Health Insurers Don't Deserve Vitriol

NEW YORK (TheStreet) -- Thirty-one insurers dominate the U.S. health-care system. In 18 states, the largest carrier controlled more than 90% of the market last year, according to SNL Financial. WellPoint(WLP Quote) was the biggest player in 12 states.

With the top-five insurers in every state and the District of Columbia hoarding more than three-quarters of the health-care business, President Barack Obama and Congress have laid much of the blame for the health-care crisis at insurers' doors. After all, in the world's largest economy, 46.3 million people lack health insurance. Or are the insurers unfairly maligned?

At first glance, the figures are compelling. The insurance market is dominated by a few insurers on a state-by-state basis. In 47 states, the largest carrier is associated with the Blue Cross Blue Shield organization (excluding UnitedHealth Group(UNH Quote), as it doesn't complete health-insurer filings because of the mix of its business). Unfortunately, the facts don't entirely bear out the theory that we Americans are being fleeced by ogre-like health-insurance companies.

The health-insurance industry is enormous. In the first six months of the year, companies took in over $217 billion in premiums -- an annual rate close to half a trillion dollars. For a cost increase of less than 20% of existing annual premiums, 96% of the country could receive health care and most policies now in effect would include improved benefits. That's a lot of bang for the buck.

Of the $217 billion in premiums, more than $191 billion was spent on medical expenses. After administrative costs, the profit margin came in at an average of 1.9% in the first six months of the year -- in the range of supermarkets, among the least profitable companies in the U.S. Dominant insurers' margins are a bit wider, at, 2.8%, though hardly a king's ransom.