The time between payment of premiums and payouts.
Here’s the thing you’re missing, John. If we don’t give the rich people free birth control, too, then they have less impotence to pay in themselves. If birth control really is the only thing most people use under 30, why would they pay for both insurance and the pill? Why wouldn’t they specifically opt for insurance that does not include the pill, thus shifting the burden of needing the pill to the people who can’t afford it?
It’s why social security was not set up to just give money to the people who need it. Even many libertarians don’t have a problem with Social Security because they get most of their money back out.
And that’s not even getting into the fact that insurance companies don’t do everything just for monetary reasons, as was just made very clear here recently. Many people apparently have a moral objection to providing birth control, and thus are willing to take the cost. Mandating it via law gets around this problem.
Heck, the insurance company can just say they support birth control because they have to, and thus not worry about losing customers over it.
With a million of beneficiaries, that time is effectively zero. Again, it doesn’t make sense to run an insurance company if the money you’re earning is from investments only and the “insurance” part of it you’re running at a loss. Remove the “insurance” part and run an investment company - you will make more money.
You may say that “it doesn’t make sense”, but I prefer to take Warren Buffet’s word for it.
No, condoms are not prescription medication. The fact that insurance usually/always pays for Rx and not OTC doesn’t mean that that’s the way it should be or that we should accept that it should when debating the issue of what should be covered.
Reread the OP. What is the rationale behind his argument? He says that BC pills pay for themselves, that “Birth control doesn’t cost money, it saves money. If company makes it easier for women to get contraceptives then the result will be lower costs for prenatal and maternity care, if anything resulting in lower costs to employers.” That’s why he wants the law to require insurance companies to cover it.
That rationale is equally applicable to condoms. The fact that one is Rx and the other OTC doesn’t affect that rationale.
No matter who explains it, it makes very little sense. Let’s say I start an insurance company and am such a genius actuary that I manage to set the premiums so exactly that after the initial period I get same money coming in premiums as I pay out in benefits. During that initial period I accumulated a sum of money - what Warren Buffett called “float” in the explanation you cited. Once that sum is accumulated and the premiums/benefits equilibrium is reached, that “float” can only increase by investing it, hopefully wisely, or acquiring new customers. No money from premiums from existing clients is being added to the “float” since the payout eats up all incoming premiums.
Thus the insurance company’s profit in this scenario comes only from investing. The “insurance” side of the company is not profitable, and, in fact, is potentially (as Buffett explains as well) detrimental to the company. Do explain, then, why bother with the “insurance” part of it, since it is a huge hassle and doesn’t add anything to the bottom line? Just be an investment house.
The only advantage to being an “insurance company” in this case is that the cost of initial capital is low, although I am sure once the customer acquisition costs (advertising, agent fees etc) is figured in, it’s not that low. But long term the cost of initial capital is not that important, if your investments are doing well.
It gives you the money to invest.
As I said, yes, it somewhat lowers the cost of initial capital, which in the long run doesn’t add much to the bottom line. And if the enormous amount of advertising and organizational effort it takes to start an insurance company was applied to acquiring capital to run an investment firm, I am sure the results would be just as good if not better.
Not much is more than not anything, which is what you said, and what I was responding to.
Both have costs to aquiring money to invest, and both aim to make a return higher than their costs. That makes (economic) sense.
If you want to now go on to argue that some ways of aquiring investment capital are less costly than others, and it is obvious that the insurance method cost is too high, I’d say you’d have to run some numbers. I’d also note that this argument seems to be a different one where we started from, where this sort of strategy w.r.t. insurance companies just didn’t make any (econmic) sense at all.
One company would concentrate on it investments. The other would have an enormous deadweight of the insurance business hanging on it with all the risks associated with it. It’s pretty clear which makes more sense.
(Emphasis mine.) It is not deadweight, it is money to invest.
The insurance business (if Buffett is to be believed), adding nothing to the bottom line, is definitely deadweight.
An odd interpretation. If you cut the purported deadweight, you would be left without the money (held from premiums) to invest. That would affect the bottom line.
How is this different from saying that a loan is deadweight?
The premiums give you initial capital. Once the premium/benefit equilibrium is achieved, the insurance side is deadweight, not contributing anything anymore to the capital.
That still doesn’t mean insurance doesn’t cost the customer more than the benefits. In the US, the new insurance laws require a payout rate of 80-85%, not without a fair amount of squawking from the industry. While the underwriting business may operate at a net loss (before investment profits) that doesn’t mean the company pays out more than 100% of its premiums in benefits, it just means their total cost (benefits+admin) is more than the premium.
Considering how much of their administration is rooted in reducing their payouts, I’m not going to automatically count that as a beneficial aspect of the service.
Do you stop paying your premiums, but retain the benefits? Because that’s the only way I can make sense of your post.
No.
To expand - once the insurance company is past the set up stage, every month X in premiums comes in and Y in benefits+administration is spent out. According to the claims of the UK poster above, X<=Y. Thus, for the insurance company the ongoing insurance business is either unprofitable or non-profitable - a deadweight on the supposedly profitable investment business.
The company continues to recieve premiums, and there continues to be a lag between reciept of premiums and payouts, and this maintains the float. Where X<Y, the difference is the cost of maintaining the float.
There is no lag between receipt of premiums and payouts, across the whole customer base. There may be a lag between receipt of claim and payout.