Improve profit margins

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By Nick Rizzuto

Left or right, we can all agree that our health insurance industry is in serious need of treatment, as we live in a time when a small number of companies make record profits while they cut costs by rejecting the claims of thousands of sick and desperate people.

The obvious question is: What can Americans do to get out of this seemingly self-perpetuating rut? The answer is anything but obvious and might surprise you. To illustrate it, you need look no further than your local beer aisle.

Today we can go into any supermarket or liquor store and find dozens upon dozens of brands and styles of beers. Lagers and stouts, darks and lights, no matter what an American wants to pickle his liver, his local booze slinger is going to have a product for him.

Have you ever stopped to ask yourself why you have so many choices and how small microbrewers such as Dogfish Head and Brooklyn Brewery can successfully navigate the waters alongside massive companies such as MillerCoors and Anheuser-Busch InBev?

The answer lies in profit margin.

Alcoholic beverages like beer enjoy one of the highest profit margins of any industry in America at close to 26 percent. With such a high profit margin, small companies can make profits just as easily as large companies. The success of America's microbrewers is testament to that fact.

The health insurance industry, by contrast, has an extremely thin profit margin at 3 percent. This, of course, has had the opposite effect. The only free-market answer for the health insurance crisis is to take steps to increase the industry's profit margin.

Considering the information we're being fed by the government and media, this answer seems completely counterintuitive. Try to make the argument to most people that the solution to fixing a problem in which a handful of massive companies are making money hand over fist is to increase their profit margin, and the response is unlikely to be kind.

Nevertheless, the industry's 3 percent profit margin is keeping potential competitors out of the market. For a small health insurance company considering entering the market, the price of doing so is higher than the rate of return. This lack of new blood in the industry also has the unfortunate consequence of keep innovation from occurring.

Naturally, the only way an insurance company can make money under these conditions is through sheer volume of business. This means massive companies dominate the landscape, as they're the only ones who can turn a profit.

The government has decided the best way to alleviate the problem is to use coercive forces in an attempt to drive down costs and then shuffle people around the same failing system. Of course, none of this will solve the problem, and in fact, it undoubtedly will create more problems down the line.

The first step to alleviating the health care crisis is to lower the costs of health care itself. To this end, there are numerous actions the government can take to affect positive change and promote competition without resorting to damaging price controls, intrusive regulations and state-run alternatives:

c Speed the process of medication going from prescription-only to over the counter. We have seen time and again that when medicine simply is made more accessible, its prices drop considerably. For example, the price of the allergy drug Claritin fell by 50 percent when it went from prescription to over the counter.

c Lower or eliminate federal taxes on all essential health care products and services.

c Cut bureaucratic red tape at the Department of Health and Human Services.

c Allow health insurance plans to cross state lines. By prohibiting this, states in effect protect anti-competitive health insurance cartels.

c Tort reform! Tort reform! Tort reform! Any Democrat who is serious about dedication to reforming health insurance must fight to break the trial lawyers' grip on the Democratic Party.

Perhaps President Obama would have taken away more from his so-called beer summit if he had paid more attention to the contents of his glass. At his meeting with Harvard professor Henry Louis "Skip" Gates and Police Sgt. James Crowley, the three men sipped three different styles of beer (four if you include the party-crashing Vice President Joseph R. Biden Jr.'s nonalcoholic swill). When allowed to, the free market rarely fails to provide the innovation and choice people desire.

Nick Rizzuto is the producer of "The Wilkow Majority" on SIRIUS XM Satellite Radio.