Tuesday Morning With Justin: Healthcare, Leadership & Life
Tuesday Morning With Justin: Healthcare, Leadership & Life
From Dorm Room Pizzas to Billion-Dollar Health Insurance Companies
Ever wonder why healthcare costs keep climbing despite supposed regulations? The answer lies in a surprising insight I gained from running a pizza business in my college dorm room.
At Cornell College, my friends and I sold $2 frozen pizzas for $5 (eventually $8) – a 75% profit margin we could maintain solely because we had no competition. This simple business lesson reveals the troubling mechanics behind our healthcare system, where major insurance companies have accumulated a staggering $371 billion in profits since 2010.
The system operates on a counterintuitive principle: while insurers face a 15% cap on underwriting profits, they make their real money by investing your premium dollars before paying claims. This creates a perverse incentive where higher healthcare costs actually benefit insurance companies. When medical expenses rise, insurers can justify collecting more premium dollars – giving them both a larger 15% profit slice and a bigger pool of money to invest.
The cold truth? Insurance companies may not mind expensive surgeries or treatments because these costs justify premium increases the following year. Every premium dollar increase means more investment capital and higher profits for them, but higher costs for you and your employees.
For businesses with 100+ employees, there's hope. You can break free from this cycle by choosing partners with incentives aligned with controlling costs while delivering quality care. Stop doing what's always been done with bad partners who profit from your rising healthcare expenses. Take control of your healthcare strategy and choose a better path forward.
Music by Alex Lambert.
Contact Justin via text 740-525-5259 or via email JFutrell@TrueNorthCompanies.com
I welcome the opportunity to hear your feedback from this episode!
Thanks again to my musically gifted friend Alex Lambert for the music. Also thanks to Kevin Asehan for the edits.
Welcome to another Tuesday morning with Justin. I'm Justin Futrell, benefit Advisor at True North Companies, and today I think we've got a good one. Okay, I want to ask a question before I jump in. How do you think health insurance companies make money? Better, inform you to share what I know, seeing the inside of healthcare. I want to share an experience first. So the experience.
Speaker 1:It goes back to college days and at Cornell College my buddies and I ended up starting our own pizza shop out of our dorm room and we sold Hot Pockets and frozen pizzas. Now we convinced the local grocery store that, hey, can you sell us pizzas in bulk, $2 instead of $4 each? And they said, sure, go ahead, buy 20 and we'll give you a half off. We said, amazing. So we sold those $2 pizzas for $5. And each year we raised the prices. By the time we were seniors we were selling a $2 pizza at $8. That's a 75% profit margin. The reason we could get away with it is because there wasn't any competition At some point in time. If we raised our prices high enough, there would be someone that says, hey, I would be content with a little bit less profit. I'm going to start bringing my own solution to the marketplace. Now, at the end of the day, we sell like 20 pizzas a night. So we're talking 120 bucks of profit, right, and we're just having fun and giving people some food. But think bigger. How does this come into play with monster companies?
Speaker 1:I want to talk about health insurance companies specifically, because that's what I know $371 billion of profit by the five major insurance companies since 2010, when the Affordable Care Act came out. Why does that matter? Well, the question becomes well, how'd they make the money? And you might be surprised to learn that insurance companies can't make more than 15% profit on underwriting. So that means, if they're intaking a million dollars in premium, they can't make more than a 15% profit margin, or in other words, $150,000. What happens when you drop a few zeros and now you have a billion dollars in premium? Well, now you can make 150 million in revenue Pretty good. Now that premium that they're holding on to think about the money you contribute from your paycheck every month and throw in another 70% that your company is probably paying in addition to your 30%. On average, companies paying 70%, you're paying 30%. Take all of that money and that's what an insurance company holds on to until you need to have claims paid out. So insurance companies make their money on investment income. And because it's not a pizza shop run out of a dorm room where you can have an unlimited percentage of profit on what you're making, but in fact there's a limited amount of profit 15% the question becomes how can you make that 15% greater? You make that 15% greater by having a greater number.
Speaker 1:This is the challenge and the frustration, candidly, that I have with our healthcare system. It's misaligned incentives in so many pieces of the healthcare system. But specifically right this second, we're talking about insurance companies. Think about that $1 billion revenue. We talked about $150 million in profit If it was $1.2 billion that they were holding onto in premium. Well, 15% of $1.2 billion is $180 million in revenue. That's another $30 million in revenue. How about that? And in addition to the profit that they can make on that premium, that's more money for them to invest in the stock market.
Speaker 1:The cold hard truth it's hard to believe that insurance companies could care less if you had 10 surgeries a year, because if that's true, and surgeries maybe $10,000, $30,000, $100,000, they don't mind, because it's an opportunity to raise premium the next year. If premium is raised, you're able to make more investment income on the premium that you have, in addition to that 15% of underwriting profit. So until incentives are changed with the partners in the healthcare ecosystem, can you see why we've got a problem on our hands. The good news you can choose better players. Yeah, it's great. You know, if you have 100 or more people in your company, you don't have to do what's always been done, which, candidly, is having bad partners who have misaligned incentives.
