It’s interesting to engage individuals in conversation about health care insurance and listen to what factors are important to them. It seems as though central to the debate over whether health care is a fundamental right is the idea of big insurance making tons of money at the expense of the insured. To that end, we thought we’d look at the top five health insurance companies in the United States and then discuss some things regarding how health insurance works.
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According to an article published on the U.S. News & World Report website in January 2011, the top five biggest health insurance companies in America were:
- United Healthcare
- Wellpoint Inc. Group
- Kaiser Foundation Group
- Aetna Group
- Humana Group
The reporter who wrote the story got his data from the National Association of Insurance Commissioners, a regulatory support group made up of insurance officials from all 50 states. The data was based on the total dollar amount of premiums collected during the 2009 calendar year.
How do health insurance companies to spend premium dollars?
This question is one of the most important in the debate surrounding health insurance. It is a general assumption by a lot of people that most of the money we pay in premiums goes into the pocket of insurance company executives while they do everything in their power to deny care to their subscribers. However, a simple look at the numbers proves that just is not true.
According to the Kaiser Family Foundation’s educational arm, only 7% of the total premiums collected in 2008 were invested by insurance companies for profit purposes. The remaining 93% was spent on the actual costs of providing health care.
To understand this more fully imagine you are a businessman selling widgets for one dollar apiece. After all your expenses are paid you are left with seven cents for every dollar in sales that you make. That seven cents is what you have available to pay your own bills and feed your family. If you want to earn $500 per week, you would have to sell 7,000 widgets in order to do so. If that were not possible, you might consider investing a portion of your profits in stocks or bonds, in order to increase your return.
That’s exactly what insurance companies are up against. They may make millions of dollars in profit every year, but they also spend nine to ten times what they make. It is a business whose profit margin is not nearly as lucrative as most other businesses in the United States.
Why does a health insurance company have to invest premium dollars?
According to the Kaiser research, the average amount of money spent per American citizen on healthcare in 2008 was just over $7,600. When you consider that roughly 22% of the population does not have health insurance of any kind, you can begin to understand that those with insurance are barely contributing enough to cover all of the health care expenditures in a given year. As with any insurance products, health insurance companies must invest premium dollars in order to make a profit and cover the expenses that premiums don’t meet.
Think of it in terms of your own medical bills. Suppose your annual premiums amounted to $12,000 annually, of which you paid 70%, and your employer covered 30%. As long as your total health care expenditures stayed in that $7,600 range, your insurance company would probably break even after paying your medical bills and its own costs of doing business. However, what happens if you have a car accident, which results in a long-term hospital stay and a host of rehab therapies? Your total bill could well exceed $100,000 before you’re done.
Insurance companies must invest premium dollars in order to cover those potential losses. The more money they pay out in claims, the less there is to invest. The less they have to invest, the greater the risk of financial loss. Finally, the greater the risk of loss, the more they have to charge in premiums.
Why does the cost of health insurance keep going up?
It’s easy to point the finger at companies like United Healthcare and question why they have to collect $950 million in premiums. Nevertheless, the fact remains that the cost of health care insurance is high because the cost of medical treatments is equally high. We live in the most medically advanced society in the world; a society whose medical industry is largely responsible for the vast majority of innovations over the last hundred years. But the type of innovation we enjoy costs money.
Whether we like it or not, health insurance companies are in business to make a profit. They are no different from the company you work for — they need to make a profit to stay in business. If we want to continue to have high quality care, available to us we also must be willing to pay the cost for it. Otherwise, insurance companies will simply go out of business.
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