Are Insurance Companies the Enemy?
Here’s an excellent Caroline Baum column about the Obama administration’s blame game regarding why the public is resisting health insurance “reform.” I want to focus on one point she makes that is a crucial concept of basic economics.
The administration’s and Congress’ latest tactic has been to demonize insurance companies. Health care reform suddenly became health insurance reform. This is a clever strategy. Although most of us are very satisfied with our health care, it’s easy to get people to trash insurance companies. After all, they get rich by taking in premiums, but denying us care for frivolous reasons whenever possible. But there’s a problem with this commonly held belief. It doesn’t match the facts.
My pat response to people complaining about some company or another that “exploits” us is simple: buy their stock. If they’re really earning the “obscene” profits you believe, this will be reflected in earnings growth and higher share prices. Looking at the long term charts of insurance companies, it’s hard to make the argument that they are money making machines. And if their executives were keeping all the money via inflated pay packages, believe me you would have heard about it by now.
Baum quotes compensation expert Graef Crystal, who studied five major insurers for evidence of “gouging.” According to Baum, “’There’s no case here for undue enrichment of shareholders’ or over-compensating CEOs, Crystal finds.” The study actually found below market execcutive pay and shareholder returns.
I understand why politicians ignore the facts. It makes it easier to demonize insurance companies. But next time a friend goes on a rant about greedy insurance companies (or oil companies), simply respond “Why don’t you just buy their stock? If they’ve got such a great scam going you’re sure to be rewarded with fantastic profits!”