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There are three topics of vital importance to nearly everyone that at the same time are near the top of the list to be criticized and misunderstood by nearly everyone. (taxes are at the top).
Health insurance
Social Security
Electric and Gas utilities
I spent by whole career working for a utility and at the same time designing and managing health insurance plans. I study Social Security and may be one of five Americans in the US who reads the annual trustee report. 🤑
What insurance companies do, why they do it and how it all impacts premiums is widely misunderstood. How they earn profits, how much they earn and how profits impact premiums is a wasteland of misinformation. Many (most) people simply miss the direct connection between premiums and the use of health care. Lower deductibles and co-payments, expanded coverage and paying every claim without question drive up premiums-company profits are not a major factor.
Insurance companies are limited by law how much of premium revenue they can retain (15-20%). Premiums are reviewed and approved by state and federal agencies. Net profit margins are low, generally in the 3-5% range, lower than regulated utilities. Profits are not driven by individual premiums, but by growing the number of policies in effect. In addition, in some cases the company’s total profits include other lines of business, international business and in many cases contracted fees for processing claims for self-insured employers and even the government.
Social Security is often viewed as a retirement program while, but it is much more. Many people claim they paid for the benefits they will collect – they didn’t. If that was the case, benefits would stop when they reached the value of taxes paid (typically within six years) and no one who didn’t pay taxes would receive any benefit- but they do.
Many think Congress misused the trust and hence their payroll taxes – it didn’t. Have you heard that millions of deceased people are actually receiving benefits and that if those illegally receiving benefits were removed, the trust would be in good shape- nope. The trust needs more revenue and/or less spending.
Some people believe Social Security is a scam because “lots of people” die before they collect any benefits – actually that is few people and I’m pretty sure the actuaries take that into account.
Others say the trust fund is a “surplus” but now it is being used to pay current benefits. In fact, the 75-year accrued liability is $25 trillion while the infinite liability – assuming the program continues for all current citizens is $75 trillion according the Trustee report. The trust currently holds about $2.7 trillion which is declining by roughly $5.5 billion per month.
Utility bills go up based on the cost of generating electricity which is largely dependent on fuel prices such as natural gas which is a global commodity. Most utilities do not make money on the generation of electricity. Generation is a competitive commodity. That is a pass through part of your bill.
Utilities make money on the distribution of power and many utilities are investing heavily on rebuilding, maintaining and expanding their systems for reliability and because demand is increasing. Utility earnings are regulated and rates approved in advance. In some cases the startup costs for clean energy add to bills. That cost/benefit debate will go in for a long time. And of course, our bill increases when we expand our use of electricity to maintain our lifestyle without even realizing it.
There is more to all this than I mentioned, but nevertheless, the misinformation is widespread and in some cases simply won’t go away even when presented with the facts.
Regarding healthcare insurance, isn’t the “issue” not just the profits but also the expenses incurred to earn those profits? Surely, this would be a much larger number and would be avoided if insurance companies weren’t involved in our healthcare system.
The retention is what you refer to. Under the law that is limited. All premiums must be justified and approved at the state or federal level. Too low premiums will result in playing catch up in the following year.
Medicare employs insurance companies and others to review and pay claims. No matter what that has to be done, but Medicare is far more liberal in the process and more subject to fraud.
Higher profits are not the result of higher premiums, but of growing sales-more customers. The net profit margins for major health insurers are relatively low, more aligned with regulated utilities. In addition, in some cases insurer gross revenue is from other lines of business and international businesses.
Most of the politically driven rhetoric about health care and health insurance is bunk.
About half of all Americas have employer funded health insurance and 60% of those are in self-insured plans which means no insurance involved no risk or profit for insurers, they just pay claims. Those plans face the same cost issues as do insured plans.
You cannot have a system or non-system with many different payment processes and expect it to be efficient from any perspective. It’s like a balloon, squeeze one side the other pops out larger. That’s what happens between Medicare, Medicaid and private insurance in any form. Costs are just shifted around. Our health system could not function if all fees were based on Medicaid or even current Medicare allowances. In many cases they don’t cover costs.
When I worked for a utility – admittedly almost 30 years ago – the CEO’s performance bonus was based on several factors, one of which was the overall percentage of continuous service. As a result special attention was paid to power plant outages and the emergency outage personnel staffing levels. Happily, the same factor was a determinant for employee profit sharing contributions, too.