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That 2-3% is for the insurance layer, not the parent organization. Consider CVS Health which owns Aetna (an insurer), Caremark (a PBM) and CVS (a pharmacy). Ae

That 2-3% is for the insurance layer, not the parent organization. Consider CVS Health which owns Aetna (an insurer), Caremark (a PBM) and CVS (a pharmacy). Aetna is required to spend 80% on premiums whereas Caremark and CVS face no such constraints on their profit margins. There's a reason why there's so much M&A in this space while consumers are simultaneously facing higher premiums.

lotsofpulp 6y ago
The 3% to 5% profit margin is for the whole company. For all the hate health insurers get as profiteering parasites, their owners sure aren’t pocketing much. United health at 6% https://finance.yahoo.com/quote/UNH/key-statistics/ https://finance.yahoo.com/quote/UNH/key-statistics/ Similarly, Anthem at 4.22%, CVS at 3%, Cigna at 3.38%, Humana at 5.58%, Molina at 4.57%, Centene at 2.12%. The reason there’s so much M&A in this space is because there’s no margins, so it’s either go big and win in economies of scale, or go home and go out of business. And people face higher premiums because more people are getting more access to healthcare. There’s no lifetime benefit maximums or pre existing condition exclusions anymore. And the highest premiums are capped at 3x the lowest premiums.
- wefarrell 6y ago
  UNH shareholders would disagree - I've made 10x on it. Net income is a poor metric here. It includes acquisition costs (and interest paid on debts for said acquisitions).
  - lotsofpulp 6y ago
    Net income over a long period of time is appropriate in my opinion. They consistently hover around 5% for 15+ years. It’s a pretty competitive market. https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-group/net-profit-margin https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-g... I don’t see a lot of juice to squeeze in insurance companies in general.
    - wefarrell 6y ago
      They're using their profits to buy their competitors and downstream partners, which in UNH's case has allows their market cap to grow 10x in 10 years. The 5% that you quote is after those acquisitions (and taxes) and is not a true indicator of profit.

lotsofpulp 6y ago

The 3% to 5% profit margin is for the whole company. For all the hate health insurers get as profiteering parasites, their owners sure aren’t pocketing much. United health at 6% https://finance.yahoo.com/quote/UNH/key-statistics/ https://finance.yahoo.com/quote/UNH/key-statistics/ Similarly, Anthem at 4.22%, CVS at 3%, Cigna at 3.38%, Humana at 5.58%, Molina at 4.57%, Centene at 2.12%. The reason there’s so much M&A in this space is because there’s no margins, so it’s either go big and win in economies of scale, or go home and go out of business. And people face higher premiums because more people are getting more access to healthcare. There’s no lifetime benefit maximums or pre existing condition exclusions anymore. And the highest premiums are capped at 3x the lowest premiums.

wefarrell 6y ago
UNH shareholders would disagree - I've made 10x on it. Net income is a poor metric here. It includes acquisition costs (and interest paid on debts for said acquisitions).
- lotsofpulp 6y ago
  Net income over a long period of time is appropriate in my opinion. They consistently hover around 5% for 15+ years. It’s a pretty competitive market. https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-group/net-profit-margin https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-g... I don’t see a lot of juice to squeeze in insurance companies in general.
  - wefarrell 6y ago
    They're using their profits to buy their competitors and downstream partners, which in UNH's case has allows their market cap to grow 10x in 10 years. The 5% that you quote is after those acquisitions (and taxes) and is not a true indicator of profit.