The scenario:
You get into your car on the south side of Washington, DC, drive to the north side of Baltimore (or from Philadelphia to Atlantic City or from Sarasota to Tampa) for a total one way of 58 miles and this is what you will see:
Next to the highway there is a 160 foot wide (football field width) office park the entire length with about 250,000 people working at useless functions processing health care insurance stuff. At almost every tenth of a mile there stands a Member of Congress facing the highway holding a placard that says “behind me is the best healthcare system in the world” but on the other side of the placard not visible to you the traveler is the inscription “these suckers are paying me for non-needed work”.

That’s the magnitude of the healthcare insurance business which does not even account for the staff and expense the healthcare providers need to endure. You can see that on your return trip except that office space is 3 times the width that you saw on your first trip.   

Let’s examine the magnitude and the effects of the Non-Contributing Layer (NCL).
Let’s use UnitedHealth Group as a typical model and from that we will factor for the entire nation. The real picture will be quite a bit more dismal but at least this will present the bare minimum.
The information and data that UnitedHealth Group presented in their 2007 Form 10-K filing with the Securities and Exchange Commission (SEC) shall be used as a basis for this analysis. Please open the link, read and study the details to get a thorough picture of the situation. It is all public knowledge. The link to that document is here:

http://www.unitedhealthgroup.com/invest/2007/10-K_2007.pdf

Summary of given facts

UnitedHealth Group Incorporated serves approximately 70 million Americans.
UnitedHealth Group works with approximately 560,000 physicians and other health care
professionals.
UnitedHealth Group works with approximately 4,800 hospitals and other key partners.
UnitedHealth Group employed approximately 67,000 individuals as of December 31, 2007.
UnitedHealth Group as of December 31, 2007, owned and/or leased real properties totaling
            approximately 12.6 million square feet and are currently constructing two new facilities in
            Minnesota for an additional 0.4 million square feet and lease an additional 0.2 million
            square feet for a grand total of 13.2 million square feet.
UnitedHealth Group is broken down into the following divisions but only the total of all these
            divisions is used in this presentation: Commercial Markets, Uniprise, Ovations, Ovations
            Part D, Secure Horizons, Definity Health, Insurance Solutions, Evercare, OptumHealth,
            Care Solutions, Behavioral Solutions, Specialty Benefits, Ingenix, Information Services, i3,
Prescription Solutions
UnitedHealth Group’s competition: managed health care companies, insurance companies, third-
            party administrators and business services outsourcing companies, health care
            professionals that have formed networks to directly contract with employers or with CMS,
            specialty benefit providers, government entities, disease management companies, and
            various health information and consulting companies.
For Health Care Services businesses, competitors include Aetna, Cigna, Coventry Health
Care, Health Net, Humana, Kaiser Permanente, WellPoint, and numerous for-profit and
not-for-profit organizations operating under licenses from the Blue Cross Blue Shield
Association and other enterprises that serve more limited geographic areas.
Also: Health Net, Amerigroup, Welcare Health Plans, Centene and others.

Now some statistical data

Population of the United States: 300,000,000                                                                  
Number insured: 255,000,000                                             
Number NOT insured:  45,000,000
Number insured by UnitedHealth:  70,000,000
UnitedHealth’s coverage percentage of insured:           27%
Therefore, to obtain national scope multiply data by 3.7 (100 divided by 27 = 3.7)

Based only on these figures provided by UnitedHealth and using the 3.7 multiplier we can estimate the number of people employed by the healthcare insurance business.
Therefore 67,000 employees x 3.7 = about 250,000 people.

UnitedHealth uses about 13.2 million square feet of office space. We will convert that to football fields which measure 160 ft wide x 300 ft long (100 yards) or 48,000 sq ft.
Dividing 13,200,000 by 48,000 equals 275 football fields worth of office space.
Multiplying 275 by our factor of 3.7 results in 1018 football fields full of office people doing useless work in the entire country.
If we line up these football fields end to end we get 1018 x 100 yards or 101,800 yards in total. We divide that 101,800 by 1760 (yards per mile) and get 58 miles.

There are 100 members in the Senate and 465 in the House for a total of 565 which results in a politician standing about every 10 th of a mile supporting the insurance industry and ready to provide another 45 million people to the industry at taxpayer expense. A detailed breakdown of the politicians’ view is presented under the Senate tab. Almost 95% of the politicians support the insurance companies.
Each of the 3 presidential candidates supports the insurance industry!!!!

Unfortunately the voter is handicapped by not having a choice in this issue. There is no provision on the ballot to support Jesse Ventura’s idea of “none of the above”.

Of course there are more precise data available but this should be good enough to present a general picture.                             

Function of the Health Insurance Company

The basic function of any health insurance company is the generation of money for stockholders and management. They have absolutely nothing to do with the delivery of healthcare services. Healthcare is merely a vehicle for collecting money from the people and the well being of the people is of no consequence. Profits and wealth count. The only difference between a health insurance company and a casino is that the casino does not have a captive clientele.

The health insurance business is very similar to any cartel, OPEC for example, who squeeze the maximum from the people without any regard for ethics.

The insurance business sets the premiums at their pleasure. Premiums are their method of collecting wealth. The increase in premiums has nothing to do with inflation or cost of living. That is clearly stated within this 10-K filing. And any claim that the cost of premiums goes up with the cost of medical care is contradicted herein and is pure nonsense. But still again – the entire function of the health insurance company is only the collection of wealth.

With the monies collected the insurance companies in turn invest that income into other securities. That info is also presented in the 10-K filing.

Financial Info

The financial information that follows is presented only as back-up for the claims made earlier. Please examine the entire 10-K filing for a more complete picture.

http://www.unitedhealthgroup.com/invest/2007/10-K_2007.pdf

The following data is copied from the 10-K form but condensed for simplicity.
The page numbers refer to the page in the 10-K where the data can be found.

Pages 17 and 18.
Comparison of 5 Year Cumulative Total Return

12/2002 is starting point at 100.

Conclusion: the insurance group has an average rate of return of 2 to 2.5 times that of a Fortune 50 or a S & P 500 company !!!!!!

Page 20
 2007 Financial Performance Highlights
UnitedHealth Group had strong results in 2007. The Company achieved growth across each of its reporting segments and generated net earnings of $4.7 billion, representing an increase of 12% over 2006. Other financial performance highlights include:
• Diluted net earnings per common share of $3.42, an increase of 15% over 2006.
• Consolidated revenues of $75.4 billion, an increase of 5% over 2006.
• Earnings from operations of $7.8 billion, up $865 million, or 12%, over 2006.
• Operating margin of 10.4%, up from 9.8% in 2006.
• Cash flows from operations of $5.9 billion, representing 126% of 2007 net earnings.
                                                                                   
Conclusion: UnitedHealth Groups positive financials increased anywhere from 10 to 15% whereas inflation only went up only 2.85 %. (2005=3.39%, 2006=3.24%; 2007=2.85%)

UnitedHealth Group has a stock repurchase program in place. In the last quarter of 2007 it repurchased 42,402,139 shares on the open market at an average price of $54.85/share.
That’s a total cost of about $2.3 BILLION. (see page 20)
Where did they get that kind of money? And why are they doing that?
Answer: They got it from your premiums. And they are removing shares from the open market to increase the value of the remaining shares for the benefit of the management and shareholders. The policyholders are helping to enrich the stockholders!!!
Here is a note from the presentation.

(1) In November 1997, our Board of Directors adopted a share repurchase program, which the Board evaluates periodically and renews as necessary. On October 30, 2007, the Board renewed and increased the Company’s common stock repurchase program, and authorized the Company to repurchase up to 210 million shares of our common stock at prevailing market prices. There is no established expiration date for the program.

Medical Costs  (Page 21)
The combination of pricing, benefit designs, consumer health care utilization and comprehensive care facilitation efforts is reflected in the medical care ratio (medical costs as a percentage of premium revenues). The consolidated medical care ratio decreased from 81.2% in 2006 to 80.6% in 2007.
What this ratio means is that approximately 20% of the premiums paid by policyholders disappears into corporate profits and processing costs. The policyholder gets nothing for every 1 dollar out of 5 that he pays in premiums.
This ratio is for UnitedHealth Group only. The other insurance companies have ratios even worse than United’s.

What does UnitedHealth Group do for their money and how does it help deliver medical care? Ans: It doesn’t.
Here is an explanation that is on Pages 20 and 21 of Form 10-K.
(underlining by the writer)

2007 Results Compared to 2006 Results
Consolidated Financial Results

Revenues
Revenues are comprised of premium revenues from risk-based products; service revenues, which primarily include fees for management, administrative and consulting services; product revenues; and investment and other income.

Premium revenues are primarily derived from risk-based health insurance arrangements in which the premium is fixed, typically for a one-year period, and we assume the economic risk of funding our customers’ health care services and related administrative costs. Service revenues consist primarily of fees derived from services performed for customers that self-insure the medical costs of their employees and their dependents. For both premium risk-based and fee-based customer arrangements, we provide coordination and facilitation of medical services; transaction processing; customer, consumer and care provider services; and access to contracted
networks of physicians, hospitals and other health care professionals. Through our pharmacy benefit management (PBM) business, Prescription Solutions, revenues are derived from products sold and from administrative services. Product revenues also include sales of Ingenix syndicated content products.

(from page 21)
Consolidated revenues in 2007 of $75.4 billion increased by $3.9 billion, or 5%, over 2006 driven primarily by rate increases on premium-based and fee-based services and growth in the total number of individuals served by Health Care Services.
(Note where the revenue increase comes from: premiums; not cost of medical care! Nor inflation)

Premium Revenues. Consolidated premium revenues totaled $68.8 billion in 2007, an increase of $3.1 billion, or 5%, over 2006. This increase was primarily driven by premium rate increases, partially offset by a decrease in the number of individuals served by our commercial risk-based products.
Premium revenues for Commercial Markets (UnitedHealthcare and Uniprise) in 2007 totaled $36.2 billion, an increase of $623 million, or 2%, over 2006. This increase was primarily due to average net premium rate increases of 7% to 8% (Ed. note: That’s double the inflation rate) on UnitedHealthcare’s renewing commercial risk-based products and due to premiums from businesses acquired since the beginning of 2006. This was partially offset by a 4% decrease in the number of individuals served by commercial risk-based products in 2007 primarily due to the Company’s internal pricing decisions in a competitive commercial risk-based pricing environment and the conversion of certain groups to commercial fee-based products. Ovations premium revenues in 2007 totaled $26.0 billion, an increase of $1.7 billion, or 7%, over 2006. The increase was driven primarily by an increase in individuals served by standardized Medicare supplement and Evercare products, and rate increases on Medicare Advantage products as well as continued growth in our Medicare Part D program. AmeriChoice premium revenues increased by $732 million, or 20%, over 2006 primarily due to an increase in the number of individuals served by Medicaid products as well as rate increases. The remaining premium revenue increase resulted primarily from membership growth and rate increases at OptumHealth, which contributed a premium revenue increase of 11% over 2006.

Service Revenues. Consolidated service revenues in 2007 totaled $4.6 billion, an increase of $340 million, or 8%, over 2006. This was driven primarily by a 38% increase in Ingenix service revenues due to new business growth in the health information and contract research businesses and from businesses acquired since the beginning of 2006. In addition, Commercial Markets service revenues increased due to a 3% increase in the number of individuals served under commercial fee-based arrangements during 2007, as well as annual rate increases.

Product Revenues. Consolidated product revenues in 2007 totaled $898 million, (Ed. note: Now examine the 2005-2006) an increase of $161 million, or 22%, over 2006. The increase was driven by pharmacy sales growth at Prescription Solutions primarily due to providing prescription drug benefit services to an additional four million Ovations Medicare Advantage and Part D members.

Investment and Other Income. Investment and other income during 2007 totaled $1.1 billion, representing an increase of $273 million, or 31%, over 2006. Interest income increased by $239 million in 2007, driven by increased levels of cash and fixed-income investments, due in part to deposits held for certain government sponsored programs during 2007 and the lack of share repurchase activity in the first two and a half months of 2007. Net realized gains on sales of investments were $38 million in 2007 and $4 million in 2006. We expect a slight decline in investment income in 2008 due to the declining interest rate environment in early 2008, as well
as a comparatively lower level of invested asset balances expected in 2008.

Medical costs for 2007 increased $2.1 billion, or 4%, (Ed. note: inflation was 2.85% so the 4% increase is in line)  to $55.4 billion, primarily due to an annual medical cost trend of 7% to 8% on commercial risk-based business due to medical cost inflation and increased utilization, as well as growth in Ovations Medicare programs, partially offset by a decrease in the number of individuals served by commercial risk-based products.

Now examine the 2005 to 2006 increase.    Page 26

2006 Results Compared to 2005 Results
Consolidated Financial Results
Revenues
Consolidated revenues in 2006 of $71.5 billion increased by $25.1 billion, or 54%, over 2005. Excluding the impact of businesses acquired since the beginning of 2005, consolidated revenues increased by approximately 21% in 2006 principally driven by the successful launch of the Medicare Part D program on January 1, 2006, rate increases on premium-based and fee-based services and growth in individuals served across our business segments. Following is a discussion of our 2006 consolidated revenue for each of our revenue components.
Premium Revenues. Consolidated premium revenues totaled $65.7 billion in 2006, an increase of $23.6 billion, or 56%, over 2005. Excluding the impact of acquisitions since the beginning of 2005, consolidated premium revenues increased by $8.8 billion, or 21%, (Ed. note: inflation was 3.24%) over 2005. The increase was primarily driven by premium rate increases (Ed. note: not the cost of medical care) and the successful launch of the Medicare Part D program, partially offset by a slight decrease in the number of individuals served by our commercial risk-based products.

ITEM 6. SELECTED FINANCIAL DATA               (page 19)
Financial Highlights
For the Year Ended December 31,
(in millions, except per share data) 2007 (1,2) 2006 (1,2) 2005 (2) 2004 (2) 2003
Consolidated Operating Results

Earnings From Operations . . . . . . . . . . . . . . . . . . . . . . $ 7,849   (2007)
          $ 6,984   (2006)
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .    (2007)
          $ 4,159   (2006)
Return on Shareholders’ Equity . . . . . . . . . . . . . . . . . 22.4%       (2007)
       22.2%       (2006)
Basic Net Earnings per Common Share . . . . . . . . . . . $ 3.55      (2007)
        $ 3.09      (2006)

(only 2006 and 2007 basic info is shown. See page 19 of  main document for more info)

AARP     (see page 76)
We provide health insurance products and services to members of AARP. These products and services are provided to supplement benefits covered under traditional Medicare (AARP Medicare Supplement Insurance), hospital indemnity insurance, health insurance focused on persons between 50 to 64 years of age, and other products (Supplemental Health Insurance Program). Under the Supplemental Health Insurance Program, we are compensated for transaction processing and other services as well as for assuming underwriting risk. We are also
engaged in product development activities to complement the insurance offerings. Premium revenues from our portion of the AARP Supplemental Health Insurance Program were approximately $5.3 billion in 2007, $5.0 billion in 2006 and $4.9 billion in 2005.

(and on page 78)
Under separate trademark license agreements with AARP, we sell AARP-branded Medicare Prescription Drug benefit plans and Medicare Advantage plans. We pay AARP a license fee for the use of the trademark and member data and assume all operational and underwriting risks.

There is much discussion within the 10-K regarding the relationship with AARP. The bottom line is that both AARP and UnitedHealth Group benefit financially from this relationship. Consequently there is no reason to think that AARP would suggest any other healthcare arrangement that would be financially detrimental to AARP.

The above presentation does not address total medical costs such as self pay or out of pocket expenses nor does it even begin to cover the consequences that medical providers (doctors, therapists, hospitals, labs, etc.) are subject to due to the set up that exists in the USA today.

OOOOPS!  Almost forgot about those 45 million uninsured. Just can’t ignore them. Can we?

OK. United’s revenues for 2007 totaled about $75,000,000,000. ($75 billion) If we multiply that by our factor for the entire country we get 3.7 x $75,000,000,000 = $277,500,000,000 in revenue and then use the “medical care ratio” of 80%  and multiply that by .2 we get  $55,500,000,000 as the excess for the insurance companies.

That amounts to $55,500,000,000 divided by the 45,000,000 uninsured = $1,233 that can be given to each uninsured off of the excess alone.
If we consider the entire revenue stream then we can give each uninsured $6,166.
($277,500,000,000 divided by 45,000,000)

In reality the amount would be considerably more, maybe 3 times as much, when we take into consideration the savings realized by the medical providers – if we get rid of the insurance companies entirely.

Except for the information copied from SEC filing 10-K, all opinions are strictly that of the writer.