Sunday, February 21, 2010

Are Health Insurance Companies Making Too Much Money?

Any libertarian or conservative worth his or her salt would cringe at the concept that someone should determine how much money is "too much", but let's leave that for another day. Is it true that health insurance companies are making, however we define it, too much money? This professor of economics and finance ranked plenty of fields; you can decide for yourself.

Do you want a government-run health care system?

Update: if you don't want to trust him, maybe you'll trust Yahoo Finance data.


mazenko said...

Of course, there is something twisted about capitalizing on someone's fear of cancer.

I've often wondered about the idea of paying the money I spend in premiums as taxes to an entity not meant to profit. That way, at the end of the year, if I don't use up my premiums I could expect a refund of some of my money, instead of it being all profit for a company that will raise my premiums even if I consumed no health care.

Just a thought. Maybe worthy of some discussion.

Darren said...

Interesting point of view, Mazenko. You object to "profiting" off of someone's "fear" of cancer. Do you view all insurance that way?

That viewpoint seems a bit twisted to me. Honestly.

mazenko said...

Just a thought.

Always pondering, always seeking greater insight. Never thinking I have it all figured out.

allen (in Michigan) said...

How much more twisted is it then to take advantage of people's fear of starvation?

After all, you might never have cancer but two or three months from now, if you don't have something to eat, you're dead. The government entity meant to prevent the producers of food from utilizing this power is generically referred to as an "agriculture board". Their history doesn't inspire confidence and in Venezuela agriculture boards are currently about the process of wrecking the Venezuelan agricultural sector. I don't see any reason to believe that the health insurance industry would fare any better.

mazenko said...

No one seems to want to bite on the refund idea for premiums. I thought that would kick start some interesting philosophical debate. Oh, well.

Darren said...

Wouldn't that eliminate the insurance companies' raison d'etre?

mazenko said...

Well, yeah. Colorado's constitution requires that it refund any revenue it takes in above "population growth + inflation." All the rest becomes a tax refund. Wouldn't it be interesting if a public entity did the same thing with the money we pay in premiums? It would definitely have the effect of making people more judicious with their health care spending. And all health care would still remain private. There are precedents for this, like a public-private entity that "insures" workers compensation in Colorado, and similar "corporate entities" that provide insurance in other areas of a public-private mix.

Steve USMA '85 said...

The problem with Mazenko's idea is that the key to the insurance method is that while you might not use all your premium, I might. The company would take your leftover to pay for my shortage. Now, if you withdraw your leftover, who is going to pay my shortage? I would have to pay it out of pocket. At that point, what is the purpose of having some entity (for profit or not) holding my premiums? I would get no benefit from it. Better to just pay my health costs as they occur instead of someone else holding my money and hope I stay healthy.

Or am I missing something to your argument? Under your plan, how does my shortage get made up?

mazenko said...

Valid points, Steve.

And my realistic position on health care is that people just pay their own costs - with catastrophic coverage for all. Beyond that, anyone can purchase any additional coverage they want.

That is what works for the Swiss, and it would was proposed quite clearly with with acts like the Wyden-Bennett Bill or Martin Feldstein's voucher idea.

With both of these, components of my refund still work. The numbers work because the average consumer still requires less than he pays, even if some require more. That's how insurance companies profit. Anthem just posted a quarterly profit of $500 million, even as they raise premiums 35%.

Clearly, the shortage is not a problem if insurance companies are profiting the way they are. Right?

mazenko said...


To follow-up - my original point mentioned a refund of "some" of my money. Obviously, companies use the funds to manage the system, and if individuals got all their premiums back, it wouldn't work, as you speculate. However, a percentage could be refunded based on total cost of the system. German insurance companies function this way.

Darren said...

That $500M is a silly number absent any other information. You should view the links in this very post to see how little insurance companies make percentagewise. If the lefties have to hate some organization, insurance companies seem like they should be somewhere low on the list.

mazenko said...

Well, of course, Darren. Everything is out of context in little posts like this. But as a quarterly profit, that's significant when we are talking about refunds for people who pay premiums average ten grand.

I've heard the arguments that profit "margin" isn't big in these industries. But that's a little silly when you are talking about health care and energy. A quarterly profit of ten billion is huge even if margin is small. Think about it. Do you know people in oil and gas? Do you know people who invest in it? I do. And the slim profit margin you imply is not realistic. It is a huge and nearly decadent profit.

Just saying.