Comment by joshfraser | Hacker News Reader

Comment by joshfraser | Hacker News Reader

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My issue with insurance companies is that they're conflicted by design.

As typically publicly traded companies, they have a fiduciary responsibility to their shareholders to maximize profits. And the only way to maximize profits is to deny coverage.

The purpose and value of insurance is amortizing risk. There are very few things that I think should be controlled by the federal government, but a single payer health care system is one of the few that actually makes sense from an incentives perspective.

In the words of Charlie Munger who's spent more time thinking about insurance than almost anyone: "Show me the incentive and I will show you the outcome."

Why does the US pay the highest prices for mediocre health care? Perverse incentives.

Very good point. Conflict of interest is the real flaw in the insurance business model. What other industry makes more money when their customers slip up?!

Insurers try to protect their margin by finding ways to reject claims.

I am actually working on a company changing that by making money when settling claims instead of losing it.

http://insureathing.com/insurance/wanted-an-insurance-partne...

Let me see if I understand correctly.

When there's a claim, you send all members a bill for their share of the claim plus your fee. If there are no claims, you don't get paid. You're incentivized to pay out so you get your fees. But not too often or premiums will sky-rocket and you'll lose customers. Is that right?

What happens if there is a spike in claims and everyone leaves at once?

That's exactly what it is.

You benefit on the upside but if there are outliers and the premium would skyrocket we cap your premium at market rate through an agreement with a reinsurer. It's a standard financial tool insurers are using as well.

> Insurers try to protect their margin by finding ways to reject claims.

The ACA limited that incentive (though perhaps in a way with other problems) since insurance premiums are limited based on expenditures for care (the 80/20 rule) and surpluses must be refunded (the potential adverse impact being that insurers that increase costs can potentially keep more profits.)

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