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Health Insurance Carrier Profits

While we pay premiums of over $723 billion annually to health insurers and see health insurance premiums rise each year, you may find it interesting to note that health insurers generally operate on about 3% profit.

That is 1/2 the profit of life insurance companies and nearly 1/3 the profit of property and casualty insurance companies.

So why do our health insurance rates go up each year. Take a look at hospital costs, what many consider to be unnecessary tests (perhaps ordered by doctors fearful of lawsuits) and prescription drugs as the big 3 of rising health insurance premiums. By the way, major prescription drug companies have a 16.8% average profit according to the Money Magazine article used as a source for this article.

In fact, federal data shows that nearly 86 cents of every dollar you pay for health insurance premiums goes to pay for medical services such as doctor visits, prescription drugs and hospital costs.

So for each $1.00 of health insurance premiums according to a 2006 PricewaterhouseCoopers study:

  • $0.86 goes to doctor visits, prescription drugs and hospital costs
  • $0.05 goes to prevention, disease management, care coordination and investments in health information technology, plus provider support and marketing
  • $0.06 goes to insurers’ administrative costs, including claims processing and compliance with government regulation
  • $0.03 goes to health insurance company profits

Boy, it is hard to imagine the federal government running this program more efficiently than that! As a nation, we need to go after is the underlying cost drivers and inefficiencies that keep driving up the cost of health insurance.

{ 4 comments… add one }
  • Eric Brody May 17, 2017, 1:57 pm

    I have an inquiry rather than a comment. Does anyone have, or know where I can find, information about the financial position of individual health insurance carriers operating in Colorado?

    The Division of Insurance website does not provide such information.

    • Mark Erickson May 22, 2017, 8:26 pm

      Many of the carriers are public companies so it shouldn’t be too hard to find. For the smaller privately held insurers that would be more difficult. However, the insurance companies all must meet financial reserve requirements, which are verified by the Division of Insurance to help make sure they have adequate financial resources to pay claims.

  • Anthony March 6, 2023, 12:07 pm

    In order to fix the system, the money available to doctors, hospitals, and health insurance companies needs to run out. This could happen in several ways, such as a recession/depression or enough people rising up and cancelling all health insurance plans in one unified movement. The counter argument is that no one would be able to pay expensive procedures out of pocket without the aid of health insurance. True, but then doctors would be forced to compete with one another and lower their rates in order for them to stay in business.

    As we all know, health insurance companies have contributed to the high rates in hospital stays and doctor visits. The middle man must make a profit, however the billions in combined profits of all the health care providers means that many individuals in the system have not gotten the adequate care that they probably needed. Instead, they get partial care and high medical debt as a consequence of the screwed up health care system that is only going to get worse in the future – unless people rise up and put the health insurance providers out of business or force them to change to make a more affordable system available.

    Congress will never act to help out the people in this country and fix the current system because they (who work for us) have the best health insurance tax payers can buy. They (Congress) invest heavily into the stock market forces which lobby Congress (themselves) to help keep the current system in place. Change will only come when the money runs out. Then, taxpayers will be left holding the bag of changes to come.

    • Mark Erickson March 6, 2023, 1:31 pm

      Thank you for sharing your thoughts. Requiring pricing transparency (regardless of insurance carrier contracts) with more consumer friendly descriptions coupled with standardized billing codes would be helpful to rein in out of control costs. Also more consumer friendly metrics for quality of care and cost per outcome to reward providers that deliver on lower cost outcomes. The more power you give to consumers, the more efficient the marketplace will become. My two cents worth.

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