How Health Insurance Providers Make a Profit 1: Introduction
All that Wonks Anonymous has heard or read about Health Policy Reform leads him to believe that any reform that may occur in the near future will include private health insurance providers as an integral part of health care finance and administration. This being the case, Wonks Anonymous feels that it is crucial that the public have a good knowledge of these entities and their behavior.
Wonks Anonymous believes that profit is central to the motivation of all private health insurance providers. His experience of nonprofit providers has shown not enough difference for him to develop a different behavioral model for them. As an economist he proposes a simple model for the behavior of profit seeking insurance providers: Health insurance providers will pursue those activities that promise them profit so long as they are not too complex or costly and they do not carry the threat of likely punishment.
So what opportunities do health insurance providers have to make or increase their profits? Wonks Anonymous believes that there are four main areas for entrepreneurial creativity:
- Pricing, raising or lowering prices to extract more from the consumer or to attract inexpensive consumers, gain market share and so on.
- Cost Control, delivering effective quality health care at a lower price or paying providers of health care less for their services.
- Lowering Product Quality, dropping coverage for particular services or increasing the consumer's share of the cost for services.
- Avoiding consumers who are likely to need health care.
The first three paths to profit are variants on normal business practice. The last is unique to the insurance industry and has played a particularly important role in the decisions of health insurance providers.
Obviously this is to be continued.
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