Get the facts: How much profit do health insurers make?

The debate over how the U.S. health care system should be reformed has been going on for years, and while much of it has been concentrated in D.C., everyday Americans are also chiming in through grassroots advocacy efforts, online forums and social media. It’s easy to see why. Health care is deeply personal and touches all of our lives, so we all have a vested interest in making the system better.

While that’s a laudable goal, the proposed solution that people often latch onto – getting rid of health insurers – is short-sighted and not grounded in facts. People advocating for this path typically use words like “greedy” to describe insurers, asserting that if we could switch to a single-payer system, all the problems in American health care would be solved.

The main issue with this narrative is that it takes an extraordinarily complex problem and tries to solve it with a very basic solution. In reality, all stakeholders in our health care system have a profit motive, even those that operate on a not-for-profit basis as some health systems do. And while it’s true that health insurers make a profit, the size of their profit margin pales in comparison to that of other stakeholders, especially large for-profit hospital systems and pharmaceutical companies.

The Affordable Care Act placed a cap on health insurer profits, requiring them to spend 80% to 85% of their earnings directly on patient care in the form of paid claims. After spending the required 85% of our profits on claims payments, UnitedHealthcare typically spends about 10% of our earnings on administrative costs for things like managing the claims payment process and providing customer service to members and providers.

With more than 51 million members and 1.7 million providers in our network, our administrative functions are robust. Consider that on an average day, our members engage with us online or through our app 1.1 million times, and 320,000 choose to pick up the phone to give us a call. On average, they’re connected with one of our member advocates within 23 seconds. An average day for us also includes 24 million digital transactions and 100,000 phone calls with providers.

That leaves our profits after paying our members’ claims and covering our administrative costs at around 5%. Compare that to the average profit margin of for-profit hospital systems of 14%,¹ or the typical profit margin range of medical device companies at 7-13%. And the real money is with big pharma, where profit margins typically fall in the 20-30% range. What that tells you is that if your sole objective was to get into the health care industry to make money, you probably wouldn’t want to be a health insurer.

If you’re wondering why insurers even need a profit, consider how we use it. Health insurers, like all types of insurers, are responsible for managing risk by ensuring that funds are available to pay claims, including at times when claims costs increase dramatically. As an example, think of the Los Angeles wildfires that burned out of control for weeks in January. Many residents in California have been unable to purchase fire insurance from a private insurance company because so many had already pulled out of the market, so they instead bought a policy from the state’s insurer of last resort. But that insurer ran out of funds in February, leaving homeowners in a desperate situation.

That’s just one example of why it’s so critical for all types of insurers to maintain an adequate reserve of cash to ensure they can remain financially stable, compliant with regulations and capable of paying claims for policyholders.

Like all companies do, health insurers also reinvest their profits into the growth of their business. At UnitedHealthcare, this enables us to achieve the commitments we’ve made to our members, employer customers and employees such as advancing towards a value-based health care system and building a simpler and more personalized health care experience for members and providers.