Pessimism v. Optimism

[kandrathe]

This is slightly exaggerated (3.3% profits on a very large industry is not "non-profit"), but the sense of it is true: health insurance companies are not making high profits. The argument for getting around them is that they are inefficient parasites on health care provision, not that they are making massive profits.

The pharmaceutical companies, on the other hand, are making a killing.

I was thinking specifically of Blue Cross/Blue Shield which provides health insurance for about 100 million Americans. But, even looking at the for profit side, do you really think 3.3% profits for a group of companies (some are higher, some are lower) trading publicly held stock is viable? Remember that the group health scheme exists because of the last health care overhaul in Washington (1973). HMO's were created to enforce the governments rules to keep health care providers from jacking up prices. Would we think then that "government" is going to be able to administer health care more efficiently than HMO's who are struggling to eek out a very small profit?

As for pharmaceuticals... Again, you can read the laws of supply and demand, coupled with federal intervention. "Moving a drug through laboratory studies and then animal and human testing requires on average 12-15 years and more than $800 million in direct and indirect costs." Due to FDA requirements, there is a constriction in the funnel of what drugs can get to market. The barriers to entry for bringing a new idea to market are high, limiting the competition. Then, what they are selling is innovation, so with a patent, they get a de facto monopoly on their product for a number of years. It has certainly been aided in the past few decades by the Bayh-Dole Act, and the Hatch-Waxman Act. Finally, because we are so worried about drug testing, we create a barrier to foreign competition increasing the power of American drug manufacturers. They have protected monopolies in the US, and can also attempt to compete in the global economy as well. One thing that might help would be to open up the US market to foreign competition, by trusting some non-US drug testing regulatory apparatus.

Edit: Also, I found this article on misrepresentation of Drug company profits helpful. 15% to 18% is not obscene.