Obama’s oft told lie that Insurance Companies are making obscene profits by overcharging customer premiums will surely be repeated tonight. Most people are ignorant on how Insurers make money, and the Pro Government Health Care crowd takes full advantage of that fact.
Now, Medicare takes in premiums from the insured, and use that money to pay out claims. If Medicare takes a loss, who cares? They just print more money, add to the National Debt, or raise taxes. But Medicare will never make a profit, because it is not designed to do so.
Private Insurers, on the other hand, make a profit. Proponents of Government Option Care want you to think that the only money they make is from what you, the insured, pay. That is absolutely untrue. Many years, insurance companies actually pay out more than they take in, yet still make a profit. How can this be?
They invest the premiums. Something the Government will never do. An Insurance Company can take a loss based on premiums collected and claims paid, called an underwriting loss, and as long as their investments cover the losses, they make money.
To be sure, they don’t generally invest in risky ventures. Government bonds are one vehicle. Many companies use the float, which is the period between when they take in the premium and when they have to pay out claims. The calculations are mind boggling, but dead on accurate.
These are not calculated on an individual basis, rather based on the law of large numbers. What this means is that they can take in a billion dollars in premiums, and their highly accurate predictive models tell them they will have, say , a 50% loss ratio in the first year. That means they can safely invest $500 million and bring in interest on that money without risking coverage to any insured.
So, don’t be fooled by the lies you will hear. Destroying private insurance will actually cost more. And it will take the money the insurance companies invest out of circulation. An Insurance Company can actually charge it’s customers less than they pay out, and still make money AND pay employees.
Any government option, including Medicare, will ALWAYS be required to charge the insured the exact amount they pay out plus overhead to break even.
So, the Government Option will ultimately cost more, and will only bring down prices by placing unsustainable regulation on private insurers until they are forced out of business.
And that is when the real cost of the Government Option will kick in.