Just How Profitable Are Healthcare Insurers? • Hacker News Board

Re: Just How Profitable Are Healthcare Insurers?

#31

Post by owinebarger » Tue, Mar 09, 2010, 2:59 AM UTC

marshally wrote: post #9

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.

You would be wrong - reserves are there to pay for liabilities already incurred. Social Security is basically a Ponzi scheme without the deception. You're right about the "Social Security Trust Fund" - can you imagine a state allowing a private insurer to buy its own bonds as assets?

Re: Just How Profitable Are Healthcare Insurers?

#32

Post by owinebarger » Tue, Mar 09, 2010, 3:06 AM UTC

The problem for healthcare insurers is that healthcare is a product often obtained while under duress. Patients have to trust their doctors, so they'd much rather call their insurers greedy than the people to whom they entrust their most valuable asset.

If you want to look for greed in healthcare, look at medical schools, hospitals, doctors, and pharmaceutical and medical device manufacturers. Insurance costs are a simple reflection of the incomes of those parties. State regulators (for small group and individuals) and shopping around by sophisticated consumers (large groups) assures that.

Re: Just How Profitable Are Healthcare Insurers?

#33

Post by CWuestefeld » Tue, Mar 09, 2010, 3:20 AM UTC

pw0ncakes wrote: post #19

jbooth wrote: post #15

Earlier quoted context omitted.

Well, if we're going to do apples-to-apples, given the recent statements on their ledger, we should ask "How much does it cost to find someone who will run us damn near into the ground and require a government bailout"? :) Obviously it's more complicated than that, but the "we have to pay for the best and brightest!" meme starts to sound a lot more like self-dealing when it turns out the best and brightest do approxi…

Obviously it's more complicated than that, but the "we have to pay for the best and brightest!" meme starts to sound a lot more like self-dealing when it turns out the best and brightest do approximately the same quality job as one of those dipper things that replaced Homer Simpson at the nuclear plant for a week once. Well said. My post above explains why CEO pay actually results in a worse product. The "best and th…

I'd say that your belief that this is true is pretty much proof that it's not.

On what grounds do you believe that you can do better than the average Fortune 500 CEO? I assert that you're engaging in empty boasting, with absolutely nothing to back this up. How could there be? Have you any experience near the top management of a company this large and complex?

Re: Just How Profitable Are Healthcare Insurers?

#34

Post by CWuestefeld » Tue, Mar 09, 2010, 3:24 AM UTC

pw0ncakes wrote: post #16

CWuestefeld wrote: post #8

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…

Nothing but supposition. Some of what you say is plausible, but can you offer any evidence that this is actually happening?

Let me offer you another possible explanation. When people are making this much money, it's not really about the money at all; they've already got FU money, and they're taking what they can get only because that's the arbiter of where their skills are most needed. Instead, they're doing what they do because they really like the business, or the challenge, or they really want to contribute something to society. I know the CEO of my company (not Fortune 500-sized, but nothing to sneeze at), and I'm absolutely certain that this is the reason that she does it.

Re: Just How Profitable Are Healthcare Insurers?

#35

Post by roboneal » Tue, Mar 09, 2010, 4:07 AM UTC

owinebarger wrote: post #30

roboneal wrote: post #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.…

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.

You missed the critical point...health "insurance" in the traditional workplace is not UNDERWRITTEN on individual basis like life or car insurance.

22-year old single, marathon runners pay the same rate as a 37-year old, single, lazy, 300lb HackerNews commenters.

That and the fact that routine care/services are "paid" for by so called "health insurance" is why it's bogus to compare it to standard insurance.

Re: Just How Profitable Are Healthcare Insurers?

#36

Post by owinebarger » Tue, Mar 09, 2010, 5:05 AM UTC

roboneal wrote: post #35

owinebarger wrote: post #30

Earlier quoted context omitted.

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.

You missed the critical point...health "insurance" in the traditional workplace is not UNDERWRITTEN on individual basis like life or car insurance. 22-year old single, marathon runners pay the same rate as a 37-year old, single, lazy, 300lb HackerNews commenters. That and the fact that routine care/services are "paid" for by so called "health insurance" is why it's bogus to compare it to standard insurance.

I have no idea what definition you are using for "standard insurance." Health insurance does cover routine care, but that's actually a loss control mechanism in the longer term.

Health insurance sold on a group basis is underwritten on a group basis. That does not have anything to do with whether it is "real insurance." Health insurance sold on an individual basis is underwritten on that basis, but rate differentials may be severely constrained by statute or regulation.

These do not affect whether financial risk is transferred. The routine care issue does impinge on a valid consideration of whether the transferred risk is "insurable", but since these are short-term contracts it is not fatal.

Re: Just How Profitable Are Healthcare Insurers?

#37

Post by evgen » Tue, Mar 09, 2010, 5:39 AM UTC

pw0ncakes wrote: post #6

Most Americans (probably 80-90%) conflate corporate greed with profits , which is the wrong way to look at the problem. Most of the asshole greed we see today is not in profit per se , but in back-scratching compensation deals for top management. Note that CEO pay is not profit. It's an expense. Most Americans either don't make or are unaware of this distinction. Managerial overcompensation is strictly worse , becaus…

Recessions are bad for health insurers, because when people get fired, young and healthy people tend to drop their insurance while those who are older stay on the plan (with COBRA).

It is also the case that insurance companies invest a large portion of their premiums in short and medium term investments; few are allowed to get so fragile that they are in danger of having cash flow problems due to some small fraction of the policyholders shifting the cost basis. When the market tanks they have less income from investments and must cut costs (e.g. deny coverage) and increase income (e.g. raise premiums.)

Try graphing DJIA, unemployment rates, and insurance premiums and see when changes in the first two lines best match increases in average premiums...

Re: Just How Profitable Are Healthcare Insurers?

#38

Post by roboneal » Tue, Mar 09, 2010, 5:41 AM UTC

owinebarger wrote: post #36

roboneal wrote: post #35

Earlier quoted context omitted.

You missed the critical point...health "insurance" in the traditional workplace is not UNDERWRITTEN on individual basis like life or car insurance. 22-year old single, marathon runners pay the same rate as a 37-year old, single, lazy, 300lb HackerNews commenters. That and the fact that routine care/services are "paid" for by so called "health insurance" is why it's bogus to compare it to standard insurance.

I have no idea what definition you are using for "standard insurance." Health insurance does cover routine care, but that's actually a loss control mechanism in the longer term. Health insurance sold on a group basis is underwritten on a group basis. That does not have anything to do with whether it is "real insurance." Health insurance sold on an individual basis is underwritten on that basis, but rate differentials…

Does your auto insurance pay for your defensive driving courses? Your homeowner's policy pay for additional smoke detectors? Your life insurance policy pay for a treadmill?

What would those policies cost if they did?

Re: Just How Profitable Are Healthcare Insurers?

#39

Post by owinebarger » Tue, Mar 09, 2010, 6:14 AM UTC

roboneal wrote: post #38

owinebarger wrote: post #36

Earlier quoted context omitted.

I have no idea what definition you are using for "standard insurance." Health insurance does cover routine care, but that's actually a loss control mechanism in the longer term. Health insurance sold on a group basis is underwritten on a group basis. That does not have anything to do with whether it is "real insurance." Health insurance sold on an individual basis is underwritten on that basis, but rate differentials…

Does your auto insurance pay for your defensive driving courses? Your homeowner's policy pay for additional smoke detectors? Your life insurance policy pay for a treadmill? What would those policies cost if they did?

To some extent, they do in the form of a premium rebate, though it is unlikely to be large enough to be a substantial reimbursement for a single policy period - perhaps over the life of the policy the cumulative rebate might cover the up-front cost. I haven't worked in casualty, only health, so I can only speculate.

The better comparison would be with Worker's Compensation insurance, where the loss control mechanisms are ongoing.

As far as what the policies would cost, I don't know. Even if routine medical care is fully covered, a lot of people won't take advantage of it for whatever reason. An insurer's actuarial models will build that expected frequency into the projected cost.

If it bothers you sufficiently, you may consider most health plans to be the sum of a "real insurance" policy and a routine health discount plan. There are health plans that truly avoid assuming substantial risk, although they do so by getting providers to assume the risk. Those plans do retain the risk of providers in their network going bankrupt where prepaid capitation would be lost.

Re: Just How Profitable Are Healthcare Insurers?

#40

Post by rwl » Tue, Mar 09, 2010, 6:24 AM UTC

tullius wrote: post #25

ireadzalot wrote: post #3

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.

You are assuming that a public entity couldn't run more efficiently than a system of private ones, which is exactly the point -- or one of the points -- at issue.