https://www.healthcare.gov/glossary/medical-loss-ratio-mlr
It says 80%/85% of premiums have to go back out as payments for claims.
> Since they have no incentive to increase their margin through negotiation,
I do not see why this would be true. The less an insurance company pays for healthcare, the lower the premiums or can offer and win more business.
I cover this in the second half of that sentence.
Low profit margins/multiple sellers indicates a highly competitive field, which means the businesses must be doing something stay in business.
Competition != Productive Competition
Why are profit margins only 5%? Could be many reasons, including collusion. Insurance companies have teams of lawyers whose job it is to navigate existing regulation, lobby for new ones and to push for ones that hurt competition.
Given how shady and complex the entire industry is, we don’t really have a reason to believe that 5% is an accurate number.