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10 Questions in the U.S. Health Care Cost Debate


6
How Much Profit Are Health Insurance and Drug Companies Making?
A man walks by a  Merck plant in Rahway, New Jersey in 2005. Drug companies have much higher profit margins than health insurance companies. Marko Georgiev/Getty Images
A man walks by a Merck plant in Rahway, New Jersey in 2005. Drug companies have much higher profit margins than health insurance companies. Marko Georgiev/Getty Images

Many believe insurance companies and the pharmaceutical industry are the ones cashing in on all the money Americans spend on health care. But is this true? In 2008, before the Affordable Care Act was passed, health insurance companies' profit margins averaged a narrow 3.4 percent, ranking the 87th- most-profitable industry out of 215. Its ranking placed it a bit ahead of the median profitability of 2.2 percent. Beverages was the most profitable business back then; that industry had a 25.9 percent profit margin. Oil and gas also fared reasonably well, at 10.2 percent [source: Newman].

Looking at figures from 2013, with the Affordable Care Act in place, the top U.S. insurers reported slightly better profitability figures from those in 2008, though they had dropped a little from 2012: For instance, Aetna had a 4.3 percent profit margin (versus 5.13 percent the previous year) and UnitedHealth, 6.4 percent (down from 7.5 percent) [source: Mark Farrah Associates].

The drug companies are faring much better. In 2014, the top global pharmaceutical companies pulled in profits ranging from 24.2 percent (Merck & Co.) to a whopping 52.3 percent (Gilead Sciences), with most in the 25 to 35 percent range [source: Statistica]. Perhaps more chillingly, the world's 10 largest drug companies — six of which are based in the U.S. — control more than one-third of the global marketplace. Since very little government money is spent on developing new drugs, pharmaceutical companies tend to concentrate on drugs for the more lucrative markets, rather than ones for diseases more common in developing countries. Drug companies are also spending twice as much money on marketing as on research and development [source: World Health Organization].


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