Comment by epistasis
1 day ago
I've been trying to talk to people locally, a place with lots of homes built in the woodland-urban interface, about the risks of climate change and how insurance will have to change. Unfortunately these discussions almost never go well, because it seems that most people have at best a surface level understanding of what insurance is and how it works, and everyone is convinced that it's a full scam and insurance companies are fabricating everything. When in reality, insurance is one of the rare areas where risks are very well assessed, not just by the initial insurer but also by a second party when reinsurance is purchased. And often those exits from the insurance markers are due to inability to purchase reinsurance.
Of course, explaining anything in detail is likely to make people think you work in the industry (I do not) and get accused of being a shill. All of which proves to me that older generations had a much easier life because nobody so financially ignorant today is in any sort of position to be able to buy a home.
All that said, I don't think it's actually a price ceiling. It's a limitation of what factors can be taken into account to set rates, and constitutional amendment from Prop 108 prevents the legislature from changing it.
> Unfortunately these discussions almost never go well, because it seems that most people have at best a surface level understanding of what insurance is and how it works, and everyone is convinced that it's a full scam and insurance companies are fabricating everything
I have the exact same experience when discussing anything insurance related: People have wild assumptions about how much profit insurance companies are making.
When I ask people how much cheaper they think their insurance (health, home, etc) would be if we forced insurance company profits to zero they usually have some extreme guess like 50%. When you point out that, for example, health insurance profits are low single digit percentage of overall healthcare costs they just don’t believe it. The discourse is so cooked that everyone who just assumes insurers are making unbelievable profits without ever checking.
Like you said, when I try to bring numbers into the discussion I get accused of being a shill (or a “bootlicker” if the other person is young).
The environment this creates has opened the door for some really bad politics to intervene in ways that aren’t helpful. I wouldn’t be surprised if the eventual outcome in a lot of these places is that politicians pass legislation putting the local government on the hook for insurance after they squeeze regular insurers so hard they have to back out to avoid losing money in those markets. The consequences won’t manifest for several years, potentially after the politicians have left office, but could be financially burdensome. Similar to how many local governments were very generous with pension plans because politicians knew the consequences would only be felt by their successors.
Health insurance's issue is probably how it induces pure waste everywhere as everyone has to play this dance of ever escalating paperwork which consumes a lot of labor. It's not profit, it's waste. Same with the ever increasing amount of admin. Why is that admin increasing? I estimate insurance or requirements created by insurance is part of the cause.
There is also a lot of other smells of a lack of a competitive market. Very opaque pricing, limits to how many hospitals can be opened in a region, needing paperwork to push against that limit, limits in residency slots, the entire hazing ritual of residency in the first place, limits in opening medical schools, ever escalating requirements to become a doctor, restrictions against doctor owned hospitals or clinics, the fact something like an epipen is still not out of patent and not having many clones by now, large barriers to make medical devices and medications, while simultaneously having great issues with generic drug quality, a horrible food system compared to Europe, while simultaneously having a much harder regulatory state medically compared to europe, etc.
This is spot on. It’s not that I think health insurance companies are making insane profit margins. It’s that their very existence in the system is a pure negative and in fact a moral blight. Inflicting profit into a system that is entirely dedicated to human health is by definition a conflict of interest for basically everyone involved, even if it operated at a hypothetical 100% efficiency.
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> When you point out that, for example, health insurance profits are low single digit percentage of overall healthcare costs they just don’t believe it.
Meanwhile, the health care providers:
> But if you look at the list of companies with the highest [return on equity], you see health care providers or suppliers like HCA Healthcare (272%), Cencora (234%), Abbvie (84%), Mckesson (84%), Novo Nordisk (72%), Eli Lilly (59%), Amgen (56%), IDEXX Laboratories (53%), Zoetis (46%), Novartis (44%), Edwards Lifesciences (43%), and so on. If you want to know which shareholders are making the real money in the health care industry…well, it’s the shareholders of those providers and suppliers.
* https://www.noahpinion.blog/p/insurance-companies-arent-the-...
Definition of "healthcare provider" really confuses me. Why is my nurse lumped together with people researching drugs? Is the CEO of the hospital a "provider"?
> When you point out that, for example, health insurance profits are low single digit percentage of overall healthcare costs they just don’t believe it.
When you consider that single digit percentages of trillions of dollars is still an obscene amount of money it makes sense. People making tens of billions by applying formulas to spreadsheets and shuffling other people’s money around doesn’t sit right with most people.
I hear the same thing about supermarkets. Their margins are razor thin (1-3%), and yet people look at the overall profits and complain, ignoring the fact that the company had to deploy 50-100 times that capital to make that profit.
An alternative is to split these companies into smaller companies, which will each have much lower profits but also higher costs due to lost efficiencies, but people will not be happy with that either.
>People making tens of billions by applying formulas to spreadsheets and shuffling other people’s money around doesn’t sit right with most people.
The federal government will pay you $4.4 billion a year[1] if you lend them a trillion dollars, no "shuffling money around" required.
[1] current 5-year treasury yields
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The profit margin doesn't include things like CEO salary, correct? I could see a scenario where the issue is still corporate greed just not greed that's measured by profit.
All employee compensation, including CEO and board of directors, is included in the expenses used to calculate profit margin.
Profit margin is all revenue minus all expenses.
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Executive pay is such a tiny fraction that eliminating it would be lost in period to period fluctuations.
>When you point out that, for example, health insurance profits are low single digit percentage of overall healthcare costs
Do you have any source for this?
I’m assuming (because HN) that you had the USA in mind, and it doesn’t pass the sniff test for me given that US insurance fees are more than single digit percentages higher than other high quality care countries with privatised healthcare systems
Insurance fees are not high because the insurance companies are making huge profits.
They're high because providers are making huge profits.
Now granted, they may ultimately be the same thing, but that's a different discussion [1]
In the context of housing (fires, hurricanes etc) insurance is expensive because housing is expensive to build.
[1] insurance companies have to invest their income somewhere. It makes sense to choose companies will high returns. Which includes some health care providers. Which can basically change whatever they like because of structural reasons that have been well discussed.
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The issue in the US is that there is no price regulation for different procedures (other than Medicare), plus the providers (hospital chains) are intertwined* with insurance. The end result is everyone charges as much as they can and the premiums need to be high, even if insurance technically negotiates the rates down from the “sticker” price. Insurance companies are willing to take a small percent of profit because there is so much money being taken from customers.
* https://www.statnews.com/2024/11/25/unitedhealth-higher-paym...
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Part of the problem is that the existence of the middle man adds a lot of costs: insurance company salaries, their executives, doctor's office billing coding, advertising, etc.
The shareholders take home only a fraction. But a lot of money gets spent that simply doesn't need to be. Other countries avoid the deadweight loss of the middle man.
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That’s because healthcare is unusually expensive in the US, not because insurers’ profit margins are unusually high.
These are all the publicly listed health insurers in the US, with public financials, so the numbers come from the 10-Q and 10-K reports filed with the SEC.
Note that the first one, United Health, has slightly higher profit margins than the rest because UNH has an enormous business selling healthcare itself, not just insurance (they own a lot of doctor groups and outpatient clinics and employ a lot of doctors and nurses).
https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-g...
https://www.macrotrends.net/stocks/charts/ELV/elevance-healt...
https://www.macrotrends.net/stocks/charts/CI/cigna-group/pro...
https://www.macrotrends.net/stocks/charts/CVS/cvs-health/pro...
https://www.macrotrends.net/stocks/charts/HUM/humana/profit-...
https://www.macrotrends.net/stocks/charts/CNC/centene/profit...
https://www.macrotrends.net/stocks/charts/MOH/molina-healthc...
The other big insurers will be Kaiser Foundation Health Plan and various plans franchised with Blue Cross Blue Shield, but they are all non profit.
https://projects.propublica.org/nonprofits/organizations/941...
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You can literally read the 10-K statement from any of several publicly traded medical insurance companies. Average industry profit margin is about 3%. There are also some non-profit insurers but their fees generally aren't any lower.
Or they see that as a cute bit of misdirection. Profits are capped as a percentage of healthcare costs, sure. Healthcare costs are not capped. Drive up the cost of care, drive up the profits.
You ever think it's curious that for-profit insurance companies pay out 2–3x what Medicare does for the same procedures?
> Or they see that as a cute bit of misdirection. Profits are capped as a percentage of healthcare costs, sure. [...]
You know what else is "a cute bit of misdirection"? Mentioning that profits are capped without mentioning why it's that way in the first place.
>You ever think it's curious that for-profit insurance companies pay out 2–3x what Medicare does for the same procedures?
...because the government low-balls healthcare providers?
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You do realize health insurers have federally mandated caps on their profits, which simply incentivizes creative accounting to make money in more oblique ways, right?
>When you point out that, for example, health insurance profits are low single digit percentage of overall healthcare costs they just don’t believe it.
It's not that I don't believe it, it's that this figure is completely unrelated to the damage and waste caused by the system of healthcare and health insurance we have in the US.
I mean, in a system of chattel slavery, you see above-normal profits competed away, but that in no way means the system isn't exploiting anyone, because that's not how the harm shows up! And yet still we'd see that argument get batted around in comments like yours:
"No, your owner can't possibly be exploiting you because, when you consider your purchase cost, he doesn't actually make much profit!"
Health Insurance IS a huge racket. Insurance profits are only a small slice. Executive compensation isn't part of profits. The profits of the required sole source medical supplies company isn't part of insurance profits. The contracts, salaries, benefit packages, overpayments, and waste of healthcare systems and pharmaceutical companies aren't reflected in insurance profits. Just looking at the raw profit percentages returned to shareholders is absolutely meaningless.
You have to look at the entire healthcare picture and realize that insurance is the system driving the exorbitant costs. There is no legitimate reason for healthcare prices to be so insane.
> There is no legitimate reason for healthcare prices to be so insane.
these profit margins are why some people claim that the US is actually subsidizing the rest of the world's low cost health outcomes.
These companies make money in the US, at high margins, which enables them to operate at low margins in other more regulated countries.
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>Health Insurance IS a huge racket. Insurance profits are only a small slice. Executive compensation isn't part of profits.
"Executive compensation" is even a "smaller slice" than profits, orders of magnitude smaller.
> I've been trying to talk to people locally, a place with lots of homes built in the woodland-urban interface, about the risks
Its not just the insurance costs either. My neighbor is an architect who now does planning/consultation with the RFS (rural fire service, australia). Its basically de rigueur for people to try and avoid or evade fire sensitive planning controls. Just the most basic concepts like defensible space, eve guards, or nonflammable finishes, let alone adequate on site water storage or site access. People are intentionally building in bushland because they want to be “in trees”, unless they block the view of course.
Even if they understand the concepts and remember black saturday, or a few years back!, it doesnt apply to them. Theres no concept of personal risk & consequences, and theyre right. They will probably get bailed out by volunteers and socialized losses. Just like new developments along riverine flood ways.
At some level, insurance is about spreading out financial risk. Insurance companies would love for every policy to be profitable, but if we let it go that far, it's merely a savings account with negative interest rates. At another level, insurance is about analyzing risk and making it more expensive to take bigger risks. Where do we want the tradeoff between these things? Whatever we choose, we have to have some ability to predict / evaluate risk.
In the face of climate change, places that have been safe for a very long time are becoming unsafe. But I don't see a reason these shifts won't happen over and over as climate change unfolds. It might be worse than mass migrations... migrations to locations which later become dangerous, turning into recurring mass migrations.
How well can we predict where it will be safe in the coming decades and where it won't. Coastal land at or below current sea level (plus storm surge) is fairly predictable, especially where there isn't the population density (and money) to support building sea walls. But with things like rivers changing course (e.g., https://en.wikipedia.org/wiki/Alsek_River), it might become very difficult to predict what's going to be safe down the road. Today we talk about things like 100-year flood plains, but how will we establish flood probabilities when the river that might flood in 10 or 20 years doesn't even exist today?
Are the people who get unlucky with predictions just screwed because their home equity is gone? Or are we going to decide to shoulder the burden together? We're going to find out a lot about humanity, the role of government, etc. as we go through all of this.
Soon, people will realize that the entire economic system that caused climate change in the first place will not save us. Once we stop sacrificing our lives in the name of Almighty Profit, then maybe we can move forward and come up with solutions that aren't just "lol stop living in LA".
>Soon, people will realize that the entire economic system that caused climate change in the first place will not save us.
Disagree. "the entire economic system that caused climate change in the first place" is also responsible for the green transition, including cheap electric cars and renewable energy.
>Once we stop sacrificing our lives in the name of Almighty Profit, then maybe we can move forward and come up with solutions that aren't just "lol stop living in LA".
Alright, what's your solution to "the entire economic system that caused climate change in the first place" that aren't just "lol just stop capitalism"?
The issue is not that people believe that insurance companies are not pricing risk correctly. It's that because there is so little competition in the market, people are aware that insurance companies can charge higher premiums because they operate as an oligopoly.
Your statements contradict each other, don't they?
In the many many complaints I have heard about the insurance industry, nobody has complained about them acting as an oligopoly or about a lack of competition.
Further, pricing is extremely regulated in terms of what can be factored in, so being an oligopoly doesn't have much impact on that.
Insurance should not be for profit, and things like e.g. State Farm suddenly cancelling people's renters/fire insurance just two weeks before the fires (I am one of those people) are what people hate about insurance. No one is arguing that insurance is bad at risk assessment, but rather how they wield their proficiency with it.
Why does State Farm in particular have a moral obligation to insure you against fire if it’s not profitable for them to do so?
To pick random examples of unrelated companies, McDonalds or SpaceX would also refuse to insure you against fire. Why should people hate State Farm for this reason, but not McDonalds or SpaceX?
If State Farm didn’t exist and the state ran insurance instead, and were willing to insure all comers, they’d be subsidizing people who can’t be insured profitably. That’s not crazy on its face (the state subsidizes lots of different things), but it’s at least worth asking why we should be paying for people to live in high-fire-risk areas rather than any number of other things the state could be spending those resources on.
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If you only had two weeks notification, you should file a complaint with the commissioner here:
https://www.insurance.ca.gov/01-consumers/101-help/index.cfm
It's likely that you are not alone, but I've not heard of anybody not getting notification, despite a lot of people not getting renewed.
Thank you, will do.
State Farm is a mutual insurance company, so it's owned by its policy holders. It's not quite non-profit, but it's in the same ballpark. I've gotten money back from State Farm one year when they (we, I guess) made too much money.
State Farm notified its customers in August of its non-renewal (not cancelling) of policies, plenty of time for homeowners to get new policies or fall back to the state fund.
And what is fire insurance? Is that something unique to CA?
My insurance was cancelled but I don’t blame the insurer at all.
CA regulation basically capped their premium increase and my insurer did calculations that said “this is a net negative business”.
If I had a business making a loss I would get out, so why would I blame my insurer for doing the same?