How do Healthcare Insurance providers not go bankrupt?

Question

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

Answer 1

Although I’m not in underwriting, I work in health insurance so I do have some idea how this works. (And I’ll note that insulin isn’t actually that expensive compared to some medications like imminosuppresant biological that can cost thousands of dollars a month, but

1. The concept of insurance works because the risk gets spread out amount among thousonds, tens of thousands, hundreds of thousands of people.
2. Not everyone is an extensive utilizer of healthcare. One person might be on biologicals, but 99 other people aren’t. One person might be on insulin, but 19 other people aren’t. It’s not the slightest bit unusual to pull a person’s claim history and find they have zero claims in the past 5 years, Possibly even longer since 5 years back is as far as I can view without going in to our archival system which I dont’ have any reason to do in the course of normal claim processing.
3. To stay solvent in times of unusal claims activity, insurance companies invest money. Investments help even out the cash flow, can be cashed out to stay solvent if needed.
4. . Also, “reinsurance”, which is basically insurance for insurance companies, exists. Although the concept is more for casualty insurance in case a hurricane its, health insurance companies use it to.
5. To the extendpeople are on medications, it’s mostly things like generic statins and antidepressants that cost $4 at Walmart, maybe a single course of $20 antibiotics.
6. If people from the US are telling you what they’re premiums are, they’re usually heavily subsidized by their employers or the government so the real cost is a lot higher.