How can health insurance possibly be profitable?

Auto insurance, I get - most people don’t get into major accidents or have their cars stolen. Home insurance, I get - most peoples’ houses don’t burn down.

But when it comes to health insurance, I just don’t see how the ungodly amounts charged for even the most routine medical services can possibly be made up for by the pooled premiums paid out by individuals and their employers.

Case in point: I’m young and relatively healthy. But this year I had a septoplasty operation to fix a deviated septum - fairly routine, one hour outpatient procedure. I’m lucky to have excellent insurance from my employer that paid 100% of the costs - but I saw what those costs were, and my insurance paid about $30,000 in all including the OR fee, doctor’s fee, anesthesiologist’s fee, etc. I pay roughly $80/month in premiums (and I know my employer pays part too but I don’t know how much they pay). At that rate, it will take me over 30 years to have paid $30K in premiums which would cover this one simple operation.

I know there are many, many people dealing with various medical issues costing hundreds of thousands, if not millions of dollars a year for care. And even if you are paying something crazy like $2000/month for health insurance premiums, that’s a drop in the bucket compared to what the health insurance company pays out on your behalf (and yes I know they look for opportunities to deny claims where they can, but even so, they pay out a lot). Are there really that many people who pay premiums and never go to the doctor in their lives, thus enlarging the pool for the others who are using medical services? I mean with the insane cost of medical services, all it takes is a single visit to the hospital and a couple tests to blow many years worth of premiums. I just don’t see how it could possibly add up.

That’s why there are Actuaries. Computing how N people can pay M dollars per month and have this be greater than expected pay out.

Sure, but the costs are so staggering and the premiums relatively tiny that it just doesn’t seem that there’s any way it could add up. One extended hospital stay for one person can easily end up costing more than 50 people pay in premiums over their entire lives.

You only pay $80/mo? In my small business, where we get our insurance through a small-business-group-backed plan, we pay $1300/mo for my business partner’s plan that covers him and his family. I don’t know that anything on that plan is 100% covered, I know he pays a good bit out of pocket.

My company pays $300/mo for my HSA plan through the same group, plus $3500/year into my HSA. I’ve wiped out the HSA and still haven’t hit my $4000 deductible, and I don’t know how/why but I have still paid about $1800 in medical bills this year out of pocket.

You have extremely, extremely good health insurance benefits from your employer. Don’t ever leave your job.

I think you may be underestimating the amount your health insurance coverage is costing. You need to look at not only your contribution, but also that of your employer. I think you will find the two combined are far above $80/mo. You are shielded from the full cost of the insurance by your employer, and you are insulated from the full cost of the treatment by your insurance.

Also, realize that the $$ you put into the pool now are not for your use, it is for the use of others in the pool that need treatments now. You may pay a premium for years and not access any services - your $$ are going to be used to treat others that need it - when your turn comes, you will be leveraging the $$ others are contributing at that time. As stated, the actuaries are tasked with sorting out how much to make the premium to operate competitivly, while scraping a little off the top in profit. The profit margins for health insurance companies is not that high - I will look for a cite where I believe it is around 3%.

And many other people will pay premiums for years and never collect a dime. They’re in effect, subsidizing your one hospital stay.

If you have “excellent” insurance and you’re only paying $80 a month, your employer is paying the overwhelming majority of it. My plan I pay $70 a month and my employer pays $400. Also, many people go many years without filing any claims. My first four years working there I had a grand total of two claims, both for routine eye exams.

I seem to recall learning that the money isn’t just ‘premiums in, hospital bills out, difference = profit’. Rather, premiums are invested and the investments are a good share of the company’s profit.

This is the answer. They pay a LOT.

$2000/month is not “crazy”. It is on the high end of average. A very quick and easy Google search found me this article from the New York Times, from almost a year ago:

If that 9% increase continued, then this year it comes to $16430/year, or $1369/month.

It is true that even one hospital stay can reach into the dozens or even hundreds of thousands of dollars, but it is very easy to forget that the great majority of people go for many years without needing anything nearly that serious. And that’s where the actuaries come in, calculating EXACTLY what to expect, to pretty much guarantee the health insurers a profit. Not much of a profit, but they obviously do stay in business.

A cheap policy in the US for a young single person starts at $150. Even catastrophic coverage (which only helps when your expenses exceed $20,000 out of pocket) is going to be about $60 a month. For most people, coverage is several hundred dollars, and something in the $1200+/month range is not uncommon for families or older people. So… if the OP is only paying $80/month, my guess is that the employer is paying $400/month for him.

The real takeaway from this? Most people in the US have no idea what health care/insurance costs because they don’t pay the bills.

(For the record: I pay for a high-deductible policy that is about $160/month. My insurance company has not paid out a single penny for benefits in the three years I’ve had the policy. So… I’ve been subsidizing the rest of you. You’re welcome. :slight_smile: )

The vast, vast majority of a person’s medical expenses come within the last two years of life. Private health insurance pools are only covering people through age 64 (at which point Medicare steps in). Most people die in their 70s and 80s. Therefore, the risk of high medical costs is fairly small. And as others have pointed out, the true cost of your health insurance is much much higher than $80 per month.

This is a really good point. If insurance companies had to cover the +65 set in the same pool as everyone else, you can bet your premiums would be way higher, and your employer may not be able to offer you that coverage. Of course, you would not be paying for Medicare thru taxes in that scenario.

I on the other hand have had good health insurance for over 30 years and have spent exactly one night in the hospital, and had a not all that expensive out-patient treatment. People tend to remember the months where the spent a lot, not all those where they spend almost nothing. And it will take a lot less long to pay off your visit given your employer’s contribution, as has been mentioned.

Many, many? I doubt it (but don’t have time now to search for the actual number.) Care this expensive sometimes makes the news because it is so rare. Those under 65 needing lots of care this expensive either recover or die. Really expensive drugs are so expensive because the market for them is so small.

Actually, most people that have Medicare also have private insurance (I don’t have a cite offhand, but I heard slightly more than half). Medicare A has a lifetime maximum and Medicare Supplement / Medicare Replacement plans do not, so private insurance can still be on the hook for susbstantial amounts for the elderly. It’s that possiblity that makes those plans more expensive than you think they might be. I’m friends with the person at work that works “Medicare Exhaust” cases and some of the bills I’ve seen are frightening.

Another issue is that your insurance company might not (probably didn’t) pay the full $30K. They usually have agreements with the hospital/healthcare providers about how much they’ll pay for a procedure. For a 1 hour outpatient procedure, $30K sounds like the “list” price. It likely got negotiated down to something much smaller.

Well, I dunno about “negotiated”. Usually the Insurers figure out what something should cost, based on nationwide averages and so forth, and then say “we pay a maximum of N”. The Doc or Hospital either has to accept it and eat the rest, or try to pass it along to you. I’ve been nailed twice on that in the last 3 years, suddenly getting a bill because despite being promised that the insurance would cover the entire procedure, they didn’t pay what the doc wanted to bill.

This is an incredibly important point. The pricing system in health care is completely opaque–for many services, you simply cannot find out what their true cost is.

The above article argues, in part, that we need to have consumers (not insurance companies and medicare technocrats) driving the bus. If you are willing to consider the possibility that healthcare in America is a truly messed up system, read that article.

Ahh. I didn’t know that private insurance stopped covering everyone at 65. I knew about Medicare, but thought that people could continue having private insurance if they wanted to. Didn’t realize that everyone is kicked off insurance and has to go on Medicare at 65, as in thinking about the OP I was especially considering how much medical services old people use.

Yes, but my understanding is that those are separate risk pools so the insurance companies are not calculating those expenses directly into our premiums. Someone with more insight into the insurance process might be able to calculate that.

Yes. I recently had an outpatient procedure; in by 6 am, out by 2:30 pm. The hospital bill was around $35,000. The “renegotiated” amount was about $6,000; since my yearly deductible is $5,000, the insurance company is only out $1,000 - which is about 3 months’ worth of premiums from me.