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An insurance company should be operating at cost though. They should all eventually compete on the lowest prices until someone reaches close to operating cost.
by didibus 7y ago
An insurance company should be operating at cost though. They should all eventually compete on the lowest prices until someone reaches close to operating cost. It should be a race to the bottom.
Also, part of the costs are related to inflated health care and med costs. Because insurer can pay more, health care can charge more. Their profit should come from them working to lower those prices, not from lowering their coverage.
- rayiner 7y agoNo, economic theory says that perfectly competitive industries will operate at a nominal profit, not at cost. A 6% profit margin is probably not quite "nominal profit," but is below the average for all industries: https://www.forbes.com/sites/sageworks/2016/10/03/the-15-least-profitable-industries-in-the-u-s/#7ff2d3fe618a https://www.forbes.com/sites/sageworks/2016/10/03/the-15-lea....
- didibus 7y agoI consider nominal profit to be pretty much "at cost", that's why I said "close to operating cost". OPs 6% number is neither. Your link even clearly demonstrate that, by listing 14 industries all with smaller margins and showing the average to be 7.7%, making 6% profits a farcry from nominal profits.
- didibus 7y agoAlso I believe you are mistaken, see: https://www.investopedia.com/ask/answers/031815/why-are-there-no-profits-perfectly-competitive-market.asp https://www.investopedia.com/ask/answers/031815/why-are-ther... And https://2012books.lardbucket.org/books/microeconomics-principles-v2.0/s12-03-perfect-competition-in-the-lon.html https://2012books.lardbucket.org/books/microeconomics-princi... To see why in the long run perfectly competitive industries will earn zero economic profits.
- pishpash 7y agoThe problem I'm afraid isn't the 6% margin, but the regulations that inhibit a truly competitive insurance market. To start with, state-based insurance is a legacy that makes no sense today. I'll gladly pay 6% if insurance companies went to bat on cost instead of half-colluding with providers, and innovated.
- didibus 7y agoI agree with you, I believe there are even laws in place that prevent Medicare and Medicaid from negotiating on price. We're far from a free market utopia here. I'd be curious to hear some of the rational our downvoters have for downvoting us, hopefully some will leave a reply doing so.