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Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

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Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#41

Post by tyzoid »

edmundsauto wrote: post #37
rco8786 wrote: post #33

Earlier quoted context omitted.

Not sure I'm buying it tbh. I'm no fan of the American healthcare system, but we don't need to invent new accounting to make it look worse than it is. Lots of businesses and industries have legal obligations to pay money for various things at various times, they don't treat that as pass through...it's revenue and expenses. Money is fungible.

I respectfully disagree. Should Stripe or VISA count all charges made with their network as revenue?

No - this is a false equivalence. Transaction processing companies for the most part handle the in-and-out flows as a single transaction. Insurance companies hold on to the premium pool ("float") for long enough that they have time to realize gains from investing portions of it - the inflow and outflow are very separate.

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#42

Post by estearum »

CGMthrowaway wrote: post #7

@getnormality Two main differences: 1) medical loss ratio rules mean insurers are expected/required to pass a certain percent of premium on as payment for medical services, in a way that a grocery store is not required 2) insurer is selling you a contract that they will pay your medical bills if you have any - they are NOT retailing you medical services 3)

Insurers in the US actually are retailing you medical services. All the large insurers own huge (and growing) numbers of medical providers and they use their insurance plans to abuse non-owned medical providers into selling out to the insurer.

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#43

Post by cwillu »

rco8786 wrote: post #33
cmiles74 wrote: post #30

Earlier quoted context omitted.

I believe they are saying that only the portion of premiums paid by UHG customers _that are not_ spent on paying out claims should be counted as UHG revenue. That is if I and my employer pay UHG $18,000 over the course of the year and UHG pays out $2,500 to my doctors and to cover my prescriptions, only the remaining $15,500 should be counted as UHG revenue. The thinking here is that because UHG is legally obligated…

Not sure I'm buying it tbh. I'm no fan of the American healthcare system, but we don't need to invent new accounting to make it look worse than it is. Lots of businesses and industries have legal obligations to pay money for various things at various times, they don't treat that as pass through...it's revenue and expenses. Money is fungible.

This is addressed in the first paragraph of the pdf, with comparisons drawn to other industries and financial instruments where such income is not considered revenue. One can of course disagree whether it should be accounted this way, but the concept is not outlandish.

“This measure, while a standard accounting metric, obscures the strong financial performance of financial intermediaries such as health insurance companies, whose revenues are mostly pass-through payments between insured individuals and their health service providers. […]”

It seems to me that this document is almost entirely an argument for changing the accounting rules because of this distortion.

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#44

Post by gruez »

edmundsauto wrote: post #37
rco8786 wrote: post #33

Earlier quoted context omitted.

Not sure I'm buying it tbh. I'm no fan of the American healthcare system, but we don't need to invent new accounting to make it look worse than it is. Lots of businesses and industries have legal obligations to pay money for various things at various times, they don't treat that as pass through...it's revenue and expenses. Money is fungible.

I respectfully disagree. Should Stripe or VISA count all charges made with their network as revenue?

Should gas stations exclude the cost of the gas they're selling as revenue? There's probably a better argument to be made that they should be included than insurance companies be excluded. Unlike insurance companies, where the costs could come in randomly and over the span of months/years, the gasoline they're selling must be replaced (no randomness element) and is turned over in a matter of days. And if you think gasoline should be exempt because "it's not money", should precious metal or crypto traders get off the hook because those aren't money either?

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#45

Post by ssivark »

gruez wrote: post #39
ssivark wrote: post #23

Earlier quoted context omitted.

I'm not an accountant and don't claim to have a clean answer to how it should be accounted, but I hope I can highlight the conundrum. Suppose you run a brokerage or some kind of marketplace enabling transactions. Should all transactions passing through your platform be considered your revenue ? Or only the part that stays with you for the services you provide, while deducting the component which is simultaneously dir…

All of this might be relevant in a conversation between accountants or investment analysts, but it's pretty obvious the "study" chose this particular methodology to get a number that makes insurance companies look as bad as possible. In this context, using their methodology does more to obfuscate/mislead than to clarify. If you say that UHI has a profit margin of 15%, most people would interpret that to mean that per…

> most people would interpret that to mean

You're just asserting common convention among some implicitly selected audience that you consider "most" people, rather than justifying why that is the most reasonable practice.

Not that I consider it unreasonable (as I explained above).

Most people (in the populace) are unfortunately not numerate enough to have a thoughtful opinion on how it ought to be accounted, and are irrelevant to this discussion.

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#48

Post by smokefoot »

edmundsauto wrote: post #37
rco8786 wrote: post #33

Earlier quoted context omitted.

Not sure I'm buying it tbh. I'm no fan of the American healthcare system, but we don't need to invent new accounting to make it look worse than it is. Lots of businesses and industries have legal obligations to pay money for various things at various times, they don't treat that as pass through...it's revenue and expenses. Money is fungible.

I respectfully disagree. Should Stripe or VISA count all charges made with their network as revenue?

Yes. Each industry has developed accounting standards that reflect the nature of their business. You couldn't run a bank or a payments company with a simple sales - COGS = gross profit model, it just wouldn't make sense.

In health insurance specifically, profitability is somewhat regulated and this gets at the accounting issue here. Insurance companies should maintain a medical loss ratio of 80-85% meaning that fraction of the premiums should be paid to providers. The remaining 15-20% is split between administrative costs and profit. Most of the article's forensic arguments around this are weak and circular and represent a misunderstanding of the accounting itself.

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#49

Post by SpicyLemonZest »

getnormality wrote: post #2

> Conventional accounting measures portray large health insurers such as UnitedHealth Group (UHG) as earning relatively low profit margins because they treat premium dollars that are subsequently paid out in medical claims as revenue. However, these medical claims are pass-through costs, not income retained by the insurer. I don't understand this claim. Doesn't every business have costs to make its goods and services…

The point is that, to a typical person who doesn't know much about accounting or insurance, UnitedHealth's "profit margin" is understood to mean the fraction of the money I send them each month that's going into their pockets. Conventional accounting matches this intuition pretty well, and the source article's proposed alternative metric does not match it well at all.
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