Health insurance companies earn their money in basically two ways. First, they collect premiums from people who buy health insurance with goal of paying out less in claims than they collect. For example under the new Affordable Care Act insurance carriers have to spend 80-85% of their premiums in health care with the remaining 15-20% for overhead and a small profit.
The second way insruance compaies earn income is from investing their reserves in marketable sercurities, bonds and real estate. Carriers need to maintain reserves for financial stability and based on government regulations.
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The second way insruance compaies earn income is from investing their reserves in marketable sercurities, bonds and real estate. Carriers need to maintain reserves for financial stability and based on government regulations.