Affordable Health Insurance Blocked by Decade-Long Profits

As the healthcare reform fight moves to the Senate, concerns over the cost of legislation are paramount. Supporters of reform claim that affordable health insurance is within reach if waste in the health care industry is reduced. They may have a point; a recent study shows that health care companies which are in the Standard & Poor’s 500 have, on average, tripled their profits in the last decade. This is during a 10-year period that has seen significant losses in most economic sectors. While it makes sense that the industry would be relatively resilient–after all, the necessity of visiting a doctor or hospital doesn’t go away when the economy slumps–healthcare costs have soared since 2000, making health insurance less affordable.The typical scapegoats for more expensive health plans are the health insurers themselves. There is no doubt that health insurance companies had a profitable decade. The six health insurance companies in the S&P 500 made over $10 billion in profits. UnitedHealth Group was the most successful, multiplying its income by seven. WellPoint benefited through its merger with Anthem, which increased their profits by a factor of eight. It would seem that these massive profits are standing in the way of affordable health insurance. However, insurance companies are actually one of the least profitable sectors of the healthcare industry. Their profits are less than expected, because sales of health insurance increased almost as much as profits. Despite the industry as a whole experiencing a 9.4% profit margin, insurance companies only have a margin of 4%. That is an increase of 1% over the past decade; while a significant factor, it isn’t the main driver of healthcare costs.If the insurers aren’t mainly responsible for the shortage of affordable health insurance in the U.S., who is? Medical suppliers and medical device makers saw the most improvement over the past decade. The former saw their profits increase by 17% since 2000, and the latter had margins of 15%. Meanwhile, pharmaceutical firms doubled their profits, while increasing their margins to nearly 25 percent. Biotech companies were the biggest winners of all; their profits increased ninefold. All of these industries have been responsible for valuable scientific advances in medicine. On the other hand, they have also resulted in the soaring cost of insurance during the same time frame.What can be done about this? Explicit price controls are extremely unlikely, but regulations enacted as part of a healthcare reform bill could nudge the health care industry towards reducing its costs. Affordable health insurance will be more plentiful if health insurers don’t need to pay exorbitant rates for the majority of their supplies and services. Unfortunately, the healthcare reform bill recently passed by the House of Representatives does little to remedy this problem. Drug and insurance companies have been significant players in crafting the current legislation, since the Obama administration believes that their inclusion in the process will allow for a smoother passage. The Senate’s version of healthcare reform may exert more downward pressure on prices, though.Many actors share the blame for increasingly expensive insurance premiums. Health insurance companies have been singled out somewhat unfairly, but they can nonetheless make improvements by reducing administrative expenses. A public option may serve as a way to pressure insurers and suppliers to cut costs–resulting in more affordable health insurance–but there are a myriad of factors making such a plan a tough sell. Health care industries make up a significant portion of the American economy, which will continue to grow as other sectors (e.g. automobiles) contract. They will not want to put their hefty profits in danger. Consumers are also partly at fault, by demanding increasing and ever-complex medical care that may be unnecessary, without regard for its cost. Price transparency could be another solution. We’ll see if the affordable health insurance market is still booming in 2019.