Pharma profits highest in healthcare

In touting their plans to reverse the course of healthcare costs—including various incarnations of Medicare for All—Democratic presidential candidates have spent a good chunk of air time bashing insurance companies.

Sen. Elizabeth Warren (D-Mass.) during Wednesday night's Democratic debate in Detroit, for example, said the basic profit model of an insurance company is to take "as much money as you can in premiums and pay out as little as possible in healthcare coverage."

But data on the five largest companies in each sector by revenue show pharmaceutical company profits are leagues above their health insurer and hospital peers, both on the for-profit and not-for-profit side.

The top five drugmakers saw a cumulative profit margin of 19.4% in 2018. For health insurers, that was 4.3%. The profit margin across the largest investor-owned health systems was 6% and 3% across the largest not-for-profit health systems.

"I believe that a lot of what we hear in every election is management by sound bite," said Rulon Stacey, a managing director with the consultancy Navigant, "and I don't believe that is always accurate and I don't believe it's always helpful."

Life sciences companies generally have higher profit margins than those in other healthcare sectors. Drug intermediaries and retailers, on average, saw the highest return on capital in 2017, according to a report by the consultancy Deloitte.

The pharmaceutical industry didn't escape this week's debates without its fair share of critics, but insurers took the most hits and arguably have more at stake in the Medicare for All debate.

It's not just politicians who take a grim view of health insurers. More than two-thirds of people surveyed by the nonpartisan research group Public Agenda said health insurers are mostly interested in making money. Just 38% of the survey's roughly 2,000 respondents said the same about hospitals and 27% said the same about doctors.

Despite the trend of hospital consolidation, reports of health systems routinely suing patients and rural hospital closures, providers have managed to steer clear of public anger and blame in the political conversation, said David Schleifer, Public Agenda's research director.

It's unclear whether the exclusive villainization of insurers is warranted, he added.

"People's experience of doctors and hospitals is probably an experience mostly of caring and of healing and trying to make people better," he said. "Probably mostly people's experience of insurers is EOBs (explanation of benefits) that they don't understand and premiums and just a lot of confusing stuff about money and denials and the rest of it."