This is contrary to GAAP and operationally false. An insurer takes on the risks including the health of the insured pool and cost changes during the covered period. An insurance BROKER or AGENCY only books commissions as revenue, but an INSURER books premium as revenue. Similarly a stock BROKER or AGENT is only acting as an agent and isn’t a party to the actual transaction they execute. Similarly for platforms, auctioneers, or other agents.

I work for an insurance company so can shed some light here as this article is written by someone that clearly doesn't understand how the business model works.

Fundamentally every insurance company is governed by 3 ratios, loss ratio (what percentage of premium is paid to make the buyer of the insurance whole), expense ratio (cost of doing business, paying staff, keeping office lights on, paying vendors) and combined ratio (both of these combined). These are true for any insurance company which writes premium using their own capital, whether its health insurance, life insurance, property insurance, SMB insurance.

The thing this article is missing here is that the "pass through" costs are costs incurred by UHG directly, they are the ones paying the bills. How is this pass through, it's not being passed to the consumer, the only thing I pay is my deductible and retention which is at most a couple of thousand dollars, these are true costs borne by UHG. So in practice if I pay 100 bucks every paycheck, UHG is taking in 2600 bucks worth of premium, using average industry loss ratios which are say 60%, UHG is paying directly 1,560 bucks to care providers for my own care. I'm not paying that, what I pay is a deductible which is treated entirely separately.

I am the biggest insurance skeptic in the world because I think the business model is awful, a business's return on capital averages at 5-10% a year which is truly an awful return for how much capital is required. Insurance companies will make between 0 and 10% of underwriting profit a year (the pure profit from insurance premium minus total expenses) and they usually operate a very large investment vehicle invested typically 70% into bonds/gilts. That being said, this doctor's view of how insurance accounting works by comparing it to a biopharma or a trading brokerage firm is immensely disingenuous.

>United Health Insurance has a profit cap, it’s a % of revenue. Sunshine Hospital has no cap. So Sunshine Hospital charged United Health Insurance X$ and that profit rolls up to United Health Group.

That doesn't really work as a strategy unless UHI cornered the insurance market within a given region, otherwise they'd lose business to competing hospitals. You might then say "hospitals aren't competitive, they're (regional) monopolies!", which might be true, but if that were the case, you'd expect them to raise prices anyways. They're profit maximizing companies after all, not operating out of altruism.

> It explicitly says that United is using standard accounting practices and proposes the “pass through” mechanism as a “better” metric.

>Based on the source I, personally, don’t find it to be a credible argument

Agreed. This just has "if we redefine [commonly used term], then we get a more shocking/favorable number for our cause" vibes. You see this in government statistics as well, eg. "the official unemployment rate might be 4% (or whatever), but if you factor in people who are discouraged and people who are underemployed (whatever that means), it's actually 15%!" or "the official poverty rate might be 10%, but if you redefine 'poverty' to mean 'not being able to raise a family of 4 on a single income', the actual poverty rate is 40%!"

typos mean it's more likely to have been made by a careless human.