b' Wordw w w. w m i m u t u a l . c o mJust How GREEDY Is MyHealth Insurance Company?By David Leo, F its a foregone conclusion that health insurance companies andFor most people, their executives are greedy weaselssecond only to lawyers. As an insurance com-pany executive (and a lawyer), Id like to ask that you indulge me a few minutes ofyour time to rebut that unfounded (albeit convenient) fallacyat least insofar as its application to health insurance companies. Before we start, please take a moment to President of answer the following question:WMI MutualInsurance Company Question: The average net profit of U.S. health insurance companies is ___% of revenue. & WMI TPA A: 3%B: 5%C: 10%D: 12%E: 15%Hint: According to Yahoo! Finance, the most recent net profit margin (%) (defined as net incomerev-enue) for Apple, Inc. (AAPL) is 21.3%; The Walt Disney Company (DIS) is 13.8%; Berkshire Hathaway, Inc. (BRK.A), Warren Buffets conglomerate, is 12.8%; Johnson & Johnson (JNJ) is 21.0%, and Alphabet, Inc. (GOOG), the parent company of Google, is 19.0%.Ill provide the answer to the question in due course, but Id likeThat leaves a mere 3% for profit (in a good year)hardly the to illustrate where the health insurance premium dollar goes first.double-digit profit enjoyed by many other industries and compa-I would also like to show you how much of the health insur- nies. Sothe answer to the question of how much profit health ance premium dollar is used by so few, and why health careinsurance companies in the U.S. make on average is A: 3% reform must address health insurance costs for it to be effective. hardly greedy and far from weaselly. I should note this figure Finally, many years ago I heard the saying, Health insurance isis consistent with the medical loss ratio (MLR) requirements expensive because health care is expensive. I hope that once weof the Affordable Care Act (the ACA or Obamacare) which dispatch with a few myths that are easy to believe and difficultmandate that health insurance companies spend 85% of all to dispel, you will see that maybe, just maybe, health insurancepremium on medical expenses, and that insurers refund premium companies arent such greedy profit mongers after all. 1 if they dont satisfy that threshold. The 85% figure drops to 80% According to data compiled from Americas Health Insurancefor individuals and small groups, but thats still a pretty stringent Plans (AHIP), nearly 82% of every premium dollar goes target! I should also note that health insurance companies that directly to pay for the following healthcare expenses: experience an adverse claims year are required to cover excess prescription drugs (21.5%); inpatient medical care (19.0%); losses with policyholder surplus or some other funding source, and other medical services (41.1%) (see, Graph 1).so its a heads-we-win / tails-you-lose proposition. Insurance companies allocate 15.3% for overhead, whichGRAPH 1includes things like salaries and benefits, office space, agent commissions, PPO access fees, medical case management fees, prescription drug card fees, and many additional expenses that are paid to other third parties. 1 Ivegatheredthemajorityofmyinformationanddocumentation from several reputable sources: (1) Americas HealthInsurancePlans~ Wheredoesyourhealthcare dollargo?(https://www.ahip.org/health-care-dollar);(2) the nonprofit, nonpartisan National Institute for Health Care ManagementFoundation(https://nihcm.org/publications/the-concentration-of-u-s-health-care-spending); and (3) The Agency for Healthcare Research and Quality (https://www.meps.ahrq.gov/data_files/publications/st533/stat533.pdf). If youre interested in accurate information about healthcare cost drivers or the allocation of health insurance premiums, rather than anecdotal information and political rhetoric, I would encourage you to visit those well-documented and authoritative websites.22 www.wpma.com /Spring 2021'