George Will is right. Wellll... he's partly right. To complain about "obscene" profits in the insurance field, says Will, is to be factually wrong. He cites Standard & Poor's index to show their margin is actually low. His analysis is flawed on a number of counts. Their profits compared with income flow is small, simply because that flow is huge. Comparing profits with current stock prices reflects an anticipation of steeper future profits. But he is right in this sense. Profit is the point of business. In most areas, it works pretty well. Greed is an inadequate description of the profit urge. It is a constant, unrelenting pressure. And it usually works to our benefit.
A grocery store owner works harder to provide good quality at a reasonable price because he is pressured for profit. Everyone wants your business, and they work hard to get it. If a grocer starts to gouge his customers, they will take their business elsewhere. He doesn't want that to happen, so he keeps his prices low to keep the business coming. Same with shoes, tires, soft drinks, and living room carpets.
There are inefficiencies in the marketplace. Investors know them by another name: opportunity. Investors make money by exploiting the inefficiencies left by others, and, coincidentally, correcting those inefficiencies. Are computers selling for prices not justified by the market? Quick, build and sell at a more reasonable price before everyone else notices!
Insurance works differently. That is not because insurance managers are evil, while everyone else is virtuous. It is simply because insurance corporations make money the same way as other businesses, but with different effect.
Insurance is paid up front. Folks pay a fixed few hundred a month to eliminate the small but real chance they will be financially wiped out by a medical catastrophe. When illness or injury hits, corporations experience no profit in keeping the customer they once had fought for. Even a minor change in health makes a customer worth getting rid of, not keeping.
Insurance companies, pressured to increase profits, have the same incentives that impel any business. They can boost income or slash outflow. Slashing is done by denying claims, cutting off customers who might get sick, and denying coverage to those with pre-existing conditions. Corporations throw away up to 20% of their customers, customers who thought they had a firm contract. It gets even worse. The majority of medical bankruptcies are folks who thought they had insurance.
If that makes you mad, if you think it's unfair, don't waste your anger on insurance executives. They are doing what they are supposed to do. Get mad at a perverse system that offers irresistible pressure to hurt those who need help and exploit those who are still healthy.
Leave alone the executives and the cute little exotic green reptiles that advertise for them. They do what we pay them to do. But scream for reform.
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