Democratic honcho Howard Dean wants to do away with the insurance mandate. Why? Because purchases of private insurance enrich evil insurance company executives. Here are his own words:
“The bill was supposed to give Americans choices about what kind of system they wanted to enroll in. Instead, it fines Americans if they do not sign up with an insurance company, which may take up to 30 percent of your premium dollars and spend it on CEO salaries — in the range of $20 million a year — and on return on equity for the company’s shareholders.”
Let’s fact check this a bit. Total private health insurance premiums in the U.S. approach $1 trillion. A lot for sure. Dean wants you to believe that a big chunk of this, as much as 30% or $300 billion, goes for CEO salaries. This would require 15,000 insurance CEOs each making $20 million annually. With all the consolidation that has occurred, I am not sure there are even 150 insurance companies (and perhaps not even 50), let along 15,000. Let’s be generous to Dean and suppose that there are 150 CEOs and other top industry executives making $20 million. This works out to $3 billion.
Dean suggests that whatever doesn’t go to CEOs goes to shareholders. In a good year, health insurers enjoy returns on sales of about 3%. (Returns on assets are strong because assets are relatively small.) With annual revenues of $1 trillion, this translates into aggregate profits of about $30 billion.
If we add together CEO salaries and insurer profits (and ignore the fact that a lot of plans are nonprofit Blues plans that do not have shareholders), we can account for about $33 billion out of Dean’s $300 billion. Thus, Howard Dean has overstated his case by a factor of 9. In the immortal words of Da Coach, Mike Ditka, “Howard Dean, who are you crapping?”
(Liberal bashers take note, in an earlier blog I take to task highly paid insurance executives. But let’s not pretend that we fix anything merely by cutting their pay and trimming profits. $33 billion represents about 1.6 percent of total U.S. health spending.)