Sunday, November 09, 2008

Was it a very good year?

A recurrent theme at InsureBlog has been the distinction between health care and health insurance. A closely-related theme is that, as with all things that are purchased, the purchaser’s cost equals the supplier’s gross income. So I thought everyone might like to see this article from Modern Healthcare. The article reports that total hospital profits reached a record level in 2007 – despite the continuing decline in the number of hospitals.

Most people would be astonished to learn that the average reported hospital profit margin for 2007 (6.9% of revenues - reported by Modern Healthcare) was higher than the average reported profit margin of the top 13 health insurance companies (5.3% of revenues - reported in Fortune magazine) and almost as high as the top 9 oil company profits (8.0% of revenues - reported to Congress by the Congressional Research Service). Why would most people be so astonished to learn that? Well, you know perfectly well why.

Understanding that health care and health insurance are different is only the first step on a hard road. To understand why health insurance in the U.S. is so costly, one must understand why the underlying cost of health care is so high. Suggestions are plentiful, and all have some truth to them. For example, we hear about high-tech medicine (e.g., advances in pharmaceuticals or in radiology), the steady growth in utilization of services from year to year, the preponderance of specialists, and the aging of our population.

This Modern Healthcare article reminds us we rarely see a probing analysis of the incomes of service providers – especially as compared to provider incomes in other countries with nationalized health care or health insurance mechanisms to which the U.S. is so often unfavorably compared. Why not? Well, you know perfectly well why not.
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