nan­cial an­a­lysts call “the busi­ness cy­cle,” prof­its across all in­dus­tries re­cov­ered around the same time the ACA was im­ple­mented.

A na­tion­wide study of in­sur­ers sup­ports the ar­gu­ment that their prof­its are more aligned with eco­nomic growth than any­thing else. In 2013, when GDP growth was slower, in­sur­ers on av­er­age op­er­ated at a loss; but they re­cov­ered by 2014 when growth picked up. More­over, the bulk of in­surer prof­its were from in­vest­ments rather than en­rollees.

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