President Obama is devoted to eliminating all the myths that exist around the Health Care Reform plans. However, the Administration is one of the main sources of those myths.
One of the myths that the Obama Administration is pushing is that the government will be able to provide health care cheaper as they will be able to cut out all the insurance company profits. In fact, he often refers to “those huge insurance company profits”. The President is either trying to mislead people or is ignorant of how a business operates.
From conversations that I have had, I belive that many people are misinformed. I have heard people talk about the evil insurance companies and their 1000% profit increases or the immoral insurance company 150% profit. With comments similar to those being floated on TV, I am sure that people do not understand or know the truth.
For starters, many people don’t know what a profit is or how it is calculated. A company’s profit equals its revenue minus expenses. More simply, the cash it takes in minus all the bills it has to pay. And as pointed out in a post over at HotAir.com, insurance companies only keep 4 to 5 cents for every dollar they take in which is 4 to 5% profit and not anywhere near 150%.
The simple example of a grocery store can help explain. When you spend $100 dollars at the grocery store, that $100 dollars is the revenue that the store receives. However, that $100 is not profit. Assuming the grocery store has a 50% markup on the products you bought, they had to pay $50 dollars for the goods that you bought. That leaves them $50 dollars in profits right? Wrong. They still have to pay the employees, pay the utilities, advertising, rent, and other expenses. Then, what ever is left over after paying those expenses is taxed. What is left over is the profit which is kept by the company.