Although underwriting and investment income are by far the largest sources of revenue for insurance companies, there are also other avenues from which insurers can earn profits. Some lawmakers may try to revive proposals to further limit insurers' profits, such as the one suggested by Massachusetts Democratic Senator Elizabeth Warren. That's another cash bonanza for insurers, who allow the buyer to bear all the risks of maintaining an active strategy, and walk away with the cash if the client exceeds the inclusion schedule or fails to keep up with premium payments. Insurers "are not only able to profit," said Katherine Hempstead, a policy adviser at the Robert Wood Johnson Foundation who studies health insurance markets.
The companies' staggering profits from the pandemic contrast with the dozens of small doctors' offices and rural hospitals struggling to stay open. And while insurers' profits are limited by the Affordable Care Act, with a requirement that consumers benefit from those excesses in the form of rebates, no one should expect an immediate windfall. In the 1890s, lumber companies in Tacoma, Washington, paid two enterprising doctors 50 cents a month to treat their employees. If the risk is low, the insurance organisation will happily offer a policy to a customer, knowing that their risk of actually paying for that policy is serenely low.
The original purpose of health insurance was to mitigate the financial disasters caused by serious illness, such as loss of home or job, but it was never intended to make health care cheap or to serve as a cost-control tool. It is how the insurance company manages those premiums in the midst of receiving them and paying a death benefit (if there is a payout) that decides how productive that insurer will be. Consumers are likely to be entitled to millions of dollars in refunds under Obamacare rules that limit companies' profits. To encourage this trend, the federal government ruled that money paid for employee health benefits would not be taxed.
Insurance organisations then take each of those premium payments and invest the money, thus expanding their profits. In 1993, before the Blues became a for-profit entity, insurers spent 95 cents of every premium dollar on medical care, called their "medical loss ratio". The other costs you pay for your health care (such as co-payments and co-insurance) are paid to your health care provider (hospitals and doctors), not to the insurance company. Reinsurance is insurance that insurance companies buy to protect themselves against excessive losses due to high exposure.