1) medical loss ratio rules mean insurers are expected/required to pass a certain percent of premium on as payment for medical services, in a way that a grocery store is not required
2) insurer is selling you a contract that they will pay your medical bills if you have any - they are NOT retailing you medical services
3)
Brokers quite correctly do not count the value of the shares because they never actually see it. But that's not the way insurance works--while dollars flow in and dollars flow out they are not remotely the same dollars. This feels like someone is trying to lie with statistics.
So you're choosing to punish well-written text?
But also, obviously, they’re being a gadfly for funsies.
Perfect grammar and punctuation is par for any publication.
I know what gp is saying. They want to stay credible to the general public without also bearing the over-polished and verbose hallmark of LLM.
getnormality•56m ago
I don't understand this claim. Doesn't every business have costs to make its goods and services, and revenue when those are sold? A grocery store sells food and uses the money to buy more food, pay its employees, reinvest etc, and the profit leftover goes to the owners. An insurance company sells policies and similarly uses the money to pay claims, pay employees, reinvest, and profit. Why is the insurance company's sales revenue pass-through and the grocery store's sales revenue not?
Update: the replies so far all seem very superficial. Yes, I know that insurance is not exactly the same as grocery stores. This does not explain why they should suddenly be treated differently from an accounting perspective despite what everyone else before this moment has done.
trjordan•46m ago
This is true of life insurance, investment firms, and banks. It's also true of marketplaces that connect buyers and sellers, like Etsy.
Groceries stores are buying from suppliers and selling to consumers, but those are separate operations. If the consumers opt out, the grocery stores (temporarily) still have a full and complete obligation to their suppliers. It's hard to sell to customers without supply, but if you try hard, you could theoretically do that as well.
Somebody with a better financial background might be able to define the nuances of accounting practices here, but there's already a pretty meaningful line that's established. It is kind of weird that health insurance doesn't behave like a financial product.
yepyeppers•31m ago
perrytheplatypu•27m ago
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.
digi59404•32m ago
So it goes something like this
United Health Group -> United Health Insurance United Health Group -> Sunshine Hospital.
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.
gruez•26m ago
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.
mikeryan•29m ago
Based on the source I, personally, don’t find it to be a credible argument
gruez•18m ago
>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%!"
ssivark•26m ago
Suppose you run a brokerage or some kind of marketplace enabling transactions. Should all transactions passing through your platform be considered your revenue? Or only the part that stays with you for the services you provide, while deducting the component which is simultaneously directed to the transaction counterparty?
In one simple perspective, calling these revenue and inventory would make sense only in a world where you hold on to the cash and the goods for extended periods, so they need to be appropriately accounted for in your books among cash flows and balances.
So what should be the correct accounting model for an insurance service that collects premiums and holds on to your money and pays later for services once you avail them?
I imagine that so long as they are taking on the risk of how much service you might avail rather than simply putting a stop at how much you've paid them in advance, then the premiums they collect ought to be considered revenue, to balance against the as yet unknown inventory costs.
cmiles74•15m ago
The thinking here is that because UHG is legally obligated to pay out claims, this money only "passes through" their hands. I believe the legal obligation is the thing here.
Anyway, if these pass through costs (the claims they are legally obligated to pay) are removed from the equation then their revenue number is smaller and their profit margin is larger.
rco8786•10m ago
Lots of businesses and industries have legal obligations to pay money for various things at various times, they don't treat that as pass through...it's revenue and expenses. Money is fungible.
edmundsauto•3m ago