Business: Is the health insurance industry very profitable?

One of the complaints about the health insurance industry is that in addition to market dominance of a small number of companies in many states is that they make too much money.

Of course, in a country that espouses a capitalist economic system, making a profit is supposed to be determined by the free market forces on that industry.

So just how big are the health insurance giants?

Using Yahoo! Finance I found the chart above that shows how much annual revenue they generated.

That is a lot of money and a handful of companies are doing lots of business.

But how do these numbers compare to some other big companies?

McDonalds is one of the fast food giants and they bring in $22.7B in revenue.
Ford is the one US car company that didn't take bailout money and they bring in $118.3B.
Microsoft is the big cheese in software pulling in $58.7B.
Ralphs is one of the markets I shop at and they are owned by Kroger which claims $76.7B in revenue.

These findings indicate that health insurance is big business much like some businesses that are a regular feature of our lives.

But how profitable are these businesses?

Companies have expenses that are covered by the revenues. If you mom and pop fruit stand brings in $567,890 in revenue and has $600,000 in expenses then it's not profitable and could go out of business if it continues that way.

So how much profit did McDonalds, Ford, Microsoft and Kroger make?

McDonalds 20.37%
Ford 2.5%
Microsoft 35.02%
Kroger 1.38%

As you can see there is some variability as to how profitable some of America's biggest companies are.

At what point is a company "too profitable?" Is that even a proper question in a capitalist economy?

Of course, our recent experience with "too big to fail" has suggested that companies can become so dominant that their failure could take down whole economies! But that is an issue of size not profitability.

But back to the original question: Is the health insurance industry very profitable?

I ran the Yahoo! Finance for the insurance industry (see chart at right).

What do you think of these profit margins?

As you can see 3-7% is the range with Wellpoint making more. However, a little poking around revealed that Wellpoint's profit margin for last year is probably only a one-time thing because they made money selling off its pharmacy benefits management company NextRX to Express Scripts and without it they would have a 3.9% profit margin.

What do you think of these profit margins?