In 2007 UnitedHealth Group made a net profit of $4.65 billion on revenues of $75.43 billion. 6.2%, which sounds reasonable and fair. That’s NET profit of course. UnitedHealth Group also paid $2.6 billion in income tax. Now, they don’t have a choice in this last bit, but the fact remains that a government run alternative would save the profit and the income tax UHG takes out of the healthcare system and which amounts to 9.8% of the insurance premiums they collect.
But that’s just the beginning. I’m not here to make a case that the government should run businesses solely because it doesn’t have a profit motive. We have good reason to believe that in lots of cases that’s a bad idea.
United Health’s 2007 Cost of Goods Sold (their actual insurance payouts) were $56.2 billion or, 74.5% of their $75.43 billion of revenues. We know that of the remaining $25.5% is $7.3 billion in tax and profit. Now, as it turns out, UH wrote off $796 million in depreciation and amortization which the government also does in its own way, which left it with $10.583 billion in operating expenses, or 14% of gross revenue. This 14% is where the REAL pain is.
A large portion of this goes to doing their damndest to not insure people who might need insurance and to cut them off from insurance in the instance that they ever do. So, this really is the heart of our healthcare issue, which is that insurance companies make money by NOT paying for healthcare costs people pay them to pay for. But the heart of the problem isn’t the only problem.
The other problem with the 14% (and actually, lets go ahead and make it the whole 25.5% again) is that the comparable cost for the combined Medicare and Medicaid program is… are you ready? 2.6%. That’s right. Medicare and Medicaid expect to pay out $709 billion of medical payments covering healthcare for 95 million Americans (about 1 in 3) with administrative overhead of $18.6 billion. Actually, a lot of this 2.6% covers fraud and abuse prevention and loss accounts, quality improvement programs, research, and grants to states for various things. The actual program administration costs are one half of one percent. That’s right. 0.5%
Another way to look at it is that if Medicare had a similar cost structure to United Healthcare, it would spend $180 billion on administration and profit to provide services to all those people instead of the $18 billion it actually spends. Or, if UnitedHealth were as efficient as Medicare, its overhead would be less than $2 billion.