CARPE DIEM: Profit Margin: Health Insurance Industry Ranks #86

Standard Errors: Our Failing Health Care (Finance) Systems And How To Fix Them"


Just how much profit is appropriate for an essentially risk-free insurance operation.

Yes, individuals and small insurers, the sort John McCain would like to encourage, are vulnerable to extreme fluctuations due to small portfolio sizes. But large insurers make very high profits with virtually no risk.

Large insurers can offer higher benefits, at lower premiums, with far lower probabilities of operating losses and insolvencies. They need far less idled surplus  because there is much smaller year to year fluctuation in their loss ratios.

Small insurers provide much lower benefits, at higher premiums, with far higher probabilities of operating losses and insolvencies. They need far more idled surplus  because there is much greater year to year fluctuation in their loss ratios.

Any insurance company that meets state incorporation standards can initiate operations in any state they choose. What is stopping them from doing so?