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Private insurance companies have earned the public’s distrust. They routinely put profitability above their policyholders’ well-being. And a system of private health insurance provision also has higher administrative costs than a single-payer system, in which the government is the sole insurer.
But the avarice and inefficiencies of private insurers are not the sole — or even primary — reasons why vital medical services are often unaffordable and inaccessible in the United States. The bigger issue is that America’s health care providers — hospitals, physicians, and drug companies — charge much higher rates than their peers in other wealthy nations.
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UHC has a profit margin around 6%, whereas Anthem’s is around 3%. Those are not particularly high. For comparison, Toyota (8%) and Home Depot (10%) are both more profitable.
It’s not useful to compare health insurance profit margins to other industries because the Federal Government requires that they spend 80% of all premium revenue on care. This is effectively a cap on profits and also creates an incentive for insurance companies to pay higher costs for care so they can make more profit.
True. Actually, large insurance companies need to spend 85%.
That doesn’t make sense. Insurance companies have to pay health care providers for care. The more care costs, the less money is left for insurance companies. In fact, if health care costs are too high then the insurance company can go bankrupt.
That said, the converse is not true: insurance companies don’t directly profit by cutting health care spending. That’s because they need to use 80% or 85% of their revenue on care. However, cutting health care spending (by delay, denial, etc) allows insurance companies to lower their premiums.
And since people often want the cheapest possible insurance, lower premiums means more customers, which means more total revenue, which ultimately does mean higher profits.
Of course, the key assumption here is that customers will accept worse care if it means lower premiums. This is one of the few industries where you literally get what you pay for.