In a year when everybody’s talking in sweeping, vague terms about health costs and the insurance industry, it’s useful to pause and dig into some really specific numbers to better understand how the money flows. That’s what Princeton health economist Uwe Reinhardt does today, dissecting an income statement from the health insurer WellPoint in a guest post over at the New York Times blog Economix . Here are a few of the figures. In 2008, the company’s total revenue was over $60 billion , more than 93% of which came from insurance premiums. About 6% came from fees for administering insurance for self-insured companies, and 1% came from the float. WellPoint paid out about 84% of the premium revenues it collected to pay for health care and drugs for the people the

company insures. That percentage is known as the medical loss ratio or the health benefit ratio. The company spent roughly $9 billion , or 14% of total revenue, on marketing and administrative expenses. The company’s net income was $2.5 billion , which means its profit margin was 4%. Profits were just over 5% of total assets deployed by the company, and 11.6% of the equity shareholders had in Wellpoint. “Relative to other industries, these are not particularly high numbers, nor are they particularly low,” Reinhart writes. He notes that marketing and administrative expenses “typically are a far bigger enchilada” than profits for insurers. “It is here that the health insurance industry is being challenged to search for economies.”

Continued here: 
Unpacking a Big Health Insurer’s Income Statement