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
Premiums are really high, and the companies have people on staff whose sole job is to deny as many claims as possible.
Bold of you to assume they will actually pay out.
But in all seriousness. I have never had any major medical issues but I hear horror stories about how easy it is for insurance companies to deny your claims. For the ones they don’t deny I’m assuming there is a much smaller percentage of people that actually use their insurance as there is people paying premiums.
Two things:
1. I think you are underestimating how much it costs to have insurance in the US. Paying over $300 a month in premiums AND having a deductible over $5,000 (which basically means you need to spend 5k a year before insurance will ever pay for anything) is not uncommon. If someone is paying less than this/has better insurance. It’s because their employer is paying for it, not because the insurance company isnt getting paid.
2. insurance companies regularly negotiation for lower prices. Like if you didn’t have insurance the hospital might charge you $10,000 for an operation. But they will only charge insurance $1,000.
Oh, and of course insurance companies deny claims *all the time*. A coworker of mine has a son with severe allergies. Like kid’s doctor says its the worst case he has ever seen in 30 years of working as a specialist. Insurance denied his meds.
Edit: Most people also have something called a copay. Which means you always have to pay some amount out of pocket. *Even if you have hit your deductible already.*
Alright, a few things to cover here.
1. You’re right, they’re gonna charge more than they have to spend so they make a profit. That’s their ultimate goal, after all! For things like health insurance benefits provided through work, the employee may pay some sum but the employer commonly pays a lot more. This helps with the whole profits thing. So if you see someone saying they get X benefits for $Y per paycheck through their employer, the employer is paying a lot more than just $Y behind the scenes as well.
2. Insurance companies negotiate. We have terms like “in network” and “out of network” when it comes to deductibles and fees. Things that are in network are cheaper because they’ve already negotiated and made deals with those providers. Funny enough this actually drives up costs, because providers then jack their prices more so insurance companies can feel like they got a deal while they haven’t as much as believed. It’s sorta like how when we had JC Penney stores here selling $300 suits that claimed to be $900 but the price was slashed to just $300, what a deal!
2a. Deductibles and copays etc. They front the bill but only after you front some money first. Get a couple stitches and it cost $1200? With $500 deductible, they’re only paying $700 of it.
3. They can and do argue and refuse to pay allllllll the fucking time. This is probably one of the most aggravating parts of our system. Idiots who hardly know shit about healthcare, or are using hearsay rather than having been there directly doing triage and tests and all that, call shots that shouldn’t be called to save a buck. Oh that $60,000 helicopter ride to a better hospital because the doctors at the place you went knew they couldn’t patch you up and knew it was vitally important to get you treated NOW? No we won’t pay that, they should have done the $5,000 ambulance ride that would have taken 3x as long and could have cost you your life. They’ll argue over insulin and everything else. It’s ridiculous.
Same as any other insurance.
Insurance companies are ALL a racket. It makes zero sense, mathematically. They ALWAYS will take more than they pay out, so it makes no sense to ever subscribe insurance for anything (unless mandatory). Just see what premium they charge, and save that sum yourself on a separate account every month, and you’ll come up ahead. It’s math.
It’s expensive, average is $500/mo. They deny coverage if they can. There are copays so you pay some and are less likely to go to the doctor. There are deductibles so they don’t have to pay until you hit the cap, again making you less likely go go to the doctor.
Averages. There is a thing called the law of large numbers that says if you take a random thing, and run it enough times, you will tend towards the average result overall.
The health insurance companies (and we have them in the UK as well) use past data to predict how much they will have to pay out in any one year. With enough customers they can get a good idea of how many will get sick or need other treatment, how much that will cost, and then how much they will need to charge. On the individual level one person can have a good year and need no payouts, or a person can have a really bad year and need hundreds of thousands of dollars – but on the average person will need some average amount of payout, and so all the insurance company needs to do is charge a bit more than that.
If they find themselves paying out too much they can always put up their prices for next year.
And historically, US healthcare insurance companies charged significantly more than they paid out. The Affordable Care Act (Obamacare) introduced an “80/20” rule, whereby healthcare insurance companies had to spend at least 80% of the premiums paid to them on actually providing healthcare. If they didn’t they had to reimburse their customers the difference. In the first few years insurance companies ended up returning billions to their customers – some had got at low as the high 50s% in terms of how much they were actually spending on their customers (the rest going to marketing, admin, bonuses for senior staff, and profits).
> Furthermore, with hospitals bills and medication being so expensive will they not payout more in bills than they receive in premiums from people?
The insurance companies have a whole bunch of tricks to avoid paying out as much. Deductibles (the customer has to pay the first few thousand of any one bill), caps on spending, negotiating with the healthcare providers (a common ‘trick’ where the provider will charge 10 or 20 times what they actually need to, and the insurance company “negotiates” down to only paying the base rate – meaning those without insurance end up paying far more, and the insurance company looks like it is doing a good job).
Dear kind sir.
In the US we pay a monthly fee around 800 for a family of four and our employer usually also pays 800 or so. So what does that get you.
Prescriptions-the insurance negotiates major discounts and you pay $10 $20 $more for each prescription per month.
Doctors visits you pay around $40 for each visit and insurance pays about $70 for you unless it is a specialist then you pay around $75.
Here comes the kicker Deductibles.
Deductibles are what you pay 100% of on hospital stays, surgeries, big stuff. Most plans have individual deductibles that range from $2000 to $6000 or more.
Yep the insurance company gets 1600×12 plus you pay the first say $4000 per person on your own for major issues. That’s $23,200 cost to the employer and employee AND THEN they start to pay. Some plans pay 100% after that and some split with 30% by you and 70% by them.
There is an out of pocket maximum but that is usually around 20,000.
All these costs go away if we nationalize healthcare and then just tax people about $2500 per family of four but you know who doesn’t want that.
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.
No one has said the actual answer yet.
#1 they do go bankrupt/loose money, discontinue products etc. But one thing you might not know is that insurance companies have insurance. It’s called re-insurance. There are even bigger companies that insure the insurance companies. If they loose or go broke, these reinsurance companies pay.
#2 they have Actuaries that run very complex calculations to determine what the premiums will be for certain groups. These are usually very accurate and rarely loose money if everything is done correctly.
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