I don't see how those facts meaningfully changes the conclusion when the margin for the entire group, which includes the subsidiaries you mentioned was 3.6% last year and 6.1% the year before.
JumpCrisscross is saying ignore the 80/20 rule for the insurance side. If you look at UHC's overall parent company profits - the profits after they've calculated in the profit from the supplier side like pharmacy benefit company, pharmacy, doctors, et al - it is 22% gross, 4% net.
In other words the double-dealing only got them 4% net profit.
For my part I think a lot of the extra money is disappearing into administration. Every doctor's office of any size employs extra staff just to deal with insurance company nonsense. Insurance companies employ extra staff to deny claims and fight providers. That extra staff justifies more layers of middle management. This repeats across all specialists and disciplines. Your radiology company? Extra staff to deal with insurance. Lots of people employed to shuffle papers and manage workers.
But we can see the group profits. They’re right at 20 gross and much lower net. You’re arguing they’re double booking profits; that should show more profits. There aren’t more profits.
Also, other comments praise Kaiser for being more consolidated. Is your argument care at Kaiser is much worse?
I think comparison to Kaiser is very telling on the pros and cons. I have options for united and Kaiser at work. Kaiser is slightly cheaper but comes with major pros and cons. Cons are major internal gatekeeping for drugs and procedures. Pros are no getting stuck between provider insurer billing disputes, and most of your data under one roof.
Kaiser works well for people willing to fight their doctors to get the care they want.
United works well for people willing to fight their insurance billing department. It also works for people planning to hit their maximum annual out of pocket limit.
Let's say I'm legally required to use 80% of my salary on cupcakes. My wife makes a cupcake, and I purchase it for $100k. Do we think this was the likely intended result of the legislation?
You’re using hypotheticals when we have actual numbers. (And more-consolidated competitors with higher customer satisfaction rates.)
You have a solid hypothesis. The cross ownership exists. But the hypothesised effect—margin expansion—isn’t observed. The best we can say is they tried to juice margins but failed to, which is neither here nor there, and pins administrative incompetence—not greed—as the culprit.
A large fraction of UHG profits come from their Optum subsidiary selling software to other payer and provider organizations. This is separate from the health insurance business. If broken out separately they would be one of the 20 largest US tech companies.
Unfortunately that is rolling a boulder uphill, and even if you fire all of Congress (on this issue, you'd need to get rid of all the Republicans and at least a third of the Democrats) and replace it with people who give a crap, all it takes is one executive to stop enforcing the rules.
> you'd need to get rid of all the Republicans and at least a third of the Democrats
And then most voters: “71% of U.S. adults consider the quality of healthcare they receive to be excellent or good, and 65% say the same of their own coverage. There has been little deviation in these readings since 2001” [1].
> Quality of healthcare and quality of insurance experience are not the same statistic
The question was specifically about “the quality of healthcare you receive/your healthcare coverage.” Coverage doesn’t cover the insurer on cost, but it does on claims denials.
Most Americans like their coverage. If you want to reform the system, you have to start with that fact and convince them they aren’t risking what they have unnecessarily.
Sure. We want the same system but cheaper. That’s an important difference for someone advocating to scrap the system to make it cheaper. We want those lower costs. But loss aversion marries us to the good enough.
Correct. You've identified why this debate has been frozen in American politics for decades. One man's leech is another's adored Cadillac insurance policy, trusted provider or prescribed placebo. Healthcare reform keeps dying on the rocks of conspiracy theories about the Congress of whatnot. The problem is surfacing a solution the electorate trusts and endorses.
> One man's leech is another's adored Cadillac insurance policy, trusted provider or prescribed placebo.
No, the plans aren’t leeches, the people using the plans aren’t leeches, the entire administrative / leadership staff at health insurance orgs are the leeches.
A majority of the electorate wants government provided healthcare.
> A majority of the electorate wants government provided healthcare
No. (Come on, read your own source.)
A majority say "it is the responsibility of the federal government to make sure all Americans have healthcare coverage." There is a 10-point preference for a "system based on private insurance" versus a "government-run system."
79% of Democrats want a government-run system. But only 46% of independents and 13% of Republicans. Which explains the gridlock. If one side only proposes government-provided healthcare as its solution, it will waste a bunch of energy on it and then be predictably shot down.
> In 2017, 23% of the company’s insurance revenue went toward the provider unit called Optum Health, and 69% went toward OptumRx. So far in 2022, 38% of that money went toward Optum Health, while 56% was captured by OptumRx.
#1 on the list is Walmart, which has a similarly low on-paper 2-3% profit margin, but I don't think anyone is deluded into thinking the company, the Waltons, or its investors are barely scraping by.
#2 is Amazon. Again, low profit margin. Again, plenty of profit.
Nobody is arguing that you can't buy a luxury yacht or whatever with UNH's profits. It's pretty obvious from the original comment[1] is the argument is that even if all the profits were plowed back into approving more claims, that it would only only increase the approval rate by 5-6%, which is a totally minor amount.
Walmart is amazingly efficient and basically the case for how economies of scale benefit the consumer. If you broke it up, prices would go up, not down.
Walton's do great because of the scale, but is a very lean and efficient organization. Take them entirely out of the picture and the consumer would hardly notice.
Isn't profit what the board keeps after they pay for everything including the people in the board's employ? So in that sense the profit margin doesn't mean terribly much because you can always pay more to your senior managers and less to your patients.
The 80/20 rule[0] requires insurance companies to pay out at least 80% of premiums. That's revenue, not profit, and is independent of their costs.
So if they were a charity which magically had 0 costs the most payouts could increase is 20%.
Healthcare demand is infinite and providers have every incentive to inflate costs and recommend as many services as possible. I don't like our healthcare system but as it is, insurance companies play a necessary role of rationing care and there is no magical fix to claim denials.
You keep claiming managed care organizations are earning outsized profit margins, but the audited financials on their 10-Ks indicate otherwise, as do their subpar annual stock returns.
You can either accept that these business do not have a lot of pricing power, and they compete on razor thin profit margins (except UNH, but that is because they sell software and healthcare, not just insurance). Even then, their profit margin is only 5% or so, which is objectively a low profit margins.
Or you think there is a massive fraud and a nationwide conspiracy amongst 7 publicly listed businesses (UNH/Elevance/Cigna/CVS/Humana/Centene/Molina), and numerous non profits like Kaiser Permanente and various BCBS affiliated plans (because their premiums are basically the same as the for profit insurers).
The easiest thing to do though, is ask yourself why shareholders would accept lower annual returns if their business they own earns so much money?
You would think they could do better than SP500 if they were raking it in. Although, UNH did do better, but that is because they sell more high margin stuff like software and healthcare.
> You can either accept that these business do not have a lot of pricing power...
I definitely do not accept that assertion. Especially for the big vertically integrated ones like UHC.
> Or you think there is a massive fraud and a nationwide conspiracy amongst 7 publicly listed businesses (UNH/Elevance/Cigna/CVS/Humana/Centene/Molina), and numerous non profits like Kaiser Permanente and various BCBS affiliated plans (because their premiums are basically the same as the for profit insurers).
Good article, and they definitely do skate on the line, but there aren’t any indictments and it doesn’t seem there is any evidence they are colluding. Just lack of enforcement by the feds means it pays off for everyone to break the rules, but even then, the business is not profiting much.
>Walmart's is lower than that
So? That doesn’t mean 5% is a low profit margin. And the other MCOs are at 3% or less.
> That's why they do stock buybacks.
The effects of stock buybacks are incorporated into the total return calculation, so not sure what the relevance of this is either.
I just don’t see the logical consistency of claiming a business is doing super shady things to earn ridiculous amounts of profit, and then the business not doing better than SP500.
Or why insurance premiums at all the non profits would similar to premiums at all the for profits.
The more likely and simple answer is that it’s a cutthroat business, where almost all revenue goes out as expenses, and that is why all the premiums are similar, because no one can really cut more costs than they already are.
Profit goes to shareholders, not the board. The board is generally supposed to want more money to shareholders, not internal management. The incentives here are not great though, as being a board member is generally a cushy role for which one does not want to rock the boat.
However senior management generally wants to pump the stock price to get comp, not juice their salary. And to pump the stock price, they want money going to shareholders (or growth).
> And to pump the stock price, they want money going to shareholders (or growth).
Paying out dividends hasn't been a major factor in stock picking logic for at least 20 years, and rather than real growth, they'd rather pad their numbers by firing people. Shareholders get their money by buying low and selling high, not through something as quaint as long-term investment.
If they deny less claims, they’ll need fewer adjusters, admin and customer care staff. They will still have 5.5% profit margins but the CEO will get paid less because the net profit won’t perpetually grow and Wall Street doesn’t like that.
If they deny fewer claims then medical expenses will rise for their self funded employer customers, and then those customers will switch their health plans to a competitor like Cigna or Aetna. Most coverage rules are driven by large employers. UHC would be happy to offer a health plan which paid every single claim if that's what employers wanted: it would actually mean higher profits for UHC.
We should up that threshold until these companies start posting consistent losses, then ease up.
I tried researching this, but couldn't come up with an answer: if an insurance company pays doctors to review and dent claims, does that doctor salary count as "quality improvement activities", or administrative?
Surely the entire point of insurance is that the provider takes the financial risk. That is what they have been paid to do. If they cannot afford to do that through premiums then they should make a loss.
Most commercial health insurers no longer bear much financial risk. Instead they primarily administer health plans on behalf of large self-funded employers. Actual insurance is mostly limited to individual and small group plans, which are a much smaller line of business.
While everyone calls them "health insurers", the industry term is "managed care organizations" (MCOs), which sell a variety of services, which may or may not include healthcare, managed care, insurance, negotiated pricing, and even retail pharmacy services.
Depends what their costs are but if all claims would take 85.5 of their premiums with the rest their overhead costs then I think most of their customers would be happy
They bloat the overall health care system to increase the absolute value of that 80% premium. Efforts to human health are overburdened by exercises of human bureaucracy and frankly obviously intentional bad service.
