How Much Do Insurance Companies Make?

In the context of health care reform, health insurance companies have gotten a very bad name as money hungry profiteers. In an interesting post on the New York Times Economix blog today, Uwe E. Reinhardt, an economics professor at Princeton, looks at just how much money insurance companies make.

The short answer is: not as much as you might think. According to Fortune magazine’s ranking of the 50 most profitable industries in the United States, health insurers’ after-tax profits were only 2.2 percent of revenues in 2008. Of course, even though we’re talking about a fairly small profit margin, there’s still a huge amount of revenue involved, so the profits are high in absolute terms.

For example, Wellpoint, Inc., a large insurer selling mainly group-insurance policies to relatively large employers, had revenues last year of $61.572 billion. That, by any measure, is a lot of money and we’re talking about just one insurance company here. 93% of Wellpoint’s revenue came in the form of premium payments.

WellPoint’s after-tax profits in 2008 were 4.07 percent of total revenue. The year before the profit margin was 5.47 percent. So yes, insurance companies do make a lot of profit, but as a percentage of total revenues it’s not huge.