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Just How Profitable Are Healthcare Insurers?

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Re: Just How Profitable Are Healthcare Insurers?

#11

Post by dfranke »

CWuestefeld wrote: post #8
pw0ncakes wrote: post #6

Most Americans (probably 80-90%) conflate corporate greed with profits , which is the wrong way to look at the problem. Most of the asshole greed we see today is not in profit per se , but in back-scratching compensation deals for top management. Note that CEO pay is not profit. It's an expense. Most Americans either don't make or are unaware of this distinction. Managerial overcompensation is strictly worse , becaus…

Most of the asshole greed we see today is not in profit per se, but in back-scratching compensation deals for top management. Citation, please? I'm very skeptical that pay for top execs amounts to a really significant part of corporate expenses, or that corporate profits could be increased substantially by cutting these expenses.

Ooh, interesting question. First number I was able to grab: Citigroup lost $7.8B in 2009. In 2007, their CEO's $24.8M in compensation from the previous year ($1.2M salary, $13.2M bonus, $10.4M stock grant) was denounced as scandalous.

Edit: slightly more apples-to-apples: their 2007 profit was $3.6B. Their 2006 profit was $21.5B.

Re: Just How Profitable Are Healthcare Insurers?

#12

Post by CWuestefeld »

dfranke wrote: post #11
CWuestefeld wrote: post #8

Earlier quoted context omitted.

Most of the asshole greed we see today is not in profit per se, but in back-scratching compensation deals for top management. Citation, please? I'm very skeptical that pay for top execs amounts to a really significant part of corporate expenses, or that corporate profits could be increased substantially by cutting these expenses.

Ooh, interesting question. First number I was able to grab: Citigroup lost $7.8B in 2009. In 2007, their CEO's $24.8M in compensation from the previous year ($1.2M salary, $13.2M bonus, $10.4M stock grant) was denounced as scandalous. Edit: slightly more apples-to-apples: their 2007 profit was $3.6B. Their 2006 profit was $21.5B.

So in 2006 they paid their CEO about 0.1% of their total profit? That doesn't seem like a lot.

But more important, how much does it cost to find someone who can run a company like that competently? I work for a lot cheaper, but I'm also not capable of managing all of Citigroup. And conversely, if I were someone who had proven that I could do that, I'd likely have enough money to retire; you'd have to pay me quite a lot to convince me to subject myself to that kind of stress rather than sipping pina coladas on the beach.

Re: Just How Profitable Are Healthcare Insurers?

#13

Post by protomyth »

If a business makes a profit by serving its customers, I'm ok with that. At this point, given how messed up the health care system is (law, super expensive EOL care, high entry cost for doctors and nurses, poor non-emergency care situation), can you really do the right things. Given the failure of Indian Health Service in serving its customers (to the point of pinning a note that says "we won't pay" on a person transferring to a hospital), I know the government can't even on a loss / non-profit basis.

I almost think the government should start with tuition incentives / loan relief for doctors and nurses, and create a government cataclysmic insurance fund that covers stuff over a $100K (think flood insurance).

Re: Just How Profitable Are Healthcare Insurers?

#15

Post by jbooth »

CWuestefeld wrote: post #12
dfranke wrote: post #11

Earlier quoted context omitted.

Ooh, interesting question. First number I was able to grab: Citigroup lost $7.8B in 2009. In 2007, their CEO's $24.8M in compensation from the previous year ($1.2M salary, $13.2M bonus, $10.4M stock grant) was denounced as scandalous. Edit: slightly more apples-to-apples: their 2007 profit was $3.6B. Their 2006 profit was $21.5B.

So in 2006 they paid their CEO about 0.1% of their total profit? That doesn't seem like a lot. But more important, how much does it cost to find someone who can run a company like that competently? I work for a lot cheaper, but I'm also not capable of managing all of Citigroup. And conversely, if I were someone who had proven that I could do that, I'd likely have enough money to retire; you'd have to pay me quite a l…

Well, if we're going to do apples-to-apples, given the recent statements on their ledger, we should ask "How much does it cost to find someone who will run us damn near into the ground and require a government bailout"? :)

Obviously it's more complicated than that, but the "we have to pay for the best and brightest!" meme starts to sound a lot more like self-dealing when it turns out the best and brightest do approximately the same quality job as one of those dipper things that replaced Homer Simpson at the nuclear plant for a week once.

Re: Just How Profitable Are Healthcare Insurers?

#16

Post by pw0ncakes »

CWuestefeld wrote: post #8
pw0ncakes wrote: post #6

Most Americans (probably 80-90%) conflate corporate greed with profits , which is the wrong way to look at the problem. Most of the asshole greed we see today is not in profit per se , but in back-scratching compensation deals for top management. Note that CEO pay is not profit. It's an expense. Most Americans either don't make or are unaware of this distinction. Managerial overcompensation is strictly worse , becaus…

Most of the asshole greed we see today is not in profit per se, but in back-scratching compensation deals for top management. Citation, please? I'm very skeptical that pay for top execs amounts to a really significant part of corporate expenses, or that corporate profits could be increased substantially by cutting these expenses.

Executive pay may be small compared to the corporate balance sheet, but the level it's at allows for and encourages bad behavior.

1. The extreme disparity between CEO pay and other vital executives encourages people to backstab in order to ascend the hierarchy. So "work" for those who are in line to be CEOs is more about jockeying for position and trading favors than about building a company.

2. In addition to (1), such disparities are bad for morale, especially when the CEO is a "hired gun" instead of someone who has been part of the company for a long time.

Except in athletics, where talent is objectively measurable, the "star system" tends to piss off everyone but the stars, and let's be realistic: non-stars are 99% of people, and probably 3/4 of those who would be considered objectively the most competent.

3. When the CEO makes $500,000/year, he's drawing a good salary but still has the incentive to build a legitimately strong company for the long-term. When he has a "performance bonus" that will give him fuck-you money in 12 months if he plays his cards right, his incentives are in the short term.

4. When there are massive discrepancies in pay between the bosses and the people they are managing, the social class and lifestyle disconnects become problematic and can damage morale. This is why the best CEOs try to appear middle-class in terms of dress and work habits.

CEO pay is at such a level that it actually brings lower quality of management. This is what's truly alarming. Decades ago, when CEO pay was much lower, American companies were well-managed and produced great products like (imagine this for a second) cars that people actually wanted to buy. Now, big-company CEOs command stratospheric salaries and generally such ass. This is because executive pay is so high that it has pushed these people completely out of touch with reality.

Re: Just How Profitable Are Healthcare Insurers?

#17

Post by jbooth »

jrockway wrote: post #2

All this means is that the insurance companies spend most of the money they take in. They could hire x more employees and then they wouldn't be profitable at all. That doesn't mean they are tirelessly working to save you money, it just means they aren't profitable. I wouldn't read too far into this data.

Don't have a cite offhand but insurance industry employment has gone up by quite a lot (close to double if I recall correctly) since 2000.

Let's say I'm an insurance CEO. You tell me, that by spending 20 million on increased claim scrutiny, we'll net 1 million in total savings by disbursing 21 million fewer dollars.

What do I do there? It's obvious, I go for the 1 million. So I just spent 20 million in order to hand out 21 million fewer dollars. The policy holders are worse off, the country's worse off, and the insurance company only got a crappy 1 million out of it, compared to the 21 million they're no longer disbursing.

All perfectly rational given the incentives -- which is why the system's broken.

Re: Just How Profitable Are Healthcare Insurers?

#18

Post by ibsulon »

1. I don't think anyone would complain about health care if it was handled well by insurance companies. However, health care, by and large, is suboptimal in this country. http://ucatlas.ucsc.edu/spend.php shows the price to outcome outlier that we are.

2. We need to look at profits in the health care industry as similar to a VAT. If you have a profit margin at the end of the line, even if it's 18%, it's not that big of a deal. However, if each segment along the line adds a VAT, even a 5% tax of every segment can add up to a third of the cost, depending on how deep the pipeline goes. Each segment of the line is taking a profit. 3% of the health care industry, x% of the hospital (less than you would think because they subsidize so much of the uninsured) y% from the pharmaceutical industry, z% from the individually owned clinic... The end result is a disproportionately expensive system in this country.

Re: Just How Profitable Are Healthcare Insurers?

#19

Post by pw0ncakes »

jbooth wrote: post #15
CWuestefeld wrote: post #12

Earlier quoted context omitted.

So in 2006 they paid their CEO about 0.1% of their total profit? That doesn't seem like a lot. But more important, how much does it cost to find someone who can run a company like that competently? I work for a lot cheaper, but I'm also not capable of managing all of Citigroup. And conversely, if I were someone who had proven that I could do that, I'd likely have enough money to retire; you'd have to pay me quite a l…

Well, if we're going to do apples-to-apples, given the recent statements on their ledger, we should ask "How much does it cost to find someone who will run us damn near into the ground and require a government bailout"? :) Obviously it's more complicated than that, but the "we have to pay for the best and brightest!" meme starts to sound a lot more like self-dealing when it turns out the best and brightest do approxi…

Obviously it's more complicated than that, but the "we have to pay for the best and brightest!" meme starts to sound a lot more like self-dealing when it turns out the best and brightest do approximately the same quality job as one of those dipper things that replaced Homer Simpson at the nuclear plant for a week once.

Well said. My post above explains why CEO pay actually results in a worse product.

The "best and the brightest are not the ones who end up as CEOs of big companies." Pick one at random out of the Fortune 500. Give me a year to study the company and then replace him with me; I'm now the top dog. There is a 60% chance I will do a better job. I'm 26 and have no advanced degree. Do the same with a small business or a farm. There is almost a 0% chance I will do a better job. What does this say about large companies and their management?

Re: Just How Profitable Are Healthcare Insurers?

#20

Post by anamax »

marshally wrote: post #9

Another important factor here is the amount of reserves that are held back from each $1 of premiums input into the system. For a single payer system, the idea of reserves is non-sensical (similar to the farce of the 'social security trust fund' which makes zero sense from a macro economic perspective). I would make the point that reserves are a waste product of an insurance based system.

> Another important factor here is the amount of reserves that are held back from each $1 of premiums input into the system.

You're forgetting that insurance companies invest that money.

There are times when claims payout exceeds the premiums, yet insurance companies still manage to make money because of the investments.

As always, if you think that you can do insurance better, go for it. If you're right, you get rich and drive them out of biz.

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