The Daily Caller

The Daily Caller

The truth about health insurance premiums and profits

On a recent Fox News debate about health insurance, Democratic political strategist Bob Beckel explained that, “The president needed an enemy, and the insurance companies are it.”

Proving that point in a Pennsylvania stump speech, President Obama asked, “How much higher do premiums have to go before we do something about it? We can’t have a system that works better for the insurance companies than it does for the American people.”

On February 20, President Obama used his weekly radio show to express outrage that a fraction of Californians buying individual Anthem Blue Cross Blue Shield (BCBS) plans “are likely (sic) to see their rates go up anywhere from 35 to 39 percent.” He used those figures to justify preempting state regulation “by ensuring that, if a rate increase is unreasonable and unjustified, health insurers must lower premiums, provide rebates, or take other actions to make premiums affordable.”

There was always something peculiar about this desperate effort to demonize certain health insurers. Individual plans account for only 4 percent of the insurance market. So why do they account for 100percent of the president’s fulminations about insurance premiums? Could it be because insurance premiums for the other 96percent have not been rising much?

Nonprofit BCBS plans account for a third of the private health insurance market. Michigan’s nonprofit asked for 56 percent premium hike without the national media taking that Hail Mary pass too seriously. But even Obama finds it difficult to accuse nonprofits of being too profitable, so he needed to pin his enemy badge on a for-profit firm – one of Wellpoint’s “Anthem” BCBS plans.

Anthem of California’s requested rate increase on individual policies was actually 20-35 percent. The only way it could get to 39percent would be if a policyholder insisted on a gold-plated Cadillac plan and also happened to move up into a higher age group. Besides, requesting a rate hike means nothing. Even Obama’s radio address mentioned two requests that had been cut in half. Many are denied.

So, how many Californians have actually been faced with a 39 percent increase in their premiums? Exactly zero.

How many are really “likely” to be faced with even a 35 percent increase after state insurance regulators have their say? My forecast: Zero.

The president highlighted the “likely” increases of “35 to 39 percent” to suggest insurance companies in general were asking for huge premium increases just to boost their lavish profits. He complained that in the $1.2 trillion health insurance industry, “the five largest insurers made record profits of over $12 billion.” But that puny sum includes WellPoint’s sale of its pharmacy benefits management company NextRX to Express Scripts for $4.7 billion last April. Adding that $4.7 billion to WellPoint profits is like saying a family’s income rose by $1 million because they sold a million-dollar home.

University of Michigan economist Mark Perry calculated that without the sale of NextRX, “WellPoint’s profit margin would have been only 3.9 percent, the industry average profit margin would have been closer to 3percent”— $100 per policy. Yet Obama concluded that, “The bottom line is that the status quo is good for the insurance industry and bad for America.”