How you Were Lied to About the "Obscene Profits" of the Insurance Industry

A while back, I read this article which came as no surprise to me. Yet another industry being demonized by the president and liberals.

http://www.washingtonpost.com/wp-dyn/content/article/2010/03/08/AR2010030801703.html

The president counted on the mainstream media not asking follow up questions or calling into question the truthfulness of his allegations, and they did not disappoint.

I’ll try to explain what the media has not in simplified terms. Insurance companies are not massive evil corporations whose only purpose is to bilk as much as they can from their members. In fact, most insurance companies are either non-profit or co-ops (the customers or members are the stock holders). Even the insurance companies who are for-profit must compete with the ones who are non-profit so if their premiums are not low enough to compete, they usually go out of business.

Every year, the insurance company’s actuarial staff estimates the coming year’s claims and administrative costs based on historical data, trends, new technology, new governmental regulations and other statistical variables. Good actuarial professionals have gotten very good at this and are rarely off by more than a few percentage points. This is important because it is those estimates upon which the members have their premiums set. The insurance company also negotiates the total amount hospitals and medical professionals can charge their members in order to try to keep costs down for the members. The larger the insurer, the more bargaining power they have.

In addition, groups are allowed to buy a pre-defined plan or essentially build their own benefits packages that include or exclude benefits in order to balance maximum value while maintaining desirable premium levels. When you hear someone complaining that their insurance company doesn’t cover this or that, it’s actually because their employer actually chose not to cover it. Preexisting conditions are always one of the things not covered, because it really would punish the current members and cause their premiums to sky-rocket. Allowing someone to buy into an insurance plan AFTER they get sick really isn’t insurance at all. It’s unfair to the people who have responsibly paid into the system all along.

Furthermore, most states have regulations preventing insurance companies from charging premiums that account for more than 70-80% (up to) of the "pool" of claims paying funds I mentioned earlier. This means they cannot use that percentage of collected premiums to do anything other than paying claims. The rest usually goes to administrative costs or cash reserves. Very few plans make any money and the ones who do only do so because they have a huge number of members and groups. The insurance industry as a whole posts about a 2.2% profit margin... that's lower than congress's last pay raise.

http://www.qando.net/?p=5439

On top of all this, government regulations require insurance companies maintain a certain amount of cash holdings to make sure medical catastrophes can be covered.

Yes, believe it or not, that was the simplified version. In summary, an insurance company is really nothing more than a collection of groups and those groups are a collection of individuals who are choosing to pool their money to offset medical risk. Almost all insurance companies have no profit motive to speak of and the ones that do are forced to keep their premiums competitive or face being rejected by the market.

Trial lawyers (who are massive supporters of democrats) on the other hand...