President Obama is devoted to eliminating all the myths that exist around the Health Care Reform plans.  However, the Administration is one of the main sources of those myths.

One of the myths that the Obama Administration is pushing is that the government will be able to provide health care cheaper as they will be able to cut out all the insurance company profits.  In fact, he often refers to “those huge insurance company profits”.  The President is either trying to mislead people or is ignorant of how a business operates.

From conversations that I have had, I belive that many people are misinformed.  I have heard people talk about the evil insurance companies and their 1000% profit increases or the immoral insurance company 150% profit.  With comments similar to those being floated on TV, I am sure that people do not understand or know the truth.

For starters, many people don’t know what a profit is or how it is calculated.  A company’s profit equals its revenue minus expenses.  More simply, the cash it takes in minus all the bills it has to pay.  And as pointed out in a post over at HotAir.com, insurance companies only keep 4 to 5 cents for every dollar they take in which is 4 to 5% profit and not anywhere near 150%.

The simple example of a grocery store can help explain.  When you spend $100 dollars at the grocery store, that $100 dollars is the revenue that the store receives.  However, that $100 is not profit.  Assuming the grocery store has a 50% markup on the products you bought, they had to pay $50 dollars for the goods that you bought.  That leaves them $50 dollars in profits right?  Wrong.  They still have to pay the employees, pay the utilities, advertising, rent, and other expenses.  Then, what ever is left over after paying those expenses is taxed.  What is left over is  the profit which is kept by the company or sometimes distributed to shareholders.

So now that we understand what constitutes profit, where does that leave all those insurance company profits?  When I started hearing all those comments, I went on Yahoo Finance to get the facts.  I looked at the top five insurance companies ranked by size at year end 2008 to see what their profits were.

In 2008, Unitedhealth Group kept 4% of their revenue.  The next two largest, Well Point and Aetna also had 4% profits.  The next two, Cigna and Humana had 2% profit.  Note that the total total profit for the top five companies was approximately $7.8 billion, but that number represents only an average of 4% industry profit. 

The top five insurers also paid $3.5 billion in taxes in 2008 or roughly half of their net profit.

Americans need to wake up and realize that they are being spoon feed misinformation to demonize groups of people and industries for political purposes.

Whenever you hear somebody in person or in the media talk about record profits, high profits, and windfall profits, you need to examine the true numbers to see if you are being mislead.  The surest way to take away freedom is to mislead people with false information.  Americans need to watch government closely and examine the facts since the media is unwilling to publish facts and prefers to stick to their own agendas.