The much-maligned health insurance industry has not always deserved the contempt it receives. These companies are usually accused of caring only for profits, but those profits are not as great as most of us imagine. There is room for some improvement in the industry, but such improvements will not reduce health costs significantly.  A clear understanding of your policy will go far to reduce the hostility many feel towards this essential industry.

Most commercial health insurance companies have three objectives: collect dollars from premiums, pay off overhead with what’s collected, pay off claims, and have about 3 to 6 percent of the total collected remaining as net profit. This profit goal is relatively modest. Americans pay $2 trillion dollars a year on health care, including the operating costs and profits of health insurance companies. This averages out to approximately $6,551 for each man, woman and child in the United states, or approximately $537 a month. At a 6 percent profit, the industry is earning $120 billion a year. This averages out to $387 a year, or $310 million in total from what Americans pay towards the insurance companies’ profits, or $32 a month. A mere 5 percent of what you pay each month for health insurance goes to the profits of the insurer. You pay that percentage to a taxi cab driver as a tip. Obviously, the health insurance companies are not charging their customers an excessive percent of the total for health insurance. Yes, they are in it for the money, but they’re not gouging us.

All organizations have some leakage of cash, and the health insurance industry is no exception. Their organizations spend a great deal on administrative costs, streamlining their operations, and increasing efficiency of operations. All this may go to reduce their operating expense and thus, the cost of insurance for us, but we can’t expect significant savings here.

Yet the new Health Reform law is requiring health insurance companies to spend 80 percent of those $2 trillion on medical treatments. That means they’ll have $400 billion left over. Subtracting their profits ($120 billion), they’ll have $280 billion to cover overhead. If they are able to reduce operation costs by just 1 percent, or $2.8 billion, and turn that into premium reductions, the $537 each person now pays is then reduced to $528, a savings of $9 a month or a savings of $108 a year. Although every penny counts these days, these numbers aren’t too significant to most of us.

Health insurance companies have been mandated by the new Health Reform Law to modify some of their policies, which may raise the cost of insurance. They are now prohibited from dropping people from insurance while they are sick. Now, they cannot deny coverage to children with pre-existing conditions. They can no longer impose a cap on the amount they will pay during a person’s lifetime. In 2011 they have to start paying 80 percent of their earnings towards medical treatment. In 2014 they can no longer refuse to sell policies to anyone, with or without a pre-existing condition, and the price they set for policies can’t be based on the customer’s health condition. So, by 2014, no one will be excluded from obtaining health insurance in the United States.

These measures, particularly the provision that doesn’t allow insurance companies to deny insurance based on a person’s health status, will go a very long way in reducing our overall health care costs. With universal coverage, many illnesses can be cured in their early stages, thus avoiding the most expensive treatments, those in the emergency room.

All of us should pursue a clearer understanding of the purpose of health insurance companies. They are not humanitarian, non-profit organizations, but businesses with the objective of making a profit. Much of the misunderstanding is fostered when an ailing patient is told by the insurer that their medical requirements are not covered by their policy. It is therefore absolutely imperative that you’re clear about what your policy will cover before you enter into an agreement for coverage. Nobody likes to spend money needlessly, but when it comes to spending money on your health, without an insurance company, you could do worse. Know your policy and expect health insurance companies to strictly abide by it. Whether we like it or not, we can’t do without them, and they can’t do without us. You’ll appreciate them most when that $13 thousand dollar bill comes in following a brief visit to the emergency room, and you don’t have to pay a dime. Then spend or save that $13 thousand for your future needs, such as college or retirement!

Tags: health insurance companies

Who hasn’t heard a story of a health insurance provider who refused to pay on a  legitimate claim just to increase the provider’s profits? With every claim paid, their profits decrease. Yes, it happens, but then, bad apples are found in every  industry, from Wall Street to Main Street, from City Hall to the Capital. The question is how widespread the practice is, and there’s no telling. Still, we  shouldn’t paint the entire industry with the same brush. The health insurance industry has as many honest companies as any industry. Still, the U.S. Congress has put constraints on the industry in the new Health Reform Law of 2010 that should  help alleviate this industry of some of its embarrassments.

The health industry accounts for fully one sixth of the United States economy! Americans spend $2 trillion a year on health care, most dollars coming from health insurance providers who, of course, collect their money as premiums on health insurance policies. Health insurance providers make 3 to 6 percent profit from their premiums; the rest goes to operations and claims payments. The new Health Reform Law of 2010 has now put providers on notice: by 2011, providers must allocate at least 80 percent of premium payments to treatment. They’ll be forced to operate on 20 percent of their collections and extract their profit as well. This measure is intended to force providers to streamline their operations, control their expenses, and to reduce tendencies to deny claims. In the future, we can be assured, our providers will pay all legitimate claims without too much fuss. Good news indeed.

Health insurance providers have been saddled with additional burdens as a result of the passage of the Health Reform Law. After March 23, 2010, when President Obama signed the bill into law, providers were to immediately cease the practice of dropping a person’s coverage just because they get sick. Neither are they to deny coverage to sick children. In 2010, they are also ordered to remove lifetime caps, enabling the elderly sick to continue receiving care. The first year insures the sick will be able to get treatment, and that no one covered by insurance be denied when they need it most. Following this law, the health care insurance industry will no longer be open to accusations of inhumanity.

As said above, 2011 will require health insurance providers to spend 80 percent of their premiums on medical treatment. It is in 2012 that the industry will experience the full force of the law, as then, no provider will be permitted to refuse insurance to any U.S. citizen. They’ll have to make insurance available to everyone, sick or not. While this could prove an unfair burden as new claims from the sick will increase their payouts, the law has balanced this possibility with an equally binding force requiring all Americans to have medical insurance. Since insurance for the about 24 million poor Americans will be subsidized by $350 billion from the U.S. government, 2012 should see health insurance providers realize an increase in profits.

All of these measures are meant to control health care costs in the U.S., to provide all citizens access to insurance, and to assure the sick always have care. If all goes as planned, we can expect to see the reputation of health insurance providers at all time highs. Given what they do provide for society, that reputation should have always been high. Getting rid of those ‘bad apples’ should  renew our confidence in them again, with heartfelt gratitude.

Tags: health insurance providers