[sixQuarks]

Insurance companies have a vested interest in making sure that healthcare costs keep going up. It’s a counterintuitive notion because you would think they want healthcare cost to go down. The reason they want high cost it’s because they’ll be making that small margin on the higher revenue

[kazinator]

Insurance companies also have a particular interest in making sure that uninsured healthcare costs are sky-high, while they negotiate better insured costs.

[maest]

Incidentally, this is also why tobacco manufacturers don't really mind high cigarette taxes: it puts a higher floor on the cost of a pack of cigarettes, which means the overall profit is larger.

[gruez]

Why does it set a higher floor? The tax goes to the government, the tobacco company doesn't get to keep it.

[maest]

I don't understand your objection. The cost includes all tax.

[gruez]

Suppose the following price breakdown for a pack of cigarettes:

    cost: $3
    profit: $1
    tax: $1
    total price: $5

The government decides to increase the tax by $1, now it's

    cost: $3
    profit: $1
    tax: $2
    total price: $6

As you can see, the total price went up $1, but the tobacco company's per-unit profit is the same. They can increase the price by more than the tax (eg. hiking the price by $1.5 rather than $1), but that's equivalent to hiking the price $0.5 without an associated tax increase, which they can do at any time.

[random314]

Let's say a competitor shows up who manufactures cigarettes at $1.

At a lower tax rate of $1 his cigarette is $3 vs $5.

But at a higher tax rate of $3, it is a $5 vs $7 customer price.

In absolute terms the price difference is the same. However, consumers think in terms of percentages for cheaper items.

[kazinator]

Any added margin that makes your product more expensive, that does not go into your pocket, is bad for business.

It's basically a form of someone stealing from you.

The user was willing to pay $4.50, all of which you could have had, but $0.50 went to a parasitic third party.

We can look at it from the point of view of the transaction between the buyer and seller being arbitrarily robbed of $0.50.

We can also look at it from the POV of the supply-demand curve: fewer units are sold of the more expensive product.

Both these effects hit you: you're selling less because it's more expensive, without you getting any more of the extra per-unit revenue.

[rayiner]

Ask any industry if they want a fat tax on their products to take advantage of the effect you describe.

[dctoedt]

Don't tax you, don't tax me — tax that fellow behind the tree. --- Sen. Russell B. Long (among others) [0]

[0] https://quoteinvestigator.com/2014/04/04/tax-tree/

[lotsofpulp]

Only if the higher profit from higher sales price makes up for the possible decrease in sales from higher price.

[lotsofpulp]

So does every business. But just like every other business, they have competitors too, so they cannot expect their profits to rise simply because they keep increasing their cost of goods sold.

Either way, that is not relevant to the claim that was being contested, which was “insurance companies are profiting extra from covid than they normally would”.

[rsfern]

Interesting point. I read the original point as contesting the idea that insurers are going to have to eat a loss.

In the end I think both perspectives are insightful: insurers aren’t in the red for 2020, but they’re also profiting from COVID less than they “normally would”