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Just How Profitable Are Healthcare Insurers?

larrycheng.com

21–30 of 51 posts

Re: Just How Profitable Are Healthcare Insurers?

#21

If a business makes a profit by serving its customers, I'm ok with that. At this point, given how messed up the health care system is (law, super expensive EOL care, high entry cost for doctors and nurses, poor non-emergency care situation), can you really do the right things. Given the failure of Indian Health Service in serving its customers (to the point of pinning a note that says "we won't pay" on a person trans…

> this point, given how messed up the health care system is (law, super expensive EOL care, high entry cost for doctors and nurses, poor non-emergency care situation), can you really do the right things.

Which of those factors are due to insurance companies?

If you don't fix them, how likely is it that any "new" system will be any better?

Re: Just How Profitable Are Healthcare Insurers?

#22
post #17
post #2

All this means is that the insurance companies spend most of the money they take in. They could hire x more employees and then they wouldn't be profitable at all. That doesn't mean they are tirelessly working to save you money, it just means they aren't profitable. I wouldn't read too far into this data.

Don't have a cite offhand but insurance industry employment has gone up by quite a lot (close to double if I recall correctly) since 2000. Let's say I'm an insurance CEO. You tell me, that by spending 20 million on increased claim scrutiny, we'll net 1 million in total savings by disbursing 21 million fewer dollars. What do I do there? It's obvious, I go for the 1 million. So I just spent 20 million in order to hand…

Insurance companies are, however, subject to "the law". Govt agencies mostly aren't.

Feel free to compare Medicare's dispute process with that of an insurance company. And remember that some people can switch insurance companies while no one can switch Medicare.

We can make switching insurance companies easier. Switching "single payers" is, by definition, impossible.

Re: Just How Profitable Are Healthcare Insurers?

#23
post #22
post #17

Earlier quoted context omitted.

Don't have a cite offhand but insurance industry employment has gone up by quite a lot (close to double if I recall correctly) since 2000. Let's say I'm an insurance CEO. You tell me, that by spending 20 million on increased claim scrutiny, we'll net 1 million in total savings by disbursing 21 million fewer dollars. What do I do there? It's obvious, I go for the 1 million. So I just spent 20 million in order to hand…

Insurance companies are, however, subject to "the law". Govt agencies mostly aren't. Feel free to compare Medicare's dispute process with that of an insurance company. And remember that some people can switch insurance companies while no one can switch Medicare. We can make switching insurance companies easier. Switching "single payers" is, by definition, impossible.

The government is indeed subject to the law, much more stringently than insurance companies in fact. Try doing something nominally illegal in a government agency.

The government can pass laws, of course.. but the insurance industry can hire lobbyists. Seems like an awful uphill battle to beat those guys, based on the last 60 years of healthcare reform history. Harry and Louise can be pretty influential.

Medicare's dispute process with that of an insurance company? Well, I'll tell you one thing, Medicare doesn't spend the 20 million to deny 21 million dollars in claims like I outlined above.

We should make switching insurance companies easier, but that doesn't get us anywhere if they're all embracing the same bad practices. I don't have the option of starting an insurance company out of my garage like you could with a tech startup -- if the incumbents consist of a broken oligarchy, that's what we're stuck with, absent government action. There are so many classic incentive problems in play here, tragedy of the commons, free-rider problem.. it's frankly a wonder that things aren't broken even worse.

With government run healthcare you get the benefit of proper incentives at the cost of government-run bureaucracy, which will always be a little less efficient. That's the tradeoff.. as far as which is more effective, we could look at every other industrialized country which gets better outcomes for a fraction of the cost, or we could appeal to ideology, fears of vague things like "socialism", and absurdities like "keep the government out of my medicare".

Re: Just How Profitable Are Healthcare Insurers?

#24
post #21

If a business makes a profit by serving its customers, I'm ok with that. At this point, given how messed up the health care system is (law, super expensive EOL care, high entry cost for doctors and nurses, poor non-emergency care situation), can you really do the right things. Given the failure of Indian Health Service in serving its customers (to the point of pinning a note that says "we won't pay" on a person trans…

> this point, given how messed up the health care system is (law, super expensive EOL care, high entry cost for doctors and nurses, poor non-emergency care situation), can you really do the right things. Which of those factors are due to insurance companies? If you don't fix them, how likely is it that any "new" system will be any better?

Those factors are the landscape the insurance companies operate in. The biggest problem is that I don't see any of the actual legislation doing anything about actual input costs to the system or increasing competition.

Re: Just How Profitable Are Healthcare Insurers?

#25

I highly recommend reading this short piece. Even though the profit margin is so small for Health Insurance Companies, “the better measurement is not profit, but return on invested capital (ROIC). ” One more line from the article: “If I had a business that consisted of people giving me $100 bills and me paying them back $96, it would be silly to describe that as a very low-profit industry.” Source: The Economist Link…

Profit margin is the important metric to look at in the context of moving to a socialized system. The stats in the linked article say that even if a public entity could run as efficiently as a private insurer there is only 3.7% surplus value to capture.

Re: Just How Profitable Are Healthcare Insurers?

#26
post #20

Another important factor here is the amount of reserves that are held back from each $1 of premiums input into the system. For a single payer system, the idea of reserves is non-sensical (similar to the farce of the 'social security trust fund' which makes zero sense from a macro economic perspective). I would make the point that reserves are a waste product of an insurance based system.

> Another important factor here is the amount of reserves that are held back from each $1 of premiums input into the system. You're forgetting that insurance companies invest that money. There are times when claims payout exceeds the premiums, yet insurance companies still manage to make money because of the investments. As always, if you think that you can do insurance better, go for it. If you're right, you get ric…

I work for an insurance company.

The company makes an operational loss, but it makes a killing in the financial market, and is thus (very) profitable.

Claims don't exceed the premiums, but it's narrow.

Re: Just How Profitable Are Healthcare Insurers?

#27

Earlier quoted context omitted.

Most of the asshole greed we see today is not in profit per se, but in back-scratching compensation deals for top management. Citation, please? I'm very skeptical that pay for top execs amounts to a really significant part of corporate expenses, or that corporate profits could be increased substantially by cutting these expenses.

Executive pay may be small compared to the corporate balance sheet, but the level it's at allows for and encourages bad behavior. 1. The extreme disparity between CEO pay and other vital executives encourages people to backstab in order to ascend the hierarchy. So "work" for those who are in line to be CEOs is more about jockeying for position and trading favors than about building a company. 2. In addition to (1), s…

Companies are much better managed now than they were a few decades ago. Think about the fact that corporate raiders were able to buy large companies in the 80's, split them apart and sell their constituent lines of business for more than the companies were previously worth.

CEO pay has simply increased in line with the market capitalization of the largest public companies.

Re: Just How Profitable Are Healthcare Insurers?

#28
Can we get past the fact that "healthcare insurance" isn't really insurance?

True insurance essentially "insures" against catastrophic loss and policies are underwritten on a personalized basis.

"Health insurance" often covers routine care, medications, diagnostic tests, etc -- hides the actual costs behind devices like "co-pays" and distributes cost inflation across the "group" instead the high risk/sick individual.

How expensive would your car insurance be if it covered oil changes, car washes, body repair and then lumped you, the driver with a clean record, with your neighbor with his 5th DUI?

Re: Just How Profitable Are Healthcare Insurers?

#29
post #27

Earlier quoted context omitted.

Executive pay may be small compared to the corporate balance sheet, but the level it's at allows for and encourages bad behavior. 1. The extreme disparity between CEO pay and other vital executives encourages people to backstab in order to ascend the hierarchy. So "work" for those who are in line to be CEOs is more about jockeying for position and trading favors than about building a company. 2. In addition to (1), s…

Companies are much better managed now than they were a few decades ago. Think about the fact that corporate raiders were able to buy large companies in the 80's, split them apart and sell their constituent lines of business for more than the companies were previously worth. CEO pay has simply increased in line with the market capitalization of the largest public companies.

The stock market is a poor arbiter of whether a business decision is good for the long run. Traders are good at outguessing each other in the short term, but have no sense of the long term.

Re: Just How Profitable Are Healthcare Insurers?

#30

Can we get past the fact that "healthcare insurance" isn't really insurance? True insurance essentially "insures" against catastrophic loss and policies are underwritten on a personalized basis. "Health insurance" often covers routine care, medications, diagnostic tests, etc -- hides the actual costs behind devices like "co-pays" and distributes cost inflation across the "group" instead the high risk/sick individual.…

And what makes you think you aren't lumped in with your neighbor?

Every rational form of insurance relies on distributing risk over groups of independent risks to obtain the benefits of the central limit theorem. There are some very specialized policies, and the Lloyd's syndicate, but anyone wishing to avoid ruin will diversify their risk.

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