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
I own a healthcare clinic in the US – just outside of Boston, MA, and I have an MBA in healthcare administration, and these are the basics.
*Most important to remember* is that insurance relies on risk sharing. Not everyone is sick. A healthy person might go to the doctor once a year for their annual physical and a colonoscopy every five years. But they are paying the same price for insurance that a sick person who sees their doctor twice a month is paying.
Until the Affordable Care Act was enacted in 2010, an insurance company could deny coverage to an individual because of their health conditions. They could tell a person that because they had cancer or diabetes, they couldn’t buy coverage – insurance knew that they’d pay out more money on that person, and that would eat into their profits.
But also:
1. Health insurance is costly. Employers often pick up a chunk but a plan to cover a family of 4 can run about $2200/month to buy the insurance coverage.
2. Deductibles are high. Deductibles are the amount that the consumer must pay for before most costs are covered (there are usually some exceptions like an annual gynecology exam, but sometimes even that is subject to the deductible). So, you pay every month to purchase the insurance and you have to pay $500-5000 before insurance even starts to pay.
3. After you pay for your deductible, you most likely have a copayment (flat dollar amount you owe per service) or coinsurance (a percentage of the service cost). This amount is deducted from what the insurance company pays. So, if the insurance would pay $100 and you have a $20 copay, insurance pays $80 and you pay $20.
4. Insurance companies have “networks”. I sign a contract with the insurance company to take a discounted rate in order to make my company more attractive to consumers. If I didn’t sign the contract, I could still see patients, but they would have a much higher out-of-pocket cost, because the insurance company can’t dictate what I charge. Instead, they put that difference back on the consumer so they aren’t hemorrhaging money.
5. The insurance companies set **ridiculous** rules. Many procedures/treatments/medications need to be approved before furnishing the services. If they aren’t, the healthcare provider usually can’t bill the patient (if the provider contracted with the insurance company) – so the insurance company gets paid by the patient but they don’t pay out to the provider. And, all your coding needs to be correct. Any little mistake can and will cause a claim to deny.
The Affordable Care Act did set minimums on what must be spent on healthcare delivery and improvement activities themselves, and that has been helpful – but it’s been causing insurances to find other ways to make money, like buying healthcare clinics and loaning money with interest to clinics undergoing hard times like the hurricane.
Honestly, they’re just horrible greedy corporations that have very little interest in actually caring for individuals.
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