Mythbuster: Health Insurance One of Least Profitable Industries

"[W]ithout competition, the price of insurance goes up and quality goes down. And it makes it easier for insurance companies to treat their customers badly -- by cherry-picking the healthiest individuals and trying to drop the sickest, by overcharging small businesses who have no leverage, and by jacking up rates. Insurance executives don't do this because they're bad people; they do it because it's profitable. As one former insurance executive testified before Congress, insurance companies are not only encouraged to find reasons to drop the seriously ill, they are rewarded for it. All of this is in service of meeting what this former executive called 'Wall Street's relentless profit expectations.'"

So said President Obama during his healthcare address Wednesday echoing a common Democrat and media meme that insurance companies are evil entities always looking to take advantage of the public for the sake of the mighty dollar.

The truth is that health insurance is one of the least profitable industries in America. In fact, according to Fortune magazine, such companies only make 2.2 cents for every dollar of gross sales:

2008 Industry Rank as % of Revenues
1 Network and Other Communications Equipment 20.4
2 Internet Services and Retailing 19.4
3 Pharmaceuticals 19.3
4 Medical Products and Equipment 16.3
5 Railroads 12.6
6 Financial Data Services 11.7
7 Mining, Crude-Oil production 11.5
8 Securities 10.7
9 Oil and Gas Equipment, Services 10.2
10 Scientific, Photographic, and Control Equipment 9.9
11 Household and Personal Products 8.7
12 Utilities: Gas and Electric 8.7
13 Aerospace and Defense 7.6
14 Food Services 7.1
15 Industrial Machinery 6.9
16 Food Consumer Products 6.7
17 Electronics, Electrical Equipment 6.5
18 Commercial Banks 5.2
19 Telecommunications 5.1
20 Chemicals 5.0
21 Construction and Farm Machinery 5.0
22 Insurance: Life, Health (stock) 4.6
23 Information Technology Services 4.5
24 Computers, Office Equipment 4.3
25 Metals 3.9
26 Wholesalers: Diversified 3.5
27 Insurance: Property and Casualty (stock) 3.3
28 Specialty Retailers 3.2
29 General Merchandisers 3.2
30 Health Care: Pharmacy and Other Services 3.0
31 Packaging, Containers 3.0
32 Beverages 2.9
33 Engineering, Construction 2.7
34 Health Care: Medical Facilities 2.4
35 Health Care: Insurance and Managed Care 2.2
36 Petroleum Refining 2.1
37 Food and Drug Stores 1.5
38 Pipelines 1.5
39 Wholesalers: Health Care 1.3
40 Semiconductors and Other Electronic Components 1.0
41 Energy 0.9
42 Home Equipment, Furnishings 0.7
43 Food Production 0.6
44 Wholesalers: Electronics and Office Equipment -0.3
45 Diversified Financials -0.6
46 Motor Vehicles and Parts -0.7
47 Insurance: Life, Health (mutual) -3.0
48 Hotels, Casinos, Resorts -4.5
49 Automotive Retailing, Services -7.9
50 Forest and Paper Products -9.6
51 Entertainment -10.0
52 Real Estate -13.4
53 Airlines -13.5 

So, there are 34 industries in America that are more profitable than health insurance.

Are they all bad, too?

In the end, regardless of the kind of policies being written -- life, health, fire & casualty, etc. -- insurance isn't a high margin game. 

Unfortunately, our President, his Party, and his media minions don't understand this, and continually misrepresent the facts to the public.

Someone cue Rep. Joe Wilson (R-SC.).

Noel Sheppard
Noel Sheppard
Noel Sheppard, Associate Editor of NewsBusters, passed away in March of 2014.