Affordable healthcare has become something of an oxymoron in the United States, considering the outrageous inflation of medical services perpetrated throughout the industry over the last several decades. In fact, the cost of healthcare in the U.S. is much higher than anywhere else in the world, and high medical costs equate to high-priced insurance. This was one of the many reason the Affordable Care Act (ACA), or Obamacare, came into existence. It was designed not only to provide affordable health insurance to the formerly uninsured, but also to regulate the health insurance industry as a whole. What you might wonder is how insurance companies make money, and how they will continue to do so now that Obamacare has taken effect.
There are two main ways insurance companies make money. First, they collect premiums from consumers. When you purchase any type of insurance policy you pay monthly or annual premiums for coverage. You might be tempted to argue that you will get this money back, and perhaps even more when you get sick and your insurance provider has to pay out on your claim. Just think about how often most people get sick, though. Suppose you pay several thousand dollars a year in premiums and only go in for your regular checkups, which may amount to only several hundred dollars in care. The insurance company makes a lot of money this way in a given year.
What about major payouts for serious injury or illness? These instances must balance the scales because insurance companies are forced to pay thousands upon thousands of dollars on claims. In the past, this was not a big problem because health insurance providers weighed the risk of every customer and set premiums accordingly, charging more for those that were more likely to file claims (such as for women, since they might get pregnant) and even denying policies to high-risk candidates like those with preexisting conditions.
Astute observers will at this point mention that Obamacare does not allow for discrimination when it comes to health insurance. Those with preexisting conditions can no longer be denied coverage, nor can insurance providers use discriminatory practices in pricing. Don’t fret – insurance providers will still make their money thanks to federal and state funding, as well as their second source of income.
In addition to earning money from the premiums paid by users, health insurance companies take a page from banks and invest your money. It’s not exactly your money any more, but in a sense your insurance provider is holding it in trust for such time as it may be needed to pay your medical bills. In the meantime, there’s no reason to leave it sitting around.
Instead, insurance companies take the money you give them and place it in banks, the stock market, real estate, and scads of other investment opportunities. This is how they make their real money and how they continue to thrive even when they have to pay out on claims. So don’t worry about how these companies will stay in business now that they have to provide health insurance policies to everyone, regardless of risk factors. Insurance providers that invest wisely will continue to thrive.
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