# Are These “Evil For-Profit Health Insurance Companies” Really So Evil?

Afternoon Gnomies! Once again I bring you a tale about health insurance. There are a lot of misconceptions out there about just how much money these “evil for-profit health insurance companies” profit. Anyways, let us consult Yahoo! Finance about three different large health insurance companies. We’ll look at Aetna, Unitedhealth Group, Inc. and Tenet Healthcare Corp.

• Revenue: \$32.67 Billion
• Gross Profit: \$8.23 Billion
• Revenue: \$84.27 Billion
• Gross Profit: \$6.24 Billion
• Revenue: \$8.89 Billion
• Gross Profit: \$4.85 Billion

Man! These insurance companies are making such an obscene amount of profits! Let’s have at ’em boys! Burn ’em to the ground! We’ll show these brutes what’s coming to them for profiting on our misery!

Wait a second. That’s all gross profit. Sort of like, when you get your check, you have gross income before all the taxes, social security, etc gets taken out. What we really get in our pocket is our net income. To really see how much these companies make, and their real profit margins we need to use their net profit figure. Sadly, Yahoo! Finance doesn’t include that figure. However, they do include the true profit margin figure. We can use that and the revenue figure to reverse the formula and find out just how much profit these companies really make. Then we’ll compare them to Wal-Mart, Microsoft and Exxon.

Okay, the formula that you derive the profit margin from is:

Profit margin = (net profit/revenue) * 100

Net profit is equal to the gross profit minus overheads minus interest payable plus/minus one off items for a given time period…

Source: Wikipedia and probably your macroeconomics textbook

So, when we have the profit margin and the revenue figures, we can reverse that formula to find their net profit. That formula would be netprofit = (profit margin (with percentage as decimal, aka 4.3% is .043)*revenue)

So, let’s plug in our healthcare companies, shall we?

• Revenue: \$32.67 Billion
• Profit Margin: 3.85%
• Net Profit: \$1,257,795,000
• Revenue: \$84.27 Billion
• Profit Margin: 4.14%
• Net Profit: \$3,488,778,000
• Revenue: \$8.89 Billion
• Profit Margin: 2.63%
• Net Profit: \$233,807,000

So two of the healthcare insurance companies have broken the billion dollar mark the other makes a quarter billion. Even that is not so obscene in my opinion. Also, keep in mind that this net profit is after everyone has been paid, after corporate taxes, interest payments, etc. This money is used how the company sees fit. Now, let’s move on to Wal-Mart, Microsoft and Exxon.

• Revenue: \$404.91 Billion
• Gross Profit: \$99.45 Billion
• Profit Margin: 3.31%
• Net Profit: \$13,402,521,000

So, Wal-Mart makes as much as about eleven Aetnas and around four Unitedhealth Group, Inc. Puts a bit of perspective on it.
Microsoft Corporation (MSFT):

• Revenue: \$58.44 Billion
• Gross Profit: \$46.28 Billion
• Profit Margin: 24.93%
• Net Profit: \$14,569,092,000

Kind of interesting how much the profit margins change the net profit figures, isn’t it?
Exxon Mobil Corp. (XOM):

• Revenue: \$346.88 Billion
• Gross Profit: \$188.55 Billion
• Profit Margin: 8.98%
• Net Profit: \$311,498,240,000

If you want obscene profits, take a look at that. Three hundred eleven billion. For good measure, and so Steve Jobs doesn’t feel left out, let’s look at Apple. Then, to see if Google is really doing no evil, let’s look at them as well!

• Revenue: \$34.56 Billion
• Gross Profit: \$11.15 Billion
• Profit Margin: 14.97%
• Net Profit: \$5,173,632,000
• Revenue: \$22.27 Billion
• Gross Profit: \$13.17 Billion
• Profit Margin: 20.56%
• Net Profit: \$4,578,712,000

Originally, this post ended here and thanks to a commentator named “Rob” I found out I had made a mistake with my figuring. Details of my original error in the comments. Anyways, I have decided to add a couple more companies. Big pharma anyone? Let’s take a look at four of the biggest pharmaceutical companies here in the United States. We’ll look at Pfizer, Johnson & Johnson, Merck and Bristol-Myers Squibb. Originally, I was going to use only three companies, but I though Johnson & Johnson might be a bit of an outlier in this category as they do make more than just pharmaceutical things (eg. shampoo, etc). Anyways, here we go.
Pfizer Inc. (PFE):

• Revenue: \$46.17 Billion
• Gross Profit: 40.18 Billion
• Profit Margin: 16.32%
• Net Profit: \$7,534,944,000
• Revenue: \$61.37 Billion
• Gross Profit: \$45.24 Billion
• Profit Margin: 20.76%
• Net Profit: \$12,740,412,000
• Revenue: \$23.26 Billion
• Gross Profit: \$18.27 Billion
• Profit Margin: 24.59%
• Net Profit: \$5,719,634,000
• Revenue: \$20.90 Billion
• Gross Profit: \$14.20 Billion
• Profit Margin: 26.04%
• Net Profit: \$5,442,360,000

So, casting aside the Johnson & Johnson outlier (as I figured it would be), these pharmas have better profit margins than most of the other companies. In fact, the companies with the lowest profit margin that I’ve listed are the healthcare insurers.  So now that I’ve bombarded you with figures. Are the healthcare companies really making that obscene of a profit? Are they really holding a golden, ruby encrusted dagger to your throat and saying, “You give me money, or you no get better!”? I don’t mind if you check my math because if I’ve gotten it wrong, let me know so I can correct the figures (big thanks to Rob). Mainly since working with rather large numbers, leaving a zero out can be devistating. Anyways, comments and debate are welcome. However, keep in mind this is about healthcare, not Windows vs Mac. Again, all my figures I looked up on Yahoo! Finance. Also, I already have an idea about doing one more article on this issue of healthcare. I do believe I’m going to try to get the phone numbers of the CEOs of these companies and ask them what most of their net profits fund. Still, the profit margins for all three of the health insurers I looked at are less than 4.5%. Take what you want from this data. If I stimulate debate, that’s a good thing. I want to stimulate debate because without it, we know nothing. Without debate, we remain woefully unaware of the other side of the coin.

Again, thanks to Rob for letting me know about the errors in my arithmetic. The numbers are updated and even an extra section added. Comments are welcomed.