The irony is mind boggling. From April to June, during the time that millions of Americans lost their jobs and tens of thousands were hospitalized due to COVID-19, UnitedHealth Care Group, the second-largest health insurance company in the country posted more than $6.6 billion in profits. This, by far its greatest quarterly profit ever, was fueled primarily by its insurance division. And, as I write this letter today, the value of United Health’s stock has just hit an all-time high!
This begs the question: why do we need for-profit health insurance companies? The simple answer is, we don’t. The fundamental purpose of such entities is to earn money for their shareholders. They earn money primarily by doing two things: generating income from premiums and minimizing expenses by limiting how much they spend paying for medical care. It’s that simple. A primary reason that United Health enjoyed those record quarterly profits was that their medical loss ratio was just 70%; that is to say, they paid out only 70 cents in medical claims for every dollar they received in premiums.
If they serve no essential purpose in our health care system, do we really need to pay billions of dollars to huge for-profit insurance companies just to serve as financial middlemen? Administrative costs for traditional Medicare are close to 2%, as compared to more than 12% for Medicare Advantage plans, which are administered by private insurance companies. Those administrative overhead costs include advertising, administrator salaries and benefits and, of course, corporate profits.
What’s wrong with this picture? Why must we keep deluding ourselves by thinking that we need an expensive private health insurance industry to do what Medicare does at a fraction of the cost? I have yet to hear a convincing answer to that question.
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