Health insurance companies make massive profits by cheating consumers.
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.