3 ms·

Ask yourself this question - how do insurance companies in general add value? Forget payout for a moment. Their value is added in deciding what rates to charge

by prklmn 9y ago

Ask yourself this question - how do insurance companies in general add value? Forget payout for a moment. Their value is added in deciding what rates to charge people, and determining if a claim is valid, that's it. Anything else they do is value subtraction. Their profit drivers come from raising premiums and denying more claims, both things kill value. You make a good point about providers consolidating, and the same point should be made about health insurance companies consolidating.

nugget 9y ago
Health insurance companies recruit providers (hospitals and physicians), negotiate prices for services, manage patient records and billing, detect, prevent, and prosecute provider fraud, determine market prices based on their predicted population of insured live, and other random tasks. It's a stretch to call this no value add, in my opinion. We can, and should, compare the efficiency of medicare administration to private insurance administration, and study the best practices of each system. Even in countries with state-sponsored universal healthcare, like the UK, there are robust private health insurance systems, which indicates to me that they offer value to consumers and fill some market need.
aaavl2821 9y ago
Insurance companies negotiate much lower payment amounts with providers than individuals could achieve otherwise. They do this through scale, which, as you mention, can be bad when scale gets too big, but also through risk pooling. Risk pooling allows you to eliminate idiosyncratic risk and thus lower the cost of healthcare on average. If you are a sick person with no insurance and average income, you won't be able to afford health care. But if you join a group of healthy people and pool some to pay for emergencies, you can. That's health insurance

3 ms·

Ask yourself this question - how do insurance companies in general add value? Forget payout for a moment. Their value is added in deciding what rates to charge

by prklmn 9y ago

nugget 9y ago
Health insurance companies recruit providers (hospitals and physicians), negotiate prices for services, manage patient records and billing, detect, prevent, and prosecute provider fraud, determine market prices based on their predicted population of insured live, and other random tasks. It's a stretch to call this no value add, in my opinion. We can, and should, compare the efficiency of medicare administration to private insurance administration, and study the best practices of each system. Even in countries with state-sponsored universal healthcare, like the UK, there are robust private health insurance systems, which indicates to me that they offer value to consumers and fill some market need.
aaavl2821 9y ago
Insurance companies negotiate much lower payment amounts with providers than individuals could achieve otherwise. They do this through scale, which, as you mention, can be bad when scale gets too big, but also through risk pooling. Risk pooling allows you to eliminate idiosyncratic risk and thus lower the cost of healthcare on average. If you are a sick person with no insurance and average income, you won't be able to afford health care. But if you join a group of healthy people and pool some to pay for emergencies, you can. That's health insurance