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Excessive profits — where?

MANAGED CARE August 2013. © MediMedia USA
Snapshot

Excessive profits — where?

Raking health plans over the coals can be a recreational and popular blood sport enjoyed by senators on both sides of the aisle in Washington. Sometimes it’s even warranted. But when critics alleged that insurers make excessive profits and pay excessive bonuses to their CEOs, they’d better have the facts — and they don’t.

A recent review by America’s Health Insurance Plans suggests that other industries in the health care group had much greater profits in 2010. AHIP found that of the 14 health plans included in the Fortune 500 list, profit margin averaged 3.6 percent. Last year, that figure was 3.2 percent. Four of the 14 companies actually saw a decline in their profit margin — averaging a decline of 79 percent in profit margin from 2009 to 2010.

Molina, Health Net, Coventry, and Universal American reported margins below 1 percent, and Humana, Magellan, WellCare, and Centene reported margins between 1 and 2 percent.

In contrast, the average profit margin for the pharmaceutical industry is 16 percent.

And where on the Fortune 500 list does the industry “Health Care Plans” (which includes Humana, Aetna, WellPoint, Magellan, etc.) reside? Firmly in slot #86 — not exactly strong evidence of excessive profits.

Profit margins for health care industry groups, 2010

Source: Fortune 500 groupings

Average profit margin for five of the largest health plans (by market cap)

Source: America’s Health Insurance Plans, “Putting Health Plans’ Profits in Perspective”