Tuesday, March 23, 2010

On Insurance Profits

There appears to be a large number of political pundits who haven't a clue about how insurance profits work.

Insurance companies pass costs through to the consumer. They take their cut off the top. Let's say costs are $20M and expeect profit margin 5% . 5% of $20M is $1M. They would charge $21M for their service and get $1M profit.

If the costs doubled to $40M, the insurance company would then get $2M in profits. Insurance company profits go up as costs go up.

As insurance companies get a cut of the pie, they want prices to go up.

The politicians seem to know this. They will collect political donations from insurance companies, then engage in populist rants against the insurance companies. These rants will end in sweetheart legislation that raises costs and increases insurance profris.

Pundits willingingly repeat the rants thinking they will ream it to the insurance companies. I think many of the pundits are sincere in their hatred of insurance, but fail to realize they are playing the role of useful idiot who is playing into the hands of big insurance and big business.

Obamacare had a littany of rants against insurance companies that ended with legislation that makes insurance mandatory. It not only makes insurance mandatory, Obama created an army of 16,500 IRS agents who force every member of the middle class to buy insurance ... a cost insurance companies would not want to bare.

This game of using attacks against insurance companies in legislation that ultimately increases the profits of said firms has been going on for nearly a century (why do you think medical costs are so high)?

People catching onto the game might be able to reverse the problem.

If insurance is the problem; Making insurance mandatory is not the solution. The solution is an alternative to insurance.

1 comment:

Anonymous said...

Exactly so. Please follow the Utah Healthcare Initiative for the Beehive State alternative to the health insurance business model. www.utahpatientspac.com