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Comment by jamesbressi | Hacker News Reader

Unemployment+more_elderly+healthy_young_uninsured=non-sustainable-business

There are many young entrepreneurs in this community. With youth we feel invincible and aren't typically "unhealthy".

So, do you insure yourself? Many 20 somethings I know do not. This LA Times article discusses if we even need "health insurers" and explains what we all know: For health insurers to be profitable, they need young healthy people to have policies and pilfer elderly sick people.

Now that the baby boomers are here and for the first time in history we have more people that are near/over the age of retirement than under the age of 5, how can insurers make money without having premiums go through the roof?

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The problem is that it is no longer an "insurance" system. Insurance should be for an out-of-band emergency illness/treatment, which cannot be handled via out of pocket expenses. In the US, insurance companies have become payment gateways since people tend to use it for every silly thing like minor illnesses.

The only way in which ANY insurance business can be profitable is if the circumstance that is insurance is random and un-predictable (think auto-accidents, earthquake, flood, fire). If there is any way to predict the incident, the insurance company will do everything to game the system and optimize their profits, as will the patients.

"...how can insurers make money without having premiums go through the roof?"

Easy. By getting health insurance "reform" passed in congress that requires by law that all those young people get health insurance as well, without actually substantially changing anything else.

Making young people get healthcare is what the system needs. Health insurance companies can't make a profit (or break even) if they only insure the sick people.

In all honesty though, I think health insurance companies should all be required to be not-for-profit. That's how Germany and japan's systems work. They have their own problems, but they're vastly better than ours.

Switzerland's system is for-profit, but otherwise pretty-much the same than Germany's or Japan's, and it works just as well. The two crucial points are that everyone in the country is required by law to have health insurance (thus distributing the cost), and that if a company offers health insurance, they have to accept anyone who wants it (thus preventing cheap plans for the healthy and outrageously expensive ones for the sick). IMO, these two provisions make the system work well. And even though it's government intervention, it actually makes the market more competitive by leveling the playing field: all insurance companies have to compete with each other.

IIRC the Swiss government requires all insurers to offer plans with a certain baseline level of coverage, and the insurers aren’t allowed to make a profit on those plans. The profit comes from plans that offer goodies above and beyond the baseline.

I think they are allowed to make a profit on the baseline insurance, they just usually don't in order to attract people with low rates. On the website of the Bundesamt fuer Gesundheit and on Wikipedia I couldn't find any mention of such a regulation. It wouldn't make a big difference anyway, as you say, the profit comes from the extras (and from having an efficient administration!).

Actually, I seem to recall reading somewhere that after the US, Switzerland pays the most for healthcare. That said, I doubt we'll be able to remove profit from health insurance companies in the near future, so it's kind of a moot point. :-)

Wow, according to some quick googling that's true. I didn't expect that at all, as everyone here is paying very little for their health insurance. A basic one with no frills costs you about 250 CHF =~ 250 USD per month, and that's with some of the highest salaries in Europe. So the rest of the spending must be government subsidies for people with low income and the hospital funding, which the government partly pays. With taxes being lower than in most Western European countries, it's still surprising.

> For health insurers to be profitable, they need young healthy people to have policies and pilfer elderly sick people.

That's not true. To be profitable, they need the same thing that every biz needs - more revenues than expenses.

You can be profitable insuring any group - you just need to charge members of that group more than it costs to cover them.

If you think that any group is being hosed, set up an insurance company that covers them and no one else. Charge them what you think they cost (plus a bit so you're profitable) and steal customers from companies that charge more. If you're right, both you and your customers will benefit significantly.

Insurance is a way to reduce variance. However, the value of reducing variance has limits. If price charged to a group significantly exceeds their perceived average costs, they won't pay and will go bare.

How much are you willing to subsidize someone else's costs?

People complain about the you-must-buy-insurance provisions of the of the proposed health insurance reform, but there’s no way around it.

The vast majority of Americans seem to agree that it’s morally obnoxious to charge people higher premiums just because they have a pre-existing health condition that makes them more likely to require care. So, under the proposal, insurers are restrained from doing that.

Under that kind of pricing system, healthy people have an incentive to put off buying insurance until right before they really need it, and if everyone does that, then the premiums for folks who have no choice will really go through the roof. So there’s the requirement for everyone to buy insurance.

If the premiums are oppressively high, then people at the lower (and even the lower-middle) end of the income scale will still have an incentive to just go without insurance and pay the penalty for non-compliance. So there are subsidies to make it easier for households in those income brackets to buy insurance.

For health insurers to be profitable, they need young healthy people to have policies and pilfer elderly sick people.

Same as any other business. If banks want to make loans, they have to have deposits that people don't want to touch. If you want to make money on the stock market, someone has to make the opposite bet against you. If you want to make money selling airline seats, you have to assume that you'll sell every one.

Assuming other people will do something (or are wrong about something) is the basis of a lot of businesses. Nearly all of them, in fact.

The difference is that banks provide economic incentives for people to deposit money. What incentive is there for a 20-something to spend $200/month for something they will probably never need?

The incentive is that they will have coverage when they need it. Everyone will need coverage eventually because everyone gets old.

That incentive can't exist as long as insurance companies exclude people for pre-existing conditions, change rates, etc. Noone wants to pay into the system that they know is setup to not pay out.

The incentive, for me anyway, is that I can afford $200, and now I never have to worry about "what if I get cancer" or "what if I'm in a bicycle accident and need major surgery and months of physical therapy". I mean, both situations are bad, but I won't have to worry about "how will I pay for this" in addition to "how much longer am I going to be on Earth". IMO, it's money well spent. So far, my insurance company has won in terms of dollars made, but I've won in terms of peace of mind.

Not everything is zero-sum.

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