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True. Actually, large insurance companies need to spend 85%.
That doesn't make sense. Insurance companies have to pay health care providers for care. The more care costs, the less money is left for insurance companies. In fact, if health care costs are too high then the insurance company can go bankrupt.
That said, the converse is not true: insurance companies don't directly profit by cutting health care spending. That's because they need to use 80% or 85% of their revenue on care. However, cutting health care spending (by delay, denial, etc) allows insurance companies to lower their premiums.
And since people often want the cheapest possible insurance, lower premiums means more customers, which means more total revenue, which ultimately does mean higher profits.
Of course, the key assumption here is that customers will accept worse care if it means lower premiums. This is one of the few industries where you literally get what you pay for.
I think they are saying, even if they must spend 80% of premiums on health care, that leaves 20% for profits/admin. But if a premium is $100, $80 goes to care, $20 to the company. But if the price of care goes up and the price of premiums go up, then a $200 premium means $160 on care and $40 to the company. The company still makes more, even though the ratio of care/profit is the same, incentivizing the company to do what it can to make ALL COSTS go up, and raise premiums to match. If they can get premiums to $1000, that means $200 can be kept.
Sure, but the problem is that they can't control ALL costs, only their own.
If another insurance company manages to reduce their own costs (e.g. by paying anesthesiologists less), then that company will have an opportunity to lower premiums instead of raise them. And since insurance customers are extremely price sensitive, those companies that are trying to get to premiums to $1000 will see their customers switch to the one that keeps premiums at $100 or better yet $80.
All the insurance companies know this, which is why they are all trying to reduce own costs rather than raise them.
But for the most part, patients aren't really their customers. Employers are. They may want to decrease premiums, but making changes is difficult and at most an annual event. It is very, very far from a free market in the US.