Their overhead (e.g. their accountants and actuaries and so on) spend a lot of time inserting paperwork and delays in between hospitals and patients, fighting hospital invoices and fighting patient claims, doing marketing, and any profit the insurance company makes is money customers "spent on healthcare" which didn't end up being spent on anyone's healthcare.
> "Health insurance companies in the US must pay 80% of premiums to providers."
How was that figure decided upon, and why isn't it higher? Why isn't it "pay overheads and salaries, and return the rest to the customers"?
The benefits of allowing people to make money by starting businesses are a separate discussion. I only meant to say that insurance companies are already legally prohibited from making "insane profits".
But to answer your question, there are many people looking to invest their time and money into profitable enterprises. Because insurance is a good that is very beneficial for society, we want people to invest in making it a thing. Therefore, we set up a system where the people who invested in its creation get a tiny fraction of the benefit it generates. There are many areas of life where this works great, like providing food and shelter, and I guess it wasn't obvious that insurance would be an exception for some reason.
The actual minimum medical loss ratio is 85% for most large health plans. In practice most of the large payers are at a higher ratio due to competitive pressures. As to how that figure was decided upon, when Congress passed the Affordable Care Act (Obamacare) they just picked a number that seemed reasonable — it wasn't based on a quantitative economic analysis or anything like that.
> "Health insurance companies in the US must pay 80% of premiums to providers."
How was that figure decided upon, and why isn't it higher? Why isn't it "pay overheads and salaries, and return the rest to the customers"?