Myth 25. Medical care costs too much because private corporations make a profit.

In his address to Congress on health care reform, Barack Obama cited Alabama as a state in which almost 90% of health insurance is controlled by one company. “[A]n additional step we can take to keep insurance companies honest is by making a not-for-profit public option available in the insurance exchanges.”

The “People Before Profits” slogan also reflects the belief that it is not only inefficient and costly but morally wrong to make a profit from providing health insurance or medical care. (Also see Myth 22.)

A reality check on health insurers and profit:

  • By far, the dominant players in the health insurance market are nonprofits, especially Blue Cross and Blue Shield. The largest insurer in virtually every state is a nonprofit (John Lott, FOXNews.com 9/16/09).
  • About 55% of insured employees receive coverage through their employer’s “self-insured” plan. For Alabama, the correct percentage insured by one company is 36%, not 90%, when the employees of self-insured companies are in the denominator.
  • Getting rid of profits would not reduce costs, Lott writes. Costs would go up because without profits there would not be the same incentives to hold them down. Profits are the reward for figuring out what consumers want. “Profit maximization combined with competition is the only reliable way we know to keep costs down,” states Baylor economics professor Earl Grinols (ibid.).
  • Non-profits obtain the success they do largely because of their tax and regulatory advantages—i.e. because of government favors, not because of superior performance.
  • Health plans are the 86th most profitable industry (DownsizeDC.com 9/21/09), with a profit margin of 3.3%, about the same as home furnishing stores and heavy construction. Hospitals are 77th (with a margin of 3.6%). Brewers have a margin of 25.9%; major drug manufacturers, 16.5%; networking and communication devices, 16.3%; education and training services, 11.7%; and general entertainment, 6.8%.

Dr. William Summers of Albuquerque provides a contrast between two California hospitals in the 1980s. At one, the cost of a room started at $850/day, plus extras adding up to more than $1,000. They had plastic utensils, styrofoam cups, and surly nurses. Across town, there was a hospital that charged $115, with few extras. It served food on china with real silverware and linen tablecloths. It had an excellent chef, a polite staff, and a swimming pool. The first hospital took government insurance; the second was cash-only.

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5 thoughts on “Myth 25. Medical care costs too much because private corporations make a profit.

  1. $$$$$ TOO MUCH MONEY $$$$$$
    Why should the CEO of United Healthcare take out $2 BILLION dollars!
    This guy made $1,776,547635+ selling health insurance to poor people….William McGuire CEO United Healthcare
    CEO William McGuire took a breath-taking $124.8 million total compensation of United Health Group (parent of United Healthcare)

    This figure can also be found in the Forbes Special Report on CEO compensation. Here one can find that other managed care CEOs got less fabulous, but still formidable compensation, e.g., Howard Phanstiel, PacifiCare, 3.38 million; Edward Hanway, Cigna, $13.3 million; John Rowe, Aetna, $22.2 million; and Larry Glassrock, Wellpoint, $25.0 million.

    Elizabeth Edwards, speaking on The Daily Show, used it to support her argument for a public alternative to commercial insurance[. Edwards stressed the importance of restoring competition in health insurance markets noting that at one point, "the President of United Health made so much money, that one of every $700 that was spent in this country on health care went to pay him":

    Estimates of McGuire's 2005 compensation range from $59,625,444 [9] to $124.8 million], and the revenue of United Health Care was then $71 billion. It has therefore been suggested that Mrs Edwards may have meant to say that one of every $700 that was spent on United Health Care premiums went to pay McGuire. Yet further, William W. McGuire’s “golden parachute” compensation of over one billion dollars (US$) makes Elizabeth Edwards’ statement closer to the actual ratio she quoted.

    William McGuire of UnitedHealth Group, the nation’s leading insurer, was the third-highest paid CEO on the Forbes list. His pay of $124.8 million could cover the average health insurance premiums of nearly 34,000 people….

    While workers are having a tougher time making ends meet, CEOs are getting perks worth more than worker paychecks. CEO freeloaders expect perks such as lifetime use of company jets, chauffeured cars, company apartments, club memberships, sports tickets, financial planning, personal assistants and more.

    In CEO World, the more money you make, the less you should have to pay for.
    For example, former UnitedHealth Group CEO William McGuire received 14.6 million stock options on the same day that UnitedHealth Group’s shares fell to their lowest price for the year. In addition, grants in several other years occurred near the bottom of sharp stock dips. McGuire, of course, denied he ever backdated his options. But the odds of all that occurring by chance were one in 200 million or greater—much worse than his odds of winning the Powerball. The result? Over his 15 years as CEO, stock option backdating helped McGuire accumulate more than $2 billion in stock options.

    The problem for McGuire and other backdating CEOs is they may have violated accounting rules, state corporate law, federal securities laws and tax laws. In some cases, like that of former Comverse CEO Kobi Alexander, who fled to Namibia, the U.S. Department of Justice concluded that CEOs committed criminal fraud.

    Tuesday, May 10, 2005
    How Can a $124.8 Million a Year CEO Make Health Care More Affordable?

    An op-ed piece in the Providence Journal about huge pay packages for corporate CEOs mentioned the breath-taking $124.8 million total compensation of United Health Group (parent of United Healthcare) CEO William McGuire. This figure can also be found in the Forbes Special Report on CEO compensation. Here one can find that other managed care CEOs got less fabulous, but still formidable compensation, e.g., Howard Phanstiel, PacifiCare, 3.38 million; Edward Hanway, Cigna, $13.3 million; John Rowe, Aetna, $22.2 million; and Larry Glassrock, Wellpoint, $25.0 million.
    McGuire’s compensation was so large as to take a measurable part of this large company’s net income (5%). Or to look at it from a stock-holder’s (and hence, an company owner’s) viewpoint, had McGuire, who is an employee, been only paid a cool million, and this money had been distributed as a dividend, it would amount to about a $0.20 per share dividend. (The current dividend is $0.03 per share.) (See company data available from Forbes as well.)
    To look at it from a United employee’s viewpoint, had McGuire, who is an employee, been only paid a cool million, and this money had been distributed to employees, each of the 40,000 employees could have received a bonus larger than $3000.
    To look at it from the viewpoint of the health care system, the $124.8 million total compensation of a single United employee could pay the salaries of 833 general internists at current typical salaries. Or the $124.8 million could run one reasonable size community hospital for a year.
    United Health Group’s mission statement is “the company directs its resources into designing products, providing services and applying technologies that improve access to health and well-being services; simply the health care experience; promote quality; and make health care more affordable.” (See this fact sheet.) Rather, it seems to be directing a good chunk of its resources into salaries of top management employees. How a $124.8 million CEO salary can be reconciled with a mission to “make health care more affordable” is completely beyond me.

    $6.5 Million Retirement? That’s Not Enough for Some CEOs. They Want to Kill Your Retirement Security, Too.
    by James Parks, Apr 6, 2006

    CEOs continued to undermine working families’ retirement security last year, but they took good care of their own nest eggs. Samuel Palmisano, for one, kicked off a plan to freeze the pensions of IBM’s 329,000 employees by 2008—while racking up a guaranteed retirement package worth $4 million annually and total 2005 compensation of nearly $24 million.

    Today, the AFL-CIO released its 2006 Executive PayWatch website featuring case studies of out-of-this-world CEO retirement packages and all-new data on CEO compensation packages. Since the first annual PayWatch site was released in 1997, more than 22 million persons have used the website to track data on CEO pay and the corporate abuses that cause it to soar.

    This year’s PayWatch site also enables users to contact the U.S. Securities and Exchange Commission (SEC) to urge adoption of new disclosure rules for executive pay packages.

    The CEO with the most outrageous retirement package is Henry McKinnell, CEO of pharmaceutical giant Pfizer, who leads the Business Roundtable—a major backer of efforts to privatize Social Security. With a $6.5 million annual retirement deal, he sure won’t miss Social Security if it’s gone.

    Other kings of the top hat retirement circuit include Exxon Mobile’s Lee Raymond ($6.5 million), AT&T’s Edward Whitacre Jr. ($5.5 million), UnitedHealth Group’s William McGuire ($5.1 million) and The Home Depot’s Robert Nardelli ($3.9 million).

    “When it comes to a job and retirement security, there is a double standard and workers are not the ones coming out on top,” said AFL-CIO Secretary-Treasurer Richard Trumka. “Corporate CEOs have been able to rig the rules of the game in their favor and leave workers and their families on the sidelines.”

    In 2005, the average CEO of a Standard & Poor’s 500 company received $11.75 million in total compensation, a 3.66 percent increase from 2004. As PayWatch points out, there’s little if any connection between CEO pay and CEO performance. McKinnell, for example, has presided over a nearly 45 percent drop in Pfizer’s stock price over the past six years.

    PayWatch’s database of 1,500 CEO pay low-downs is searchable by company name, ticker symbol, industry or total compensation. Here’s a fun feature: Compare your pay to the CEO’s and find out how many hundreds of years it would take you to make that much. Or find out how many thousands of workers could get health or retirement coverage for what the company pays your favorite CEO each year.
    been able to rig the rules of the game in their favor and leave workers and their families on the sidelines.”

    In 2005, the average CEO of a Standard & Poor’s 500 company received $11.75 million in total compensation, a 3.66 percent increase from 2004. As PayWatch points out, there’s little if any connection between CEO pay and CEO performance. McKinnell, for example, has presided over a nearly 45 percent drop in Pfizer’s stock price over the past six years.

    PayWatch’s database of 1,500 CEO pay low-downs is searchable by company name, ticker symbol, industry or total compensation. Here’s a fun feature: Compare your pay to the CEO’s and find out how many hundreds of years it would take you to make that much. Or find out how many thousands of workers could get health or retirement coverage for what the company pays your favorite CEO each year.
    http://www.aflcio.org

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  4. Julie:

    Just because you envy someone for success isn’t a good reason to tear them down. The great American dream is that no matter what your background and circumstances, you can rise above it and be successful. So it’s time for you to take charge of your own life and be successful. The catch is that you can’t do it by tearing someone else down. You do NOT have the right to someone else’s money or wealth.

  5. Well Julie, the first issue you have you seem to share with the majority of the vocally, liberal left in finger pointing at the ‘Haves’, which is obviously a character defect called envy (religious, right wing fanatics call it a deadly sin), which can eat you up from the inside, so you should work on that. You see, if we were all MEANT to be equal, we’d all give of ourselves equally. I know many businessmen and businesswomen and they all have one thing in common – long hours working and little with family. It’s called sacrifice and most of the world aren’t willing to put forth that amount of effort. (and I see you didn’t provide for a site to track the MILLIONS that contribute little or nothing to society).

    The United Health Group and it’s subsidiaries serves about 70 million people (that VOLUNTARILY pay and are not MANDATED). Millions are employed directly as a result along with patient programs, physician incentives and administrative streamlining (you’ll not hear that about a bureaucracy). Shareholders will earn millions from the $3.24/share profits in 2009 and the 2010 outlook of $2,90-$3.10. In 2009, United Health Group generated total revenues of $87.14 billion (annual tax rate of 34.2%). The Group was named #1 in industry innovation for 3rd year in a row by Fortune Magazine (you’ll never hear that about the government).

    All in all, the fact is that capitalism is more efficient, more productive, does not TAKE from some to give to others without a choice (that’s taking from the poor and working poor) and contributes to society FROM ITS PROFITS.

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