From Dorm Room Pizzas to Billion-Dollar Health Insurance Companies

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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 [e-mail]

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.

Episode Transcript

Speaker 1 (00:00):
Welcome to another Tuesday morning with Justin.
I'm Justin Futrell, benefitAdvisor at True North Companies,
and today I think we've got agood one.
Okay, I want to ask a questionbefore I jump in.
How do you think healthinsurance companies make money?
Better, inform you to sharewhat I know, seeing the inside

(00:30):
of healthcare.
I want to share an experiencefirst.
So the experience.
It goes back to college days andat Cornell College my buddies
and I ended up starting our ownpizza shop out of our dorm room
and we sold Hot Pockets andfrozen pizzas.
Now we convinced the localgrocery store that, hey, can you
sell us pizzas in bulk, $2instead of $4 each?

(00:52):
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 theprices.
By the time we were seniors wewere selling a $2 pizza at $8.
That's a 75% profit margin.
The reason we could get awaywith it is because there wasn't

(01:13):
any competition At some point intime.
If we raised our prices highenough, there would be someone
that says, hey, I would becontent with a little bit less
profit.
I'm going to start bringing myown solution to the marketplace.
Now, at the end of the day, wesell like 20 pizzas a night.
So we're talking 120 bucks ofprofit, right, and we're just

(01:35):
having fun and giving peoplesome food.
But think bigger.
How does this come into playwith monster companies?
I want to talk about healthinsurance companies specifically
, because that's what I know$371 billion of profit by the
five major insurance companiessince 2010, when the Affordable

(02:00):
Care Act came out.
Why does that matter?
Well, the question becomes well, how'd they make the money?
And you might be surprised tolearn that insurance companies
can't make more than 15% profiton underwriting.
So that means, if they'reintaking a million dollars in
premium, they can't make morethan a 15% profit margin, or in

(02:22):
other words, $150,000.
What happens when you drop afew zeros and now you have a
billion dollars in premium?
Well, now you can make 150million in revenue Pretty good.
Now that premium that they'reholding on to think about the
money you contribute from yourpaycheck every month and throw

(02:45):
in another 70% that your companyis probably paying in addition
to your 30%.
On average, companies paying70%, you're paying 30%.
Take all of that money andthat's what an insurance company
holds on to until you need tohave claims paid out.
So insurance companies maketheir money on investment income

(03:10):
.
And because it's not a pizzashop run out of a dorm room
where you can have an unlimitedpercentage of profit on what
you're making, but in factthere's a limited amount of
profit 15% the question becomeshow can you make that 15%
greater?
You make that 15% greater byhaving a greater number.

(03:34):
This is the challenge and thefrustration, candidly, that I
have with our healthcare system.
It's misaligned incentives inso many pieces of the healthcare
system.
But specifically right thissecond, we're talking about
insurance companies.
Think about that $1 billionrevenue.
We talked about $150 million inprofit If it was $1.2 billion

(03:58):
that they were holding onto inpremium.
Well, 15% of $1.2 billion is$180 million in revenue.
That's another $30 million inrevenue.
How about that?
And in addition to the profitthat they can make on that
premium, that's more money forthem to invest in the stock
market.
The cold hard truth it's hard tobelieve that insurance

(04:22):
companies could care less if youhad 10 surgeries a year,
because if that's true, andsurgeries 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'reable to make more investment

(04:44):
income on the premium that youhave, in addition to that 15% of
underwriting profit.
So until incentives are changedwith the partners in the
healthcare ecosystem, can yousee why we've got a problem on
our hands.
The good news you can choosebetter players.

(05:07):
Yeah, it's great.
You know, if you have 100 ormore people in your company, you
don't have to do what's alwaysbeen done, which, candidly, is
having bad partners who havemisaligned incentives.