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There is a provision in Obamacare that went into effect a couple of years ago that forces smaller insurance companies to spend at least 80% of their costs on ac
by skwirl 13y ago
There is a provision in Obamacare that went into effect a couple of years ago that forces smaller insurance companies to spend at least 80% of their costs on actual healthcare costs and for larger insurance companies that number is 85%. That means that for insurance companies only 15-20% of revenue can go to employee salaries, building rent, other administrative costs, advertising, CEO pay, profits, etc. So I'm not sure if this is actually going to make more billionaire CEOs. While more people will be buying health insurance, at the same time, CEOs are now limited in what they can pay themselves. The only way they can pay themselves more is to reduce administrative costs or cover more customers, which means making their own health insurance company more lucrative than their competitors to consumers, which is a good thing.
- epa 13y agoYikes, a nightmare from an accounting perspective. Unfortunately there are many ways to get around expense proportion limits.
- toomuchtodo 13y agoA nightmare? Not at all. My car insurance (State Farm) is considered a mutual company, and when payouts are less than premiums, I get a refund check.
- bradleyland 13y ago> That means that for insurance companies only 15-20% of revenue can go to employee salaries, building rent, other administrative costs, advertising, CEO pay, profits, etc. > The only way they can pay themselves more is to reduce administrative costs or cover more customers... Not true. There's one more variable you forgot: cost of care for an individual customer. Under a model where the percentage of profit is fixed, there exists an incentive to collude with care providers to increase costs across the board. This is the fundamental issue with insurance. The consumer is once-removed from all transactions. They pay a fixed annual premium for all their care. This premium goes up and down based on market forces in which they only participate on the demand side. The costs for their usage are distributed amongst classes (groups) of users, so the user of the service might see price increases even when they haven't used the service much; confusing to say the least. This leads to the generalized understanding that "insurance costs go up over time", even though there may be no justifiable reason other than the desire for increased profit for providers. IMO, Obama Care represents the worst possible solution to the problem. I'm not opposed to the idea of healthcare as a "right", but I am opposed to injecting for-profit organizations in to a service that is mandated by the government.