Posted by: vicholdsforth | February 23, 2010

Lies, Damn Lies, and Statistics

Over the weekend, I got into a discussion on Facebook about the health care legislation.  One of the participants pointed me to a report in which Senators Harry Reid and John Rockefeller were making the claim that the government needed to become a player in the health care market because health insurance companies’ profits had increased by 400% since 2001.  I did some checking to see if I could confirm this claim.  This statement has a grain of truth in it, but it has been selectively mined and exaggerated  in order to further an agenda by making the insurance companies look like vampires.  Here are the facts, which you can check at Morningstar.com if you’re so inclined:

http://quicktake.morningstar.com/StockNet/IndustryPeers.aspx?Country=USA&Symbol=AET

Just click on any of the insurance company names, then choose the “Key Ratios” tab. If you scan down a couple of lines below the second black bar, you’ll see a row labeled “Net Margin.”

  • Of the 14 health insurance companies tracked by Morningstar, about half are making less now than they were in 2001, some significantly less. WellCare’s profit, for example, was 1/5 in 2008 what it was in 2001.
  • It would appear that that “grain of truth” I was referring to was culled from two isolated examples, Metropolitan Health Networks and Aetna. Yes, they did realize dramatic improvements in their net profits, but they’re not the predators they’re being made out as.  Here is a more complete picture: Aetna was losing money in 2001 and MHN was only making .73%. In 2008, the most recent year for which tax data is available, Aetna made a “whopping” 3.87% and MHN 3.22%. (Compare that to the average return over time of a stock portfolio invested in US stocks, 8%.)
  • Most of these companies are making less than half that, and the best performer, HealthSpring, is only making 5%. Overall, health insurers in the US have posted a very meager increase in profits of only 5%, not 400%, in 7 years. That’s not 5% each year, that’s 5% spread over 7 years. Reid’s comment that insurance companies make more money than any other industry in America is patently false.  Perhaps, like my friend, he misunderstood 400% increase to mean the insurance companies were making 400% profit (which is mathematically impossible, by the way).

The data offered by Messrs. Rockefeller & Reid has been very selectively presented and exaggerated in order to inflame outrage and manipulate voters, not to paint a realistic picture or to help anyone make an informed decision.  One is left to wonder whether they knew this or just accepted the story offered them at face value.

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Responses

  1. Here is the scoop on the new plan – SPN Headlines exclusive – Doctors Will “Tweet” Patients:

    http://stupidassnews.wordpress.com/2010/02/21/final-health-care-bill-doctors-will-tweet-patients/

    Have a great day! 🙂


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