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Why would you compare such different businesses profit margins? Anyway I just think saying a 5% profit margin is small because other businesses have larger pro
by CogitoCogito 4y ago
Why would you compare such different businesses profit margins?
Anyway I just think saying a 5% profit margin is small because other businesses have larger profit margins is kind of naive. I mean if through competition insurance companies' profit margins dropped to 2%, then the current status quo of 5% would seem crazy.
It's all just a matter of perspective. Saying 5% is low because other businesses have higher profit margins doesn't make much sense since the businesses are totally incomparable.
- lotsofpulp 4y agoThe reason to compare it to other businesses is to see what kind of moat/regulatory capture/monopoly/monopsony power they have. For those purposes, a 5% profit margin indicates that health insurance companies do not have the pricing power that many other industries have. They actually have some of the lowest, which is fine, but then the claims of them being in control go out the window. Whether or not 5% itself is too high can be determined by looking at the competition. There are at least 7 other major publicly traded health insurers competing against each other, all with nearly the same profit margin. So either they are colluding with each other and there is corruption on a massive scale, or, the current parameters of the health insurance business simply result in a ~5% profit margin. If you think you can do better, then you are betting that you can do the job better than all the employees at these 7 companies, which is a lofty claim.