Your reader wrote:

 "Looks like last years profit number was 3.3%, according to this article by Ezra Klein. I was an actuary at a very large plan and we explicitly priced for a 2% margin. The premium tax is in the Reid proposal, Sec. 9010, Imposition of annual fee on health insurance providers. The 1.16% is an estimate of the percentage of 6.7 billion that will be raised annually to the total premium for the industry of around 505 billion (that number comes from AHIP, I believe. The 1.16% is not exact but its close for many insurers). This starts in 2010. Insurers will have to add it to premiums as soon as possible, which will probably be later next year or January 2011. In the meantime it eats into slim margins. Not to mention the fact that its payable whether the insurer makes money or not, since its based on premium."

This is, for all intents and purposes, true.   However, it fundamentally misses the point.  The issue at hand is not whether or not insurance companies make unseemly profit, it is that they operate extremely inefficiently.  I will admit my bias as a member of the AMA, but the fact is that insurance companies pay out less per a dollar of premiums than Medicare does.  This money goes to elaborate cost "saving" schemes like constantly rewriting coverages, paying vast armies of actuaries to calculate precise and fairly meaningless risk curves, processing and litigating payment with physicians, and contesting coverage and liability with the insured.   This happens especially in the for-profit, public-owned companies, who do all this maneuvering to look better to shareholders.  The bottom line is that insurance is profitable based on a very simple distributed risk curve, and all this effort to improve microscopic variables actually COSTS you money in the long run (even if discrete measurables improve).  There is internal fat to cut people, and the goal of this legislation is to make our insurers trim said fat.   

That being said, costs will never be controlled until we see dramatic fee schedule alterations (with a focus on preventative care rather than procedural) from both private insurers and Medicare.  (Not to mention tort reform, but thats a whole different story)

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