I have never seriously looked at health insurance company financial's because I never perceived the industry as an attractive place to invest money. But given the recent comments about the insurance industry I decided to start to look at a few companies in the industry to see what I find.
This morning I looked at Cigna, their primary business is health care insurance. I took a look at historical stock quotes. Yesterday the stock price closed at $29.41. On 9/9/1999 the stock price was $27.83. The stock traded in the $50 range in 2007. In 1989 the stock traded in the range of about $5 per share (adjusted). Between 1995 and 2001 the stock had its biggest run going from about $10 per share to over $50 per share. another run was from 2003 to 2007 where the price went from about $12 to $50+. If timed properly an investor could have made an impressive return or could have lost a significant amount of money. The pattern for Cigna was not much different than the general market. There is nothing in the share price that would indicate anything unusual.
I looked at the company's most recent 10K annual SEC filing, here is a link:
EDGAR Pro
The company's profit margin is about 3.2%. Nothing excessive.
I looked specifically at their health care segment. They had $13.336 billion in revenue. They had $ 12.320 billion in benefits and expenses paid. a breakdown showed the following:
Medical claims expense $ 7.252 in billions
Other benefit expenses $.193
Mail order pharmacy cost of goods sold $.961
Other operating expenses $3.914
The profit before taxes was $1.016 billion. they paid $.352 billion in taxes, leaving a net profit of $.664 billion or a profit margin of 5%.
Medical claims expense and the cost of pharmacy are payments that directly benefit the insured (hospital, tests, doctors, drugs, medical equipment, etc.) this was 67% of the total benefits and expenses paid, and 62% of total revenue.
Other operating expenses would include things like employee costs, rent, utilities, equipment and generally those things every business needs to operate. The government's primary argument with the public option is that they could operate in this area at a significantly lower cost. And, then we are to believe that a company like Cigna could match the government to be competitive, and given that we have to believe that the management at Cigna would have ignored creating shareholder value not cutting those costs and increasing profit margins. The argument by Obama makes no sense to me, does it make sense to any of you and if so how?