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FACT CHECK: Health insurer profits not so fat

PeteEU said:
Keep digging that hole. You know as well as I do, the only jobs that count are the ones in your own country, not in a 3rd world country. Dont try to hide behind globalization and excuse the acts of companies like GM and others for cutting jobs in the US (and Europe) while racking up billions in profits year after year.
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whoa, did he strike a nerve? lol

Still, I don't see why you would marginalize that as an excuse. With the onset of globalization, it sounds exactly what companies would do if they found it too costly to give americans jobs.
As you stated people without jobs dont spend,
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Unless they have credit cards. I don't know about spain but, in the US, people use credit cards en masse, even when they can't afford it(or especially when they can't afford it); hence, the current credit crises. :)
hence laying off people in the US (or Europe) will mean less consumption in the very market that those companies sell a majority of their products in.
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True, but there are 300 million people in the US, so these companies have plenty of other people to sell to outside their own employees.
But I am guessing that you are one of those "they can get another different job" types..
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Well yea, In America, the average american will hold 9 jobs in their life time, and that's expected to rise to 13.

well in the real world that is more than often not the case at least in the short term.
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Maybe in your part of the world.
You wont have a guy working for GM have the same spending habits if he got a job at McD.
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Idk, I've seen McD workers have a lot of stuff despite their earnings.
And you cant have a guy working for GM instantly turning over and becoming a doctor, or nurse, or start his own tech company.
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even though that has happened.
 
PeteEU said:
Keep digging that hole. You know as well as I do, the only jobs that count are the ones in your own country, not in a 3rd world country. Dont try to hide behind globalization and excuse the acts of companies like GM and others for cutting jobs in the US (and Europe) while racking up billions in profits year after year.
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Umm, maybe if you want to ignore a little thing called economics. You do know that shipping jobs overseas is a result of overpriced labor here due to unions and minimum wage. By paying jobs what they are really worth, costs are contained and prices are held at steady levels.

There's a place for benevolence and it's at a charity, not in business.
 
winston53660 said:
With out credit business will refuse to invest in new technologies, labor, take risks.
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Wait....waht? Borrowing money is the only way to invest in capital? really? is that your argument?
 
apdst said:
No, if anything, I'm calling for de-regulation of the insurance industry, to spur competition and lower insurance rates. That would make too much sense and be waaaaaay too easy, so of course the Libbos aren't going to do that.
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So am I understanding this correctly?
You believe the current 6% profit margin is ridiculous to operate under and at the same time you think they should charge less and lower their profits?
 
winston53660 said:
No that is not my argument.
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Well, why would business be afraid to invest in capital(technologies, labour, etc.) without credit then? Hell, they lose money with credit because they often have to pay it back with interest. Not only that, you would have to explain the incidences that companies have invested without credit in capital before.
 
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DarkWizard12 said:
Well, why would business be afraid to invest in capital(technologies, labour, etc.) without credit then? Hell, they lose money with credit because they often have to pay it back with interest. Not only that, you would have to explain the incidences that companies have invested without credit in capital before.
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Because with out available credit a business will save cash if they can not spread the risk.
 
DarkWizard12 said:
Well, why would business be afraid to invest in capital(technologies, labour, etc.) without credit then?
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Suppose the company does not have the assets available to invest at an adequate level to promote profit maximization. Does it not borrow?

Hell, they lose money with credit because they often have to pay it back with interest.
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Nope! They pay more for the allotted capital investment, but it is wrong to assume they lose money. Suppose the current rate of production shows increasing marginal returns on capital, are you really going to argue that using debt to finance increased production up until production is in equilibrium with returns is not optimal? :roll:

Not only that, you would have to explain the incidences that companies have invested without credit in capital before.
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They have the assets to do so. Now we would have to then analyze if it is beneficial to sell assets to pay for investment, or to go into debt to pay for investment. If the specific assets yield > debt interest + capital depreciation, then it makes all the sense in the world for the company to issue debt for expansion. If asset yield < debt interest + capital depreciation, then of course they would go for the opposite.

But nothing you have stated negates the fact that credit is the life blood in developed economies.
 
DarkWizard12 said:
Well, you have to look at what credit is. First of all, it's not money. Credit is never money and represents no currency. What it is is a "deferred payment", a "contract". Anytime you use someone elses asset and agree to pay later is credit.
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Thank you, that really cleared things up for me:yawn:

It has nothing to do with cash flow and everything to do with increasing consumption.
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Consumption and investment are different avenues. You have to take into consideration the difference in production/consumption objectives, of which a firm invests in an attempt to maximize profit, while the consumer consumes to maximize utility. To what extent either goes is what determines their relative outlook.
 
DarkWizard12 said:
So how then, is credit the blood of the economy?
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Various reasons.

First and foremost, is in regards to payment structures. Not everyone pays their bills on time, and therefore it is quite common for small businesses as well as large business to make their accounts payable function off of credit. If I am building bridges, and the customer is for some reason late on their payment, am i supposed to sell my assets to pay my employees, lay them off until payment arrives, or do i charge my customer a late fee and use credit to float payroll?

Investment: Credit is the primary agent in capital investment. This is quite observable in regards to the fluctuations in interest rates. As the cost of credit increases (interest rates increase), the marginal propensity to invest necessarily decreases. Which is a primary reason the Federal Reserve is currently maintaining a zero interest rate (it is also used to induce lending from banks and financial institutions).

Future income expectations: Milton Friedman explains it nicely in his permanent income hypothesis.

In its simplest form, the hypothesis states that the choices made by consumers regarding their consumption patterns are determined not by current income but by their longer-term income expectations. The key conclusion of this theory is that transitory, short-term changes in income have little effect on consumer spending behavior.
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[ame=http://en.wikipedia.org/wiki/Permanent_income_hypothesis]Permanent income hypothesis - Wikipedia, the free encyclopedia[/ame]

And since about 70% of the US economy is based on consumption, this represents consumption as a function of credit availability.
 
donc said:
Keep digging apdst.

(If the guy made a profit for the company, when thy only expect a 6% profit margin, then he most certainly earned it.) Now you follow that up with. (its not illegal to hide money,I do it all the time).

Who you who you hiding it from, the IRS? Is it drug money your hiding? is it offshore?Do you do bushiness with the Gnomes of Zürich :rofl
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That's exactly who I'm hiding it from and it's perfectly leagal. Welcome to the real world.
 
apdst said:
That's exactly who I'm hiding it from and it's perfectly leagal. Welcome to the real world.
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Psst..agent Mike here he is. :mrgreen:
 
Phoenix said:
So am I understanding this correctly?
You believe the current 6% profit margin is ridiculous to operate under and at the same time you think they should charge less and lower their profits?
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What I'm saying, is that by expanding competition, you're spreading the risk over many companies and not just a few. With moe insurance companies operating in the industry, each company could see a higher profit margin, with lower risk.

As an example, I'll use round numbers.

Say there are ten health insurance companies operating in a state. There are 1,000 insurees that will obviously cost those companies money, because their health is so bad, or they have a pre-existing condition, etc. That means that each company would have to take on 100 new clients that are guaranteed to be a loss.

Now, if there were 100 companies operating in a state, that would mean their would be only 10 guaranteed loss claims for each company. Two things would happen: 1) the profit margins would go up, and the loss would be easier to weather and 2) The insurance companies would be more likeley to sign a client knowing that that client is going to b a guaranteed loss.

it's simple loss vs. profit business strategy. When running a business and you take a risk, you have to ask yourself, "how is the loss going to affect the company? Will it be a minor dip in profits? Will we survive the loss? I don't care what kind of business you're in, you have to ask yourself these questions, at some point.

I'll give a personal example. yesterday, I got a call from a customer that needed two trucks to go to Alberta, Canada. The loads paid $19,000, together. A $19,000 week is a helluva week, especially in this economy. It's snowing in that part of the country right now. None of my drivers have experience driving in the snow. I had to ask myself if it was worth the risk of losing two trucks and two trailers to gross $19,000. replacement cost for each truck is about $30,000 and each trailer is around $15,000. I'll net about $10,000 dollars after expenses. Is it worth it to put my drivers and $90,000 worth of equipment at a heightened risk to make $10,000, when I can keep them here, conduting normal operations and clear $5,000? I decided to go for the $5,000 and not put my men and equipment into undue risk, because I can't survive the loss of $90,000 worth of equipment.
 
donc said:
Psst..agent Mike here he is. :mrgreen:
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Oooooh, bring it on. I'm not doing anything illegal. I don't expect you to understand, though.
 
apdst said:
What I'm saying, is that by expanding competition, you're spreading the risk over many companies and not just a few. With moe insurance companies operating in the industry, each company could see a higher profit margin, with lower risk.
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Not necessarily. As market share decreases, competition will necessarily bring economic profits to zero, in the long run. Therefore competition is beneficial more so for the consumer than the producer.

Say there are ten health insurance companies operating in a state. There are 1,000 insurees that will obviously cost those companies money, because their health is so bad, or they have a pre-existing condition, etc. That means that each company would have to take on 100 new clients that are guaranteed to be a loss.

Now, if there were 100 companies operating in a state, that would mean their would be only 10 guaranteed loss claims for each company. Two things would happen: 1) the profit margins would go up, and the loss would be easier to weather and 2) The insurance companies would be more likeley to sign a client knowing that that client is going to b a guaranteed loss.
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I see no reason why an insurance company would or should insure someone with pre-existing conditions.

it's simple loss vs. profit business strategy. When running a business and you take a risk, you have to ask yourself, "how is the loss going to affect the company? Will it be a minor dip in profits? Will we survive the loss? I don't care what kind of business you're in, you have to ask yourself these questions, at some point.
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I agree.

I'll give a personal example. yesterday, I got a call from a customer that needed two trucks to go to Alberta, Canada. The loads paid $19,000, together. A $19,000 week is a helluva week, especially in this economy. It's snowing in that part of the country right now. None of my drivers have experience driving in the snow. I had to ask myself if it was worth the risk of losing two trucks and two trailers to gross $19,000. replacement cost for each truck is about $30,000 and each trailer is around $15,000. I'll net about $10,000 dollars after expenses. Is it worth it to put my drivers and $90,000 worth of equipment at a heightened risk to make $10,000, when I can keep them here, conduting normal operations and clear $5,000? I decided to go for the $5,000 and not put my men and equipment into undue risk, because I can't survive the loss of $90,000 worth of equipment.
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You obviously pay insurance on those trucks and trailers. Of course, you would have to factor in the deductible, as well as the down time until an adequate replacement can be had. If your deductible + time lost was less than your net differential (10k minus the 5k alternative) $5k, i would have seriously considered the other option.
 
Goldenboy219 said:
Not necessarily. As market share decreases, competition will necessarily bring economic profits to zero, in the long run.
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You're wrong. Some companies are going to compete better than others, therefore will have more market share. How many different brands of beer are their in the country? What market share do the three main brands have?

Therefore competition is beneficial more so for the consumer than the producer.
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It's beneficial to both.



I see no reason why an insurance company would or should insure someone with pre-existing conditions.
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I don't disagree with that, but if the insurance industry were de-regulated, it would be possible for more pre-existing conditions to be insured.


You obviously pay insurance on those trucks and trailers. Of course, you would have to factor in the deductible, as well as the down time until an adequate replacement can be had. If your deductible + time lost was less than your net differential (10k minus the 5k alternative) $5k, i would have seriously considered the other option.
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my down time alone would run up to around $30,000, per truck. If I started looking, today, it would take me a month+ to find a truck and trailer, at a reasonable price, finance it and get it permitted to go to work.

The down side of equipment insurance, is that they never pay you what it will cost to payoff the note and purchase replacement equipment.
 
apdst said:
You're wrong. Some companies are going to compete better than others, therefore will have more market share.
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This does not negate my comment on profit. If there was only one beer company, would it profits exceed the scenario where there were 10 beer companies?

How many different brands of beer are their in the country? What market share do the three main brands have?
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The competition between Molson and Anheuser causes a price war between them. Since either firm has to be wary of relative price, the consumer benefits from their competition. Each firm will put out new products in attempts to pull customers away from the competition, although the pricing mechanism still has to be of great concern to each.

It's beneficial to both.
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Nope. Otherwise, explain the how a monopoly does not possess the ability to set price.

I don't disagree with that, but if the insurance industry were de-regulated, it would be possible for more pre-existing conditions to be insured.
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How so? Insuring someone with pre-existing conditions is the same as insuring a home that is already on fire.

The down side of equipment insurance, is that they never pay you what it will cost to payoff the note and purchase replacement equipment.
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Yeah, unless you sign on for ultra high deductibles, they tend to get you with depreciation.
 
Goldenboy219 said:
This does not negate my comment on profit. If there was only one beer company, would it profits exceed the scenario where there were 10 beer companies?



The competition between Molson and Anheuser causes a price war between them. Since either firm has to be wary of relative price, the consumer benefits from their competition. Each firm will put out new products in attempts to pull customers away from the competition, although the pricing mechanism still has to be of great concern to each.
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The point being, that competition forces the companies to keep their pricing below what the market can handle.



Nope. Otherwise, explain the how a monopoly does not possess the ability to set price.
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If there are many companies, selling the same product, the market will set the price, not the companies.



How so? Insuring someone with pre-existing conditions is the same as insuring a home that is already on fire.
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More insurance companies means each has to lose money on fewer high risk insurees. An insurance company can handle insuring "X" amount of burning houses. If they can keep that amount of burning houses below a certain amount, then the loss can be absorbed by the houses that don't burn.

Again, myself as an example. I'm going to blowout/wear out tires, but I can only financially handle losing so many tires. If tires are blown out/worn out at an excessive rate, then something has to change.



Yeah, unless you sign on for ultra high deductibles, they tend to get you with depreciation.
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They always hammer your ass with depreciation. That's why I re-adjust my coverage very year.
 
apdst said:
The point being, that competition forces the companies to keep their pricing below what the market can handle.
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Still off a bit. Competition allows for consumers to be swayed by changes in price. Holding costs at a constant and eqaul between two firms, and assuming transitivity (consumer decisiveness), the firm with the lower price will have the most revenue. But, the revenue will be lower than if there were only one.

If there are many companies, selling the same product, the market will set the price, not the companies.
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Ok, this is correct. But, it does not address the question in regards to market concentration. The only way for price to fall to an efficient level is for the consumer to have choice. As more and more firms enter the market, price will necessarily decrease (unless they form a cartel) until equilibrium is reached. At that point, marginal profit will be significantly reduced until the market is perfectly competitive.

In a perfectly competitive market, profit falls to zero.

More insurance companies means each has to lose money on fewer high risk insurees. An insurance company can handle insuring "X" amount of burning houses.
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Of course they can "handle" it, but it is not ensuring profit maximization. The firm that has the least amount of burnt houses will have the lowest cost.

If they can keep that amount of burning houses below a certain amount, then the loss can be absorbed by the houses that don't burn.
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But... The firm with the least amount of houses burnt will reap the most profit, ceteris paribus. As competitors witness this, within their goal to maximize profit, they will all stop insuring burning houses, to the point where insuring burning houses is no longer a business practice.

They always hammer your ass with depreciation. That's why I re-adjust my coverage very year.
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That's why i tend to lease most of my equipment. In the trucking industry though, leasing trailers instead of trucks is much easier.
 
In the insurance industry, more so than most others, size matters. The greater the size, the greater the ability to keep premiums lower than your competitors.

In risk aversionthe general rule is: the larger the risk pool, the less potential risk to the individual within that specific risk pool.
 
Goldenboy219 said:
Still off a bit. Competition allows for consumers to be swayed by changes in price. Holding costs at a constant and eqaul between two firms, and assuming transitivity (consumer decisiveness), the firm with the lower price will have the most revenue. But, the revenue will be lower than if there were only one.
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Depends on the volume of sales. If that company were the only one, they might look more at profit margin and less at volume, possibly making less money, because they're selling less product. You understand the difference between profit and profit margin, right?



Ok, this is correct. But, it does not address the question in regards to market concentration. The only way for price to fall to an efficient level is for the consumer to have choice. As more and more firms enter the market, price will necessarily decrease (unless they form a cartel) until equilibrium is reached. At that point, marginal profit will be significantly reduced until the market is perfectly competitive.

In a perfectly competitive market, profit falls to zero.
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No, it doesn't. It can't, or we'll have a depression. NO company can operate with a zero profit, unless, as I stated before, that company is designed not to make a profit, to begin with.


Of course they can "handle" it, but it is not ensuring profit maximization. The firm that has the least amount of burnt houses will have the lowest cost.
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Covering the safe amount of burning houses is maximizing profit margins. Point: if all companies have a safe amount of burning houses, all companies can offer lower prices.



But... The firm with the least amount of houses burnt will reap the most profit, ceteris paribus. As competitors witness this, within their goal to maximize profit, they will all stop insuring burning houses, to the point where insuring burning houses is no longer a business practice.
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That's why they call business a, "risk"...LOL!!!! The government can set regulations, so that every company has to insure "X" amount of burning houses, based on the number of burning houses from the previous year, so the market remains stable. If the amount of burning houses goes up, the rates will go up, just like when prices go up as the price of gas goes up. The market is a bitch, ain't it??



That's why i tend to lease most of my equipment. In the trucking industry though, leasing trailers instead of trucks is much easier.
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I can't lease equipment, then lease equipment as an owner operator. My name, or my corporate name has to be on the registration, otherwise, it would be illegal. I can't act as a third party, for the owner of the equipment, without power of attorney and an equipment rental company isn't going to give me power of attroney...LOL!!!! Now, in my situation, trailers are different. I can rent trailers, however, it isn't cost effective, unless I knowingly have thework coming up to justify the rentals. I've done it in the past, but I did because I had inside information of a sure thing. I still took a risk, but it turned out to be worth it in all those instances.
 
Goldenboy219 said:
In the insurance industry, more so than most others, size matters. The greater the size, the greater the ability to keep premiums lower than your competitors.
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That's any business. JB Hunt can haul freight for 75% less than I can.
 
winston53660 said:
So how do you compete with JB Hunt?
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I haul a different kind of freight, so I don't actually compete with JB Hunt. In my segment of the industry, I can offer specialized equipment and services that JB Hunt can't/won't offer. Ryder Truck Lines has branched off into my world and after 8 months, are looking for a way out.
 
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