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Posted by on Sep 21, 2009 in Health | 16 comments

Are Health Insurance Profits Really A Problem?

I often read that health insurance company profits are the major problem in the system and if only insurance was run by an entity without profit motive then things would be OK. This is uh, not the case at all.

As NPR notes, insurance profits make up approximately 1% of total health expenditures. By contrast, health cost inflation is averaging 5-8% a year. This means that eliminating insurance profits would give us a one time savings of approximately 2 months of inflation. Talk about a drop in the bucket.

Now, I’ve been reading many testimonials from doctors and looking at stats, and insurance is a major problem — one of the top ones — but it’s not the profits, it’s the wasted time dealing with the bureaucracy to get reimbursed. Similarly, a lot of the socialized medicine countries save tons of money not because of lack of profit motive, but because they have standardization of technology and practices across the system. Our IT in health care is a complete mess and RAND projects that simple adoption of technology will save upwards of $80 billion per year. [And that’s with current technology, as it improves and becomes more powerful that number will increase greatly.]

The same goes for mandating insurance, although this topic is trickier to address because it is very heterogeneous in its effects. While there will be money saved through mandates, it will pale in comparison to overall cost inflation, while exacting a huge political toll.

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