The Audacity of Profit
by Merlin Jetton
I recently read an article from the American Medical Association, which is here. http://www.ama-assn.org/ama1/pub/upload/mm/368/compstudy_52006.pdf. It is an assessment of competition in health insurance. Pages 1 and 2 are a relentless finger-pointing at large market shares and mergers and acquisitions in health insurance. In every instance an insurer is named, it is WellPoint, UnitedHealth, or Aetna. On the other hand, look at Table 1 in the article. In many regional markets you can see BCBS, often with a state code, having the largest market share. BCBS is an acronym for Blue Cross - Blue Shield. In some markets HCSC has the largest market share. HCSC is an acronym for Health Care Service Corporation, a BCBS company operating in IL, NM, OK, and TX. HCSC is the result of a series of mergers and acquisitions (see here http://www.hcsc.com/timeline.htm.) Wellpoint does have very large market shares in a few regional markets. On the other hand, so do some BCBS companies (see especially AL and AR), but the AMA article does not finger-point them.
Why does the article finger-point WellPoint, UnitedHealth and Aetna, but never BCBS or HCSC? I submit that it is the audacity of profit. WellPoint (stock symbol WLP), UnitedHealth (stock symbol UNH), and Aetna (stock symbol AET) are investor-owned, publicly-traded stock companies that make a "profit." It is called "net income" in their financial statements. WellPoint is a BCBS licensee, but most BCBS companies are not investor-owned and don't make a "profit." (See here http://en.wikipedia.org/wiki/Blue_Cross.) They have net income, which is nearly always positive and may be quite positive, but it is usually not called "profit." They are said to be "not-for-profit." (They are not for-loss, either (-:). They are organized as mutual insurance companies, which means the legal owners are the policyholders. HCSC calls itself "customer-owned." Isn't it audacious that an insurance company makes a "profit" from financing health care?
For the latest five years reported, WellPoint has a profit margin -- net income divided by revenues -- of 5.31%. UnitedHealth has 6.19% and Aetna has 6.32%. (Source: WSJ online.) On the other hand, HCSC's net income divided by revenues is 8.23%. (This is also for the latest five years reported. A reader can go here http://www.hcsc.com/finance.htm and check my calculations. For revenues use "premium earned".) HCSC is one of the more profitable ones among several for whom I have seen financial statements. 3-6% is typical -- similar to WellPoint, UnitedHealth, and Aetna. But don't call the net income of the non-investor owned companies like HCSC a profit! After all, there are no greedy stockholders. (That is not my opinion, but likely that of the AMA article's authors.)
The article says, "The AMA is concerned that the United States is heading toward a system dominated by a few publicly traded companies that operate in the interest of shareholders and not primarily in the interest of patients." Note the selective finger-pointing. Don't HCSC and other Blues operate with an interest in net income? What about the fact that the bulk of revenues for any of these companies, for-profit or not-for-profit, goes to pay claim costs, i.e. for patient care? What about the fact that a great deal of a physician's excess of revenues over expenses goes into the physician's pocket? Is that not "profit", or only "net income" or "wages"? For a few physicians, their primary interest may be patient care. But what comes next? It's likely their pay not far behind. And what about the other physicians? The AMA article has no answers to these questions.
So much depends on the label chosen. Is it audacious to make a profit helping people who need/want medical care? "Profit" is not a four-letter word; it has six letters. :-)
Endnote: Note how the authors of the AMA article want the government to coercively block mergers and promote their own interests. If physicians merged practices or colluded to increase their bargaining power with insurers, do you believe the authors would want the Department of Justice to block them?
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