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The defense of profits

Posted by Chance on May 21, 2010

In this blog post, the author asks

See, this is why I don’t understand all the right wingers who are against health care reform. The parent company to Anthem Blue Cross made a profit of $877 MILLION dollars. Which was 51% more than last year. At the same time, these marks, wanted to raise premiums. THIS IS THE SYSTEM THAT THE RIGHT WING IS STRIVING TO PROTECT.Yes, this is why I have no respect for the right wing on this issue.

I’ll indulge the author on this issue.  I was going to write a lengthy rebuttal, but it looks like someone already has.

Anthem of California’s requested rate increase on individual policies was actually 20-35 percent. The only way it could get to 39percent would be if a policyholder insisted on a gold-plated Cadillac plan and also happened to move up into a higher age group. […]
He [Obama] complained that in the $1.2 trillion health insurance industry, “the five largest insurers made record profits of over $12 billion.” But that puny sum includes WellPoint’s sale of its pharmacy benefits management company NextRX to Express Scripts for $4.7 billion last April. Adding that $4.7 billion to WellPoint profits is like saying a family’s income rose by $1 million because they sold a million-dollar home. […]

University of Michigan economist Mark Perry calculated that without the sale of NextRX, “WellPoint’s profit margin would have been only 3.9 percent, the industry average profit margin would have been closer to 3percent”— $100 per policy.

But aside from that point, even if a company makes profits, these zany right wingers still believe in the free market because we believe that even when a company makes a profit, the net cost of an item will still be less than a similar item offered by the government.  The profit of a private corporation will typically be less than the inefficiencies produced in a government system.  Profits are also regulated by competition;  the more competitors there are, the lower the prices.  Government has no such competition.

Maybe right-wingers think the way we do because we don’t have knee-jerk reactions every time we hear about companies making a big profit (For one, what is the actual profit margin.  How much is $877 mil compared to total gross?  Profits rose 51% but compared to what?  51% increase from say, 3% is 4.5%)  .  But for the record, we, at least the free-market sort, do not want to “protect” the system.  I want to change the system as well, although not in the same way.

Concerning profits as a whole, people who believe in a free market recognize that people operate based on incentives. We go to work, put in our time, and we expect to get paid. If we do a good job, we get rewarded; if we do a bad job, we can get fired. If I get a raise, I’m happy. Why do we expect everyone else to operate differently?  Granted, sometimes people get rewarded much more exorbitantly than we do.  Frankly, I’m just not worried about those people.

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13 Responses to “The defense of profits”

  1. Dan said

    Can anyone look at the enormous amount of money that, after being taken from citizens in the form of taxes, stays in Washington, and conclude that Washington is not, in its own right, taking a little profit? I’m always amazed when the case is made in essence that there are no greedy people in government. They are all in big business.

  2. dolphin said

    I don’t think that most liberals’ problem with healthcare revolve around the corporations making profits.

    Profits are fine. Effectively killing people just to make those profits? Not so much.

    • Chance said

      Makes sense. I’m not a fan of killing people to cut costs either. Fortunately, I haven’t seen that happen yet. In this country.

      • dolphin said

        I’ve known a few and heard of many denied life-saving treatment due to lack of insurance coverage, which they lacked on the basis of either pre-existing conditions or exorbitant cost of insurance.

        I get that things cost money and somebody has got to pay for it, but when our country’s insurance industry spends nearly half their budget on “administrative costs” versus actual paying for healthcare compared to some other countries who have better overall better health and an insurance industry that spends <10% on "administrative costs," I don't see a system where costs are simply being covered (even with a little profit margin, which would be absolutely fine with me). I see a system where people are systematically being exploited for the goal of making maximum profit at the expense of people's health and indeed, sometimes, their lives.

        I know a lady who can't get insurance coverage because she has cancer. She can't afford to pay for her own treatment either. So she's waiting to die. I fail to see what's so enlightened about letting people die for the sole purpose of maintaining the purity of some free market ideology.

        I don't mind insurance companies making money for the service they provide, but I think a criteria of that ought to be that they have to actually provide a service. As it stands, a sizable fraction of the money insurances companies pull in goes into ensuring that they don't have to offer a service.

      • Chance said

        A couple things. Just because conservatives don’t want a government takeover of the health care system doesn’t mean we think the health care system is fine.

        I don’t disdain government involvement in health care because I’m a free market purist, I do so because I simply think it doesn’t work.

        I’m sorry to hear about the people you know. Honestly it surprises me being that I know people who have had life threatening situations who were dirt poor and got treatment. That’s not to say people haven’t faced steep medical bills after the fact (not the people I knew, but others). I’m not saying affordability isn’t an issue, it is, that is just the first scenario I’ve heard of people being left to die.

        However, I don’t know why people are so hung up on addressing the medical care problem by looking at insurance. Yes, insurance makes everything easier and more affordable if someone can afford the premiums, but the primary issue is access to medical care. When people have such a narrow focus on getting insurance (not you necessarily, but others), it doesn’t address the root issue of access to care. Don’t we usually want to take the middle man out? I would rather my tax payer money simply go to those who can’t afford treatment than creating even more bureaucracy in government and in insurance companies because of things mandated by the government. Believe it or not, I don’t stay up nights fearing that my tax money is going to help some poor kid with cancer treatments, but I do fear that continual regulations and government involvement will make insurance more expensive for the average worker.

      • dolphin said

        I would rather my tax payer money simply go to those who can’t afford treatment than creating even more bureaucracy in government and in insurance companies because of things mandated by the government.

        This sounds an awful lot like you’re advocating a single-payer system of some sort.

      • Chance said

        “This sounds an awful lot like you’re advocating a single-payer system of some sort.”

        I suppose for the poor who can’t afford it, yes. I touched on this in an earlier post “Filling in the gaps in a free market system” or something like that. The free market works great with grocery stores, but not everyone can afford groceries. That’s why we have food stamps, WIC, etc… Let the free market work as it is, but have a system in place for the poor that leaves the market relatively untouched. Granted, health care is a little bit different because of the insurance factor, something grocery stores don’t have, but I believe the same principles are still at work.

        If I’m not mistaken I think the Cato Institute has this philosophy for a lot of things. For instance, I believe they want the Medicare system to be much more streamlined in which people simply receive vouchers to pay for medical care. Same with schools, privatize, but allow something like tax credits or vouchers to allow universal access.

      • dolphin said

        That’s more or less what I’m after so far as healthcare goes. But I think that does require regulation of the insurance industry or we’ll simply go broke. Healthcare is so much more expensive here in the US than in the rest of the industrialized world (usually by around double as a percentage of a given nation’s GDP) because of the insurance industry. I think we ought to have a system in place to aid those who can’t afford healthcare on their own, but there will be far fewer who can’t afford it, and a far smaller total for those who can’t if we get healthcare costs down to begin with.

        Now, I can’t get behind school vouchers because we’d have to repeal the 1st Amendment to make that constitutional and I’m not willing to do that.

      • Chance said

        The problem is, I’ve never known of government to keep costs of anything down, at least in this country. I don’t know of any government program that has any sort of stability concerning costs. I know you mentioned a lower percentage of administrative costs for other governments as opposed to insurance companies, but I’m still interested in overall costs. And there is a balance of administrative costs vs. costs associated with fraud. There are several reasons I’m not sold on health care being cheaper just because administrative costs are lower. I think we spend so much here because we are a prosperous nation so we do spend more. I do think costs manifest themselves in other ways in other countries through rationing and queues. But who knows, maybe other countries have some secret that we don’t know about, because I know our government retirement plan, our government mortgage companies, our government schools are much more expensive than their private counterparts and they are all going broke.

        But I do agree, I like the idea of insurance companies getting less involved. Part of the problem though is that insurance companies kinda grew unnaturally. Because we do have such a huge third party payer system we are far removed from the actual cost of things. Government giving corporations tax credits for paying for people’s insurance sounds like a good idea, but it had all sorts of unintended consequences, such as insurance companies growing beyond what’s natural, and people with good jobs consuming much more because they do pay such a small fraction of the total costs. I know that seems counter-intuitive, but I think it is a matter of hidden costs. Since we don’t see these costs, we consume much more.

      • Chance said

        I also don’t think comparing costs is a complete analysis. Different costs, same result? I don’t think so.

      • dolphin said

        I don’t know that those with good jobs pay a small fraction of the total costs. I, for one, get a free physical each year if I want one. Outside of that I pay for every medical expense I have up to $1200 at which point the insurance company will begin to pay for SOME of it, so long as it’s the medical treatment they prefer and not chiropractic or alternative medicine that I largely prefer. I pay them my money out of every paycheck but I have never, not even once, gotten so much as a single penny from them. So I don’t know that I’m only paying a small fraction of the total costs of my medical care. From my perspective, it looks like I’m paying somewhere in the neighborhood of 200% of the total costs of my medical care.
        And you’re right you can’t look at costs as the whole story, but, while it’s extraordinarily difficult to objectively define the “quality” of healthcare, we’re not ranking very highly on most measurable indicators, with the exception of preventative care which we do well with. Our life expectancy rates only 38th in the world (compare with Canada’s 11th). Canada also blows us out of the water on number of deaths from conditions amenable to medical care. Our emergency services attend to far more conditions that would generally be treated by a general care physician as compared to other countries. Like I said, I’m hesitant to try to define the “quality” of healthcare but at the same time, I feel comfortable saying that our exorbitant expense is not buying us better overall care.

    • Chance said

      I should clarify, I can’t say that it is never happened, but I’m speaking specifically about a gov’t organization not taking care of people due to rationing or queues. It hasn’t happened here yet, but it has in other countries.

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