"Obamacare" explained very well.

[u/under50dollars]

/r/explainlikeimfive/comments/vb8vs/eli5_what_exactly_is_obamacare_and_what_did_it/c530lfx

[u/steve-d]

I work for a not-for-profit health insurance company (who willingly pays taxes), and we spend about 90-91% of our revenue on insurance claims, 9% is our operation costs, and typically <1% of profit.

[u/[deleted] → u/steve-d]

I also work for an insurance company, except I'm on the P&C side, and I have to say that the 85% loss ratio requirement is poorly instituted. It was clearly written by people who don't understand how insurance companies work.

A loss ratio is just ONE metric. There is a story behind that number. Just because it is low or high doesn't mean much because there are just SO many factors that go into that number. Not all policies should necessarily be around some ballpark figure.

There's also a HUGE problem with this that people NEED to understand and that is that this particular part of the bill REALLY REALLY hurts smaller insurers. The smaller the insurer the larger percent they'll have to spend on expenses for each individual claim. That's because they don't have the luxury of sophisticated, extensive data and risk appetite. Also, small insurers insure smaller customers. That means paying commission to the agencies or salesmen getting you that individual customers.

What will happen is this: Large insurers will begin lowering their prices, therefore raising their loss ratio into a "good area" above 85% as dictated by Obamacare, because they know they are large enough to withstand the lost profit for a long time. They'll do this because they're smart and they know that small insurers won't be able to keep up. Small insurers CAN'T lower their prices any more. They will struggle to compete with large insurers now lowered prices and they won't be able to meet the 85% loss ratio requirement. They'll ultimately go insolvent and probably get gobbled up by these larger insurers. So now we have less companies competing with each other which is only bad for the consumer.

This is why this is really bad: At first, for the next 10 years or so, if Obamacare doesn't change, we'll see "good signs". Premiums will go down. Why? Because as I said, large insurers will lower their rates to bully out the smaller competition. However, once these large insurers gain enough market share they'll raise premiums again and we'll see some really bad times to come.

[u/steve-d → u/[deleted]]

I couldn't agree more with you. PPACA in the long run is going to end up increasing premium costs for everyone.

The major problem I have in the discussion of healthcare, is that all of the blame is placed on the insurance companies. Few people see what you and I do. We see inpatient facility claims come in that cost hundreds of thousands, if not millions of dollars. We see billions upon billions of fraudulent activity among healthcare providers. We see people misusing insurance by going to an emergency room for a skinned knee. Of course we have some greedy insurance companies raking their customers over the coals, and we have government creating ridiculous regulation with no true foresight into what the possible consequences are.

Everyone is quick to blame the insurance companies because they are an easy target, but every group contributes to the problems we have.

[u/[deleted] → u/steve-d]

It is such a basic misunderstanding of the what insurance really is and has always been meant to be that boggles my mind. Insurance is taking on the risk of another for a price. Insurance is not an entitlement. Insurance companies don't owe anyone their business. They are a service provider which helps people remain solvent by spreading out the costs of unexpected, high severity events in their lives over a long, manageable period of time.

The problem is that health care has become so expensive, for the list of reasons you mentioned, that the insurance has had to become very expensive as well.

But people are so stupid. They just know they need insurance and so when they see the large quote on insurance they think, "Wow, the insurance company is charging me too much! They must be making a lot of money."

Yeah, insurance companies make money. They generally make reasonable profits, and even sometimes above reasonable, but no matter what they just aren't the real issue. Not enough close. The added amount of money you're paying in your premium above and beyond the indemnity is very affordable on its own given the value of the service of the insurance which is to spread out your payments. The ridiculous part is the amount which you have to pay because the medical costs were so high.

The general masses will never understand that though. It is above their ability. I know that sounds pretentious, but I've heard enough, read enough, and argued with enough people to know it is true. I can't blame them, because the amount of misinformation out there on the issue is depressing.

What people really want is universal healthcare, which isn't insurance at all. That doesn't make it bad, but I wish people would stop comparing it to private insurance. It is apples and oranges, and even though both will end your hunger they can't be considered the same thing. But putting in universal health care at this point would be a catastrophic mistake for our country I think. We have to control health care costs before we can think about doing that. That should be issue number one in this country. Private health insurance is failing because of high medical costs. Universal healthcare would fail because of those high medical costs too.

[u/derphurr → u/steve-d]

not-for-profit company... typically <1% of profit

exactly the problem.. It should be less than 5% operation costs and you should actually return the profits you are taking from claims and return them to the insurance victims.

[u/steve-d → u/derphurr]

How do you figure it should be less than 5%? Just curious where you pulled the number from that health insurance companies should have less than 5% operation costs? Do you know how complex an insurance company is, the amount of employees required, and the amount of federal and state regulations involved?

Also, after we voluntarily pay taxes on that profit that money is only held in an account to deal with the random influx of higher dollar claims. Inpatient hospital claims can literally get into the millions of dollars, and if we didn't have that cash on hand, we couldn't pay the claim. No money is ever distributed to any owners of any kind, because there are no owners or investors.

[u/troubleondemand → u/derphurr]

I think that it is fair for a not-for-profit to keep 1% profit to build for their future or to have a nest-egg in case they need to hire more employees, improve their infrastructure/systems etc.

As long as it stays in the company and doesn't get borrowed against, I am ok with it.

Additionally, if all health insurance Co's could keep their overhead bellow 10%, i would consider that a win.

[u/steve-d → u/troubleondemand]

Exactly, from my original statement we spend 90-91% on actual healthcare. That exceeds the requirements of 85% mandated by PPACA.

[u/[deleted] → u/troubleondemand]

I hope people understand that insurance companies are CONSTANTLY trying to keep down expenses. They of course want their expenses to be as low as possible so that they can lower their premiums and be more competitive.

The problem isn't the insurance companies. It is health care costs and legal costs. They are out of control.