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The insurance company saved money, but did Amazon? I thought the portion of premiums that employers pay is fixed? That's why everyone pays premiums- the healthy

The insurance company saved money, but did Amazon? I thought the portion of premiums that employers pay is fixed? That's why everyone pays premiums- the healthy subsidize the sick. And when there are more healthy than sick, the insurance company profits. What am I missing, how would Amazon save money by her switching insurance providers?

chimeracoder 11y ago
> The insurance company saved money, but did Amazon? I thought the portion of premiums that employers pay is fixed? Large companies actually underwrite their own plans (this is known as self-insuring[0]). The plan is managed by a known insurance company (e.g. Aetna, Blue Cross), so from the employee's perspective it's the same, but the actual risk is borne by the company. I would be very surprised if Amazon did not do this, given their size (~200K employees) and company age (over 20 years). As a rule of thumb, the break-even point is about 1000 lives covered. Once a company gets to that point, it starts to be in their best interest to underwrite the insurance plans they provide. Source: Founded a health-tech company that sold to insurers (which meant selling to companies that self-funded their plans as well, as they were they real risk-bearing entity). [0] https://en.wikipedia.org/wiki/Self-funded_health_care https://en.wikipedia.org/wiki/Self-funded_health_care
- sjg007 11y ago
  Yes but a self insured company should also buy catastrophic reinsurance that covers high claims cases.
  - chimeracoder 11y ago
    Reinsurance doesn't completely let the company off the hook for the costs (in the long run). Even if reinsurance covers 100% of costs above the cap (which it typically does not), those costs will just get factored into the future premiums charged to the company[0] . It makes it hard to place an exact price tag on how much this employee's coverage would have cost the company without knowing the details, but it's clear that it would have been very expensive to them one way or the other - and certainly a lot more than it cost them to have her switch to her husband's insurance instead. [0] It's just like how your renter's insurance rates will [often] skyrocket immediately if you try to file any claim at all. People aren't used to this in the consumer health insurance market because there's a lot of indirection in the healthcare system, but that's how all insurance models work at a high level[1], so that's how the costs all (eventually) flow (extra emphasis on "eventually"). [1] There's also the added wrinkle that we also use "health insurance" as a political tool to do things that have nothing to do with risk smoothing at all, so the model gets tricky to unpack, but that's a separate matter.
    - sib 11y ago
      While I agree with your comment overall, this "It's just like how your renter's insurance rates will skyrocket immediately if you try to file any claim at all" is not true in all cases. I filed what turned out to be a $10K claim for theft against renter's insurance, on a policy that I had only had for about 3 years. The claim was paid in full, with no pushback, even though I did not have receipts for all of the items stolen, and there was absolutely zero increase in premium. The policy has been renewed twice since then, again, without premium increase.
- ohitsdom 11y ago
  Thanks, good info!
- javajosh 11y ago
  It's interesting to consider why it's ~1000 and not some other number like 100 or 10,000. It's probably a combination of irreducible information complexity (a system for adding/removing people, processing premiums, investigating claims, paying providers probably costs too much for 100 people) and statistical risk (100 people are chaotic, whereas 1000 people are relatively smooth).
dec0dedab0de 11y ago
I thought the portion of premiums that employers pay is fixed? I don't know about the new laws and such, but that sounds kind of silly to me. Why would they have to pay if she's not covered?
- ohitsdom 11y ago
  I meant fixed per person, regardless of medical services rendered. But as others have pointed out, Amazon most likely self-insures, so they take on the risk and stand to gain much by dropping an unhealthy person.
ninv 11y ago
Read this to find answer: http://fortune.com/2014/02/12/why-aol-ended-up-spending-millions-on-distressed-babies/ http://fortune.com/2014/02/12/why-aol-ended-up-spending-mill... I thought Tim Armstrong(AOL) is evil but Jeff is on another level. At least AOL did not fire the mother.
- chollida1 11y ago
  The AOL issue is completely separate. AOL self insured which is why they paid out of pocket. Amazon has proper insurance.
- superuser2 11y ago
  This is a ridiculously roundabout way of pointing out self-insurance. The main reason you are not an insurance company is that insurance only works at scale. But if you have a big enough pile of cash to effectively run your own insurance company, then you can go pay Humana (or whatever) a lot less to just handle the paperwork instead of the actual insurance. It's often a good way to provide better coverage for your employees and spend less money on it, since you aren't paying an insurance company for participation in the risk pool. But then this does create conflicts of interest where the company is directly incentivized not to pay out for employee health. This isn't particularly worse than the private model; private insurance companies are always incentivized not to pay out. This is why we need single-payer. You need an actor without a profit motive, and government is it.
  - chimeracoder 11y ago
    > This is why we need single-payer. You need an actor without a profit motive, and government is it. That's a really common talking point for single-payer healthcare, but it unfortunately it doesn't hold up under scrutiny. Government-run agencies have the exact same incentives for profit as private companies do, even if they don't use the terms "profit", "margin", and "P/E ratio". Ironically, the closest thing we have to single-payer healthcare model is Medicare[0], which absolutely does have all the problems associated with a profit motive. In many ways, it's worse, because Medicare is able to set prices across the board by fiat, is not required to negotiate with providers, and is essentially mandatory for providers (so providers just have to swallow whatever reimbursement rates Medicare offers). As a result, providers make an operating loss on Medicare patients[1], to the tune of 7% nationwide. Think about it from Medicare's perspective. You have to balance your books at the end of the year. Do you either (1) ask Congress to raise taxes to increase your budget and hope they act quickly, or (2) lower the price you decide to pay for services, knowing that it will have zero impact on whether or not providers will still perform services for you? Unsurprisingly, they choose (2). Also, ironically, most patients who are happy with their Medicare plans[2] are actually using privately managed Medicare plans anyway. So they're essentially opting into profit-driven insurance anyway, with the only difference being that their premiums are being "subsidized" by their past tax withholdings. [0] There's also the VA, but single-payer advocates usually balk at that comparison since the VA actually operates the medical practice itself, unlike the single-payer models typically proposed. [1] This means that they make a loss even before accounting for any overhead, such as salaries, or markup. [2] And at the rate that MA is increasing, pretty soon the majority of all Medicare patients altogether.
TheCoelacanth 11y ago
Larger companies often self-insure, so Amazon might be paying the actual healthcare bills instead of paying insurance premiums.

chimeracoder 11y ago

> The insurance company saved money, but did Amazon? I thought the portion of premiums that employers pay is fixed? Large companies actually underwrite their own plans (this is known as self-insuring[0]). The plan is managed by a known insurance company (e.g. Aetna, Blue Cross), so from the employee's perspective it's the same, but the actual risk is borne by the company. I would be very surprised if Amazon did not do this, given their size (~200K employees) and company age (over 20 years). As a rule of thumb, the break-even point is about 1000 lives covered. Once a company gets to that point, it starts to be in their best interest to underwrite the insurance plans they provide. Source: Founded a health-tech company that sold to insurers (which meant selling to companies that self-funded their plans as well, as they were they real risk-bearing entity). [0] https://en.wikipedia.org/wiki/Self-funded_health_care https://en.wikipedia.org/wiki/Self-funded_health_care

sjg007 11y ago
Yes but a self insured company should also buy catastrophic reinsurance that covers high claims cases.
- chimeracoder 11y ago
  Reinsurance doesn't completely let the company off the hook for the costs (in the long run). Even if reinsurance covers 100% of costs above the cap (which it typically does not), those costs will just get factored into the future premiums charged to the company[0] . It makes it hard to place an exact price tag on how much this employee's coverage would have cost the company without knowing the details, but it's clear that it would have been very expensive to them one way or the other - and certainly a lot more than it cost them to have her switch to her husband's insurance instead. [0] It's just like how your renter's insurance rates will [often] skyrocket immediately if you try to file any claim at all. People aren't used to this in the consumer health insurance market because there's a lot of indirection in the healthcare system, but that's how all insurance models work at a high level[1], so that's how the costs all (eventually) flow (extra emphasis on "eventually"). [1] There's also the added wrinkle that we also use "health insurance" as a political tool to do things that have nothing to do with risk smoothing at all, so the model gets tricky to unpack, but that's a separate matter.
  - sib 11y ago
    While I agree with your comment overall, this "It's just like how your renter's insurance rates will skyrocket immediately if you try to file any claim at all" is not true in all cases. I filed what turned out to be a $10K claim for theft against renter's insurance, on a policy that I had only had for about 3 years. The claim was paid in full, with no pushback, even though I did not have receipts for all of the items stolen, and there was absolutely zero increase in premium. The policy has been renewed twice since then, again, without premium increase.
ohitsdom 11y ago
Thanks, good info!
javajosh 11y ago
It's interesting to consider why it's ~1000 and not some other number like 100 or 10,000. It's probably a combination of irreducible information complexity (a system for adding/removing people, processing premiums, investigating claims, paying providers probably costs too much for 100 people) and statistical risk (100 people are chaotic, whereas 1000 people are relatively smooth).

dec0dedab0de 11y ago

I thought the portion of premiums that employers pay is fixed? I don't know about the new laws and such, but that sounds kind of silly to me. Why would they have to pay if she's not covered?

ohitsdom 11y ago
I meant fixed per person, regardless of medical services rendered. But as others have pointed out, Amazon most likely self-insures, so they take on the risk and stand to gain much by dropping an unhealthy person.

ninv 11y ago

Read this to find answer: http://fortune.com/2014/02/12/why-aol-ended-up-spending-millions-on-distressed-babies/ http://fortune.com/2014/02/12/why-aol-ended-up-spending-mill... I thought Tim Armstrong(AOL) is evil but Jeff is on another level. At least AOL did not fire the mother.

chollida1 11y ago
The AOL issue is completely separate. AOL self insured which is why they paid out of pocket. Amazon has proper insurance.
superuser2 11y ago
This is a ridiculously roundabout way of pointing out self-insurance. The main reason you are not an insurance company is that insurance only works at scale. But if you have a big enough pile of cash to effectively run your own insurance company, then you can go pay Humana (or whatever) a lot less to just handle the paperwork instead of the actual insurance. It's often a good way to provide better coverage for your employees and spend less money on it, since you aren't paying an insurance company for participation in the risk pool. But then this does create conflicts of interest where the company is directly incentivized not to pay out for employee health. This isn't particularly worse than the private model; private insurance companies are always incentivized not to pay out. This is why we need single-payer. You need an actor without a profit motive, and government is it.
- chimeracoder 11y ago
  > This is why we need single-payer. You need an actor without a profit motive, and government is it. That's a really common talking point for single-payer healthcare, but it unfortunately it doesn't hold up under scrutiny. Government-run agencies have the exact same incentives for profit as private companies do, even if they don't use the terms "profit", "margin", and "P/E ratio". Ironically, the closest thing we have to single-payer healthcare model is Medicare[0], which absolutely does have all the problems associated with a profit motive. In many ways, it's worse, because Medicare is able to set prices across the board by fiat, is not required to negotiate with providers, and is essentially mandatory for providers (so providers just have to swallow whatever reimbursement rates Medicare offers). As a result, providers make an operating loss on Medicare patients[1], to the tune of 7% nationwide. Think about it from Medicare's perspective. You have to balance your books at the end of the year. Do you either (1) ask Congress to raise taxes to increase your budget and hope they act quickly, or (2) lower the price you decide to pay for services, knowing that it will have zero impact on whether or not providers will still perform services for you? Unsurprisingly, they choose (2). Also, ironically, most patients who are happy with their Medicare plans[2] are actually using privately managed Medicare plans anyway. So they're essentially opting into profit-driven insurance anyway, with the only difference being that their premiums are being "subsidized" by their past tax withholdings. [0] There's also the VA, but single-payer advocates usually balk at that comparison since the VA actually operates the medical practice itself, unlike the single-payer models typically proposed. [1] This means that they make a loss even before accounting for any overhead, such as salaries, or markup. [2] And at the rate that MA is increasing, pretty soon the majority of all Medicare patients altogether.

TheCoelacanth 11y ago

Larger companies often self-insure, so Amazon might be paying the actual healthcare bills instead of paying insurance premiums.