What's In This For Healthcare Companies?

[BLAZER PROPHET]

OK, as most of you know I work for a small subsiudary of a healthcare company. That company is non profit and brings in about one billion dollars per year. The last two years we have lost about 30 million dollars per year. It's not enough that the state of Oregon just added 10-30 million to our tax burden, but what about this bill:

1) Since doctors will now make less due to increased medicare money, they will have to increase their rates 20% or so. Cost to the company- approx $70 to 100 million per year.

2) Healthcare companies will be assessed additional taxes, fees, penalties... approx cost to the company- $25 to 40 million per year.

3) Insuring dependent children to age 26; approx cost to company- negligibe

4) Accepting any & all customers with pre-existing conditions; cost to company- approx $15-20 million per year

5) No cap on policies (usually 2 million per person); cost to company- approx 20-30 million per year.

So if we add up the State SIU Retirement Tax increase and take the projected range of costs for Obamacare, the total range is 140-220 million dollars per year when fully implemented for a non profit company that makes one billion per year. Needless to say that would place us, and 3,500 employees, out of business/work. So we raise our rates. All rate increases must be approved by the State. If the State does not approve enough rate increase to stay in business, then it's over.

But let us say the State approves 200 million dollars in rate increases. Actually, if we can justify it the State usually accomodates us. That will mean a monthly increase in each policy of about $650 per month. Will your employer pick that up? Maybe part of it? I don't know about you, but I can't pay beyond about $100 per month. So what happens then to those that cannot pay the additional amount? They will have to buy the Federal insurance. But the cast majority will make less than the $88K, and then it will be subsidized by the healthcare companies via this forced legislation. This cycle will cause more rate increases, more people to have to drop coverage... until the company is no longer viable and closes.

Well, crap. I'll see you in the unemployment line.

 

[PtldPlatypus]

So if we add up the State SIU Retirement Tax increase and take the projected range of costs for Obamacare, the total range is 140-220 million dollars per year when fully implemented for a non profit company that makes one billion per year. Needless to say that would place us, and 3,500 employees, out of business/work. So we raise our rates. All rate increases must be approved by the State. If the State does not approve enough rate increase to stay in business, then it's over.

But let us say the State approves 200 million dollars in rate increases. Actually, if we can justify it the State usually accomodates us. That will mean a monthly increase in each policy of about $650 per month.

OK--so when you're saying that your company "makes" $1 billion per year, I assume that's gross revenue, since it's a non-profit. If $200 million in rate increases would equate to a $650/month increase per policy, that would mean that your average policy is currently priced at $3,250/month.

Common sense suggests that either your numbers are WAY off, or your company is severely mismanaged.

 

[BLAZER PROPHET]

OK--so when you're saying that your company "makes" $1 billion per year, I assume that's gross revenue, since it's a non-profit. If $200 million in rate increases would equate to a $650/month increase per policy, that would mean that your average policy is currently priced at $3,250/month.

Common sense suggests that either your numbers are WAY off, or your company is severely mismanaged.

No, the average policy is less. I think the reason your math is off is that there are administrative costs (salaries, capitol expenditures...) you're not taking into account. That said, in the material I have I do not see the average cost of a policy, but I know it's not close to what you project it to be.

The other thing I wonder is that when we become a single payer healthcare country (the last phase of Obamacare), is that maybe current healthcare companies will be stripped down and then turn into adminstrative outlets for the Federal plan. That's one of the most current thoughts bouncing around.

 

[PtldPlatypus]

No, the average policy is less. I think the reason your math is off is that there are administrative costs (salaries, capitol expenditures...) you're not taking into account. That said, in the material I have I do not see the average cost of a policy, but I know it's not close to what you project it to be.

OK, let's look at it a different way. For $650/month increases to generate $200 million/year in revenue, then you're talking about 25,641 policies (200,000,000 ÷ 12 ÷ 650). For 25,641 policies to generate $1 billion, those policies would each have to generate $39,000/year (1,000,000,000 ÷ 25,641).

Suggesting that the $1 billion figure is net of administrative expenses would actually increase the required yield per policy. I'm sorry, but there's no possible way that your numbers can be correct.

 

[BLAZER PROPHET]

OK, let's look at it a different way. For $650/month increases to generate $200 million/year in revenue, then you're talking about 25,641 policies (200,000,000 ÷ 12 ÷ 650). For 25,641 policies to generate $1 billion, those policies would each have to generate $39,000/year (1,000,000,000 ÷ 25,641).

Suggesting that the $1 billion figure is net of administrative expenses would actually increase the required yield per policy. I'm sorry, but there's no possible way that your numbers can be correct.

Again, your math is fuzzy. An insurance company generates much of it's money off investments in their reserve pool.

For example, when I worked at Farmers insurance, 40-60% of their income came off investments of their billions of dollars of investments. See, insurance companies actually lose money every year. The difference is made up via their investments from the pool of money they have for claims and other things. Also, healthcare companies have other streams of revenue not based on sales of policies. Sorry to give an insurance 101 lesson, but it gets very complex and this is the over simplified explanation.

 

[PtldPlatypus]

Again, your math is fuzzy. An insurance company generates much of it's money off investments in their reserve pool.

For example, when I worked at Farmers insurance, 40-60% of their income came off investments of their billions of dollars of investments. See, insurance companies actually lose money every year. The difference is made up via their investments from the pool of money they have for claims and other things. Also, healthcare companies have other streams of revenue not based on sales of policies. Sorry to give an insurance 101 lesson, but it gets very complex and this is the over simplified explanation.

Well then, I guess it depends on the insurance company. For instance, the first 10-K I pulled up for an insurance company (CIGNA, my provider) shows $16B in premium revenues, and $18.5B total, with investment income being only $1B. Their income from continuing ops is $1.3B, which indicates that they'd be profitable even without their investment income.

Regardless, the first part of my math is unaffected by your company's multiple income streams. $200M/year from $650/month is just over 25,000 policies. Even at an average policy price of $15,000/year (which would be higher than the nationwide average full-family premium price), your company would be receiving just $375M in premiums, meaning your "other revenue streams" are providing about 2/3 of the company's gross revenue. It sounds like they would be better served to get out of the insurance game altogether and let their customers be served by a company that can actually make it profitable.

 

[BLAZER PROPHET]

Well then, I guess it depends on the insurance company. For instance, the first 10-K I pulled up for an insurance company (CIGNA, my provider) shows $16B in premium revenues, and $18.5B total, with investment income being only $1B. Their income from continuing ops is $1.3B, which indicates that they'd be profitable even without their investment income.

Regardless, the first part of my math is unaffected by your company's multiple income streams. $200M/year from $650/month is just over 25,000 policies. Even at an average policy price of $15,000/year (which would be higher than the nationwide average full-family premium price), your company would be receiving just $375M in premiums, meaning your "other revenue streams" are providing about 2/3 of the company's gross revenue. It sounds like they would be better served to get out of the insurance game altogether and let their customers be served by a company that can actually make it profitable.

Like I said, we're a non profit company.

 

[PtldPlatypus]

Like I said, we're a non profit company.

Yep--a non-profit company that is clearly much more successful with its investments than in operating its core business.

 

[maxiep]

I've constantly heard that it's the fault of the "evil" insurance companies and their rapacious profits. Yet, when one looks at all the profits of all insurance companies totalled, they equal FOUR DAYS of healthcare per year. Furthermore, of all the major insurers, the highest percentage of declined care is Medicare at 6.7% of claims, which is a wide margin (almost double) from #2.

If you want to lower rates, get rid of the state insurance commissions that dictate what has to be in your health insurance. Allow people to purchase insurance across state lines. For example, Colorado state insurance law states that you must have marriage counseling and fertility treatments covered in your policies. That's a real help to my widowed, 70 year old mother-in-law.

 

[PtldPlatypus]

If you want to lower rates, get rid of the state insurance commissions that dictate what has to be in your health insurance. Allow people to purchase insurance across state lines. For example, Colorado state insurance law states that you must have marriage counseling and fertility treatments covered in your policies. That's a real help to my widowed, 70 year old mother-in-law.

The biggest problem here is that if people are only paying for services that they specifically need, then the premium cost for each service will have to increase, because the number of claims on that service won't change, but the number of subscribers will. Since (as you stated) the insurance companies aren't necessarily hugely profitable, reducing the amounts they charge isn't really feasible, unless their expenditures are going to decrease as well.

 

[maxiep]

The biggest problem here is that if people are only paying for services that they specifically need, then the premium cost for each service will have to increase, because the number of claims on that service won't change, but the number of subscribers will. Since (as you stated) the insurance companies aren't necessarily hugely profitable, reducing the amounts they charge isn't really feasible, unless their expenditures are going to decrease as well.

Exactly. You pay for insurance on the things you want covered. People who wish to have marriage counseling covered pays more for it. People who wish to have fertility covered will pay more for it. When costs are hidden, there isn't any incentive for cost control and people use more than they would if they had to pay for it directly. Remove the layers between care and payment and costs will lower.

Someone in their 20s in good health probably shouldn't have anything more than catastropic insurance in case something terrible happens. Insurance is a choice. It's a right only in the sense that the Government has no right to tell a citizen that they cannot purchase it.

 

[Eastoff]

I just thought I'd throw in what's NOT for the health care companies. By 2016, "Insurers would be required to provide coverage for non-dependent children up to age 26." and "Requires individual and small group market insurance plans to spend 80 percent of premium dollars on medical services. Large group plans would have to spend at least 85 percent." and if they do not spend that much, they are forced to give the difference back to you in a rebate.