Hi, I’m from the UK, the healthcare industry in the US has always confused me but one thing I can’t seem to get my head around is how the insurance companies don’t go bankrupt.
I understand how insurance companies work in the fact that they accurately calculate premiums and invest the money whilst not receiving more claims than premiums.
However, in the healthcare industry wouldn’t they receive many claims on a regular basis? Especially from people who require medication on a regular basis e.g Insulin
Furthermore, with hospitals bills and medication being so expensive will they not payout more in bills than they receive in premiums from people?
In: Economics
Insurance companies are VERY GOOD at doing what they do. They calculate “on average” how much the average customer is going to use in benefits, and then charge 20% more than that.
The two key things to remember: First, hospitals and doctors have to overinflate their prices so that when insurance companies say “we’re only gonna pay 60% of that”, they can still charge what they’re supposed to charge. That’s part of the reason our healthcare costs are absurd. Second, “coverage” isn’t comprehensive. Even with insurance premiums paid, we still pay for visits, tests, drugs, and procedures. Until we hit our “out of pocket maximum”, we pay 40-80% of the cost depending on the service/product. They only start paying most of the cost if we have already paid like $6000 this year. And that’s IF they decide to cover a procedure. The doctor doesn’t get to decide if it’s necessary enough for insurance to cover it. The insurance company does.
Now, keep this in mind. Health insurance can basically charge up to 20% extra beyond the healthcare benefits they provide. For decades, they have been working to make the whole healthcare industry as large and expensive as possible so that that 20% is as large as possible.
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