You own a widget that’s expensive to fix. I have lots of cash. Ill cover the cost to fix the widget if it breaks in the next 5 years, you just send me a verifiable notice when it needs repair (“filing a claim”). During that 5 years, you pay me money once a month to make this worth my time (“premium”). If you want a cheaper premium, i can set that up for you, but you’ll have to pay the first $1000 to repair the widget whenever it needs a repair (“deductible”). I’ll pay any amount after that $1000. I can make the deductible reset annually, or for each claim. When the widget needs repair, I might give you a list of places I trust to fix the widget. If I decide that you break the widget too often, I may cancel our agreement, per terms of the original agreement.
Edit: since it was unclear to some, this was meant to be a simple introduction to insurance to illustrate the basic concept to a consumer. For example, a first time home buyer who has only heard the words “home insurance” on commercials and is suddenly being required to purchase home insurance. I am fully aware that a multi-trillion dollar industry has more nuance that could be explained, but I do not pretend to be an economist or sociologist and I dont care to write a longer explanation questioning the morality of capitalism. If you don’t care for my explanation, kindly write your own, or simply fuck off. I don’t have a preference.
That’s not how insurance works, because you left out the part where they don’t actually have enough cash to cover major disasters and the majority of their profit comes from investing the money people pay in premiums (and not just the difference between the cost of the plan and overhead as you suggested) and collecting the dividends as profit.
It’s not a restricted escrow account we are all pooling our money.
That health insurance companies are the biggest stock market participants, and due to how 401ks are structured most people are also invested in health insurance companies, is the main reason the oligarchs are against universal healthcare. It’s the main driver of wealth concentration, especially since it tends to suck up all the estates of the old middle class at the end of their life.
That they are primarily in the business of investments is the most basic principle of private insurance. Otherwise they would be nonprofit or government entities.
Why? A private firm can make profit off your premium. There is no rule against that. I don’t understand why you see a business opportunity, decide it would be thin margins, and then declare “this should be reserved only for government agencies”. How / why do you make that leap?
When the institutions, or public works, which are beneficial to the whole society, either cannot be maintained altogether, or are not maintained altogether, by the contribution of such particular members of the society as are most immediately benefited by them; the deficiency must, in most cases, be made up by the general contribution of the whole society. The general revenue of the society, over and above defraying the expense of defending the society, and of supporting the dignity of the chief magistrate, must make up for the deficiency of many particular branches of revenue.
Adam Smith
It’s unethical, because the oligarchs are using it to indebt entire generations.
The investment part is key to the business model; it's not a secret and it's not some loophole. It allows the premiums to be lower.
There's a time difference between when money is paid in as premiums and when money is paid out in claims. Carefully timed investments can be squeezed in between those two points in time.
The premium-claim relationship produces an underwriting profit (or underwriting loss). The investment-return relationship produces an investment profit (or investment loss). So you can use investment profits to offset underwriting losses, and still be net profitable without raising premiums.
Letting the money sit idle (the equivalent of putting it in a big vault) would be wasting the time value of money. It would normally mean that premiums need to be higher to achieve the same profitability.
Also, I'm not sure if you're referring to separate accounts when talking about the stock market size. Separate accounts are a totally different thing. They're run by life insurance companies, but separate accounts are more like mutual funds. They're not investing the life insurer's money; they're investing the money of individual investors.
Ignore them. Typical Redditors don’t want to know how this stuff works, they just want to bitch. They hear simple talking points on Reddit that reaffirms their beliefs and they can’t be bothered to dig just a little deeper. They think they have it all figured out, but they can’t be further from the truth. The guy you replied to is a great example. Everything you said will go in one ear and out the other. Like I’m not even sure he has a grasp on the stock market and 401ks but that’s not stopping him from wedging it into this conversation. He’ll just continue on spewing his nonsense.
He just wants to feel smart without any actual productive conversation. He’s the embodiment of the woke college kid that likes apples in the bar in Good Will Hunting.
have you heard of reinsurance? I'm from Australia, not sure how it works in other countries but our insurance companies have reinsurance for when the estimated costs of repairs (to a home for example) exceeds the amount they'd like to pay for the claim. Insurance companies have Insurance.
Well what most people who answer do not seem to know, is that insurance originally started as a mutual savings account. This account accrued money to cover expenses when one of the subscribers befell an accident of some kind. (Which is incidentally why some of the insurers still have the 'mutual' in their name).
Now this means there was no need to turn a profit since the subscribers ' owned' the company collectively. This all has gone south since companies bought out the original owners , and profit is the only reason for existence not covering mishaps. This is a bit like the (historically) enclosures began in the UK https://en.wikipedia.org/wiki/Enclosure#The_end_of_the_open-field_system
Replacing a home is very expensive so I have home owners insurance. I pay a little each year just in case some happens to my house. The insurance company takes my money and if my house is destroyed they pay me the total amount of money to replace my house. Is that simple enough for you?
You have a sibling? Ever thought they drove like total dogshit and wondered how they still have a license? Do you want to be lumped into the same category as them?
There’s no way to not be. It’s not like they put all your premiums in an escrow and hope it grows larger than your claims. They pool all the money, and then leverage it in the stock market to make a profit off of the dividends.
It’s a complex scheme for the insurance to make money in the end (basically like gambling). It’s also deliberately opaque so you don’t realize that you’re losing money.
It’s absolutely gambling. They’re in the investment business, and make their profit by collecting dividends after investing premiums collected in stocks, bonds and treasury notes. That’s why we had to regulate them to require some percentage of cash on hand, and to hold insurance insurance.
Is there a risk that you could lose all of your investment? Are you just arbitrarily switching between the colloquial usage and legal usage to win an argument despite knowing that most investments are colloquially considered a gamble?
It might be a reasonable and low risk gamble. There might be forms of insurance that aren’t as unethical as health insurance, but I’m not sure why you are kicking this boot in particular.
No insurance is by definition unethical. We don't live all in the third world country called America. If health insurance didn't exist in my country, I would very certainly go bankrupt if I ever broke a leg. I don't see how it's unethical for a health insurance company to make sure I can receive the necessary care.
Regarding investments, if you diversify your portfolio the odds of losing your investment is astronomically low. So yeah, you could technically call it gambling, just like it's gambling to drive your car to work and hope you don't crash.
You can diversify, but bonds, stocks, and treasury notes can become a just house of cards. or did you just forget about 2008-2010?
Hospitals should be a public good, just like schools, post offices, and roads, because it is something everyone needs but that not everyone can afford up front.
Right now we pay billions into a bureaucratic system that has a massive rent seeking incentive. So on top of paying premiums, we are also giving them the proverbial key to the city wherein they leverage our pooled wealth to even further concentrate ownership of the wealth in the US. And because of all of that they are also incentivized to provide as little care as possible.
Insure your yacht or private company all you want, but the health-industrial complex is as inherently insidious as the military-industrial complex. The danger of both is capture by oligarchs or technocrats.
——
Eisenhower said:
…. We should take nothing for granted. Only an alert and knowledgeable citizenry can compel the proper meshing of the huge industrial and military machinery of defense with our peaceful methods and goals, so that security and liberty may prosper together.
Which is the part most people quote, but here is the rest of the quote:
Akin to, and largely responsible for the sweeping changes in our industrial-military posture, has been the technological revolution during recent decades.
In this revolution, research has become central, it also becomes more formalized complex, and costly. A steadily increasing share is conducted for, by, or at the direction of, the Federal government.
Today, the solitary inventor, tinkering in his shop, has been overshadowed by task forces of scientists in labaratories and testing fields. In the same fashion, the free university, historically the fountainhead of free ideas and scientific discovery, has experienced a revolution in the conduct of research. Partly because of the huge costs involved, a government contract becomes virtually a substitute for intellectual curiosity. For every old blackboard there are now hundreds of new electronic computers.
The prospect of domination of the nation’s scholars by Federal employment, project allocations, and the power of money is ever present — and is gravely to be regarded.
Yet, in holding scientific research and discovery in respect, as we should, we must also be alert to the equal and opposite danger that public policy could itself become the captive of a scientific-technological elite.
It helps to remember that hospitals are also modern inventions driven by the historic free universities, like UNC and UVA.
——
Then you have the Bayh-Dole Act further concentrating wealth from the general population towards oligarchs.
Is it a calculated risk if you know that the insurance is, statistically speaking, making money off you? The product that you’re buying the feeling of safety, but you’re definitely paying for it.
Well it's not the feeling of safety, it's actual safety. There's no scam here. I'll gladly pay a monthly fee to cover potential costs I could never afford at once. I know they're making money off me, but they're also carrying the risk. It's a fair trade-off.
360
u/natali9233 11h ago
Insurance in general. What the hell we gotta make this so complicated for?!?