Health care insurers look to the percentage of their premiums collected that are paid out for medical care as a measure of their efficiency. With individual insurance plans, insurance companies generally have paid out around 60% of the premiums collected. With insurance companies averaging only about 5% net profit, the average cost of overhead is running around 35%. This 35% of the premiums is used to pay sales commissions, marketing costs, administration costs, and claims handling.
This is data based on individual policies. With group policies, the pay out percentage can be as high as 90%. With those policies, marketing costs per person insured are much less since a single sales effort can sign on hundreds or thousands of new customers. An independent broker is generally not involved, so there is no sales commission. Also, the company usually has good data on the costs incurred in prior years, and with a variety of insured people there is less risk than with an individual policy. The group policies are written based on the average cost per person, and the costs are the same to everyone regardless of age or health condition.
These insurance companies are regulated by individual state commissions. State regulators are demanding that insurers pay out larger percentages of the premiums collected today -- in some cases, 70%. This puts the squeeze on the companies to make a profit. If the companies are only making 5% profit with a 60% pay out ratio for individual policies, then how can they make a positive profit if they must cut the premiums by over 14%? The answer is that they can't. It is likely that this is the reason that some folks are having their policies terminated.
It seems only fair that the government should demand the same of themselves that they demand of the insurance companies. What are the pay out ratios of Medicare and Medicaid? I'd like to know. If they made this calculation, I'll bet that the government would look at the Medicare insurance premiums being paid into the system by all of the workers out there. You know that the folks that earn a salary pay Medicare taxes. Of course that isn't all of the revenue coming into the Health and Human Services department in Washington. They collect all of those Medicare taxes, plus a big chunk of the regular budget is allocated to provide health care to millions and millions of senior citizens. The other thing hokey about this system is that the folks paying Medicare premiums aren't the people receiving the insurance coverage. The premiums are paid by the folks still working today, whereas the recipients largely have retired.
When all of the dollars coming into the Health and Human Services coffers are added up, what percentage are paid out to health care providers? Is the number more or less than this magical 70% that the state governments are demanding? For that matter, is it less than the 60% number the insurance companies are able to achieve for an individual policy? When you consider that no one is selling Medicare or Medicaid and earning a commission, why shouldn't the pay out ratio rise up toward the 90% number achieved by the private group insurance policies? There certainly is no 5% profit being earned by the government, and no marketing or advertising costs are required to entice folks to sign up for free insurance.
Do you think the MessAPolitico is able to offer insurance to Medicare and Medicaid recipients with lower administrative costs than private insurance? Does the MessAPolitico achieve higher pay out ratios without the evil profits? Does the MessAPolitico do a better job of identifying fraud and waste than the private insurance companies? I'll bet you know the answer to these questions, but no one in Washington is even asking them. If you're a supporter of Obamacare, don't YOU want to know the answers to these questions. Do you still support Obamacare when you look at it this way?
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