Friday, January 27, 2012

Profit Margin for Health Insurance Companies

When considering investing, it is a good idea to take a look at the profit margin of a company against the industry average margin. Looking at the industry average should give you a good idea of what kind of money there is to be made in health insurance. In past years, this industry has averaged a little over 3% profit margin. The margin for health insurance companies hovers at about 3% generally. It is a rank of about 88 among 215 industries as far as profit margins go.

This type of margin is not necessarily a good way to tell how much a company is making. Excess profits are kept low in order to keep the bells and whistles from going off. Company expenses can include many things to help the margin look smaller. Profit margin for health insurance companies can be affected by something like the sale of one department in one company. This boosts the profit for one company for one year and affects the overall average making it bigger than it would be naturally. This margin can give you a general idea but not a solid one.

If insurance for an individual costs just under $3000, as it has in recent years, then a 3% margin is about $100. Likewise, a family policy can cost a little over $6000 for a year and that results in a profit of about $200 for the insurance company. So for every customer, the profit margin for these insurance companies is about $100-$200 dollars per policy. Individual investors can judge whether that is sufficient profit for investment opportunities. But when it comes to this type of insurance, there is a lot more than meets the eye.

Profit margin for health insurance companies may not be a good way to judge investment worthiness. This type of insurance allows investors to have more power than many other types of industries. Health insurance companies set the medical expenses that they will pay out and control the services that they cover. They also can have some control over the people they accept as policy holders. That kind of control over allows administration and investors to have a lot of control over their expenses and in a less direct way, their profit. Profit margin can be a bit misleading of a touchstone for insurance investing.

2 comments:

  1. Every company will look for own profit first. If you invest your money in the insurance company, it means company will get the profit. They will set their medical costs which they have to paid and other money will going in the face off profit.

    Bill

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    1. I agree with you, every business was start by the peoples to get the profit. Insurance company will always start business to get the profit.

      Wisconsin Health Exchange Group

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