Year Single Premium Family Premium
2009 4,996 13,466
2010 5,305 14,301
2011 5,634 15,188
2012 5,984 16,129
2013 6,355 17,129
2014 6,749 18,191
2015 7,167 19,319
2016 7,611 20,517
2017 8,083 21,789
2018 8,584 23,140
2019 9,117 24,575

Check out this chart (and accompanying post). It shows that health insurance premiums will nearly double over the next 10 years if nothing is done to control costs. They double. Suppose we get mandates without a solid public option, so that everyone has to buy from the giants. How much of this staggering increase in premiums will stay with insurance companies? I estimate that in 2016, the 4th full year of the new plan, their coffers will swell by $454.9bn. It will be even greater in following years.

In this post, I estimate that covering 30 million more people with mandated coverage and without a public option will mean $1.39 trillion in increased premiums during the first 8 years of the new program. That is a mind-boggling number, paid for by $773bn in government subsidies to people with incomes below a set level, according to the CBO, and the rest from people who don’t have insurance now and their employers. Finally, I gave a conservative estimate of the increase in pre-tax profits of the for-profits: $35.8bn. These estimates provide a solid case for a public option, a competitor which will force costs down. The CBO estimates that the public option will be 10% cheaper, and I think it will even less expensive.

Just as important as the huge increase in revenues and profits, the companies will increase the amount of money they have on hand. It is natural that an insurance company would have a large portfolio. Insurance regulators set requirements for capital based on the amount of risk. Also, insurance companies collect premiums before they are needed for payment. The more policies they write, the larger that float will be.

The fact that it is a plausible outcome for a well-managed company does not mean that it is good for the rest of us. The more money they have in their control, the more powerful they are. That extra $448.3bn is a club that will give them even more power, and make it even harder to change the system than it already is.

Here’s how I arrive at that estimate. I looked at the 2008 10-Ks of the 10 largest insurance companies according to this list. I also looked at Michigan Blue Cross Blue Shield, which puts its financial statements on the internet. For each company, I found the total revenues for 2008 and the investments, and calculated the ratio. I average the ratios, to get 33.1%.

This figure is analogous to a standard measure for insurance companies, the ratio of premiums to surplus. Surplus is a term used in insurance company accounting meaning the difference between assets and liabilities. Insurance regulators require insurance companies to have a large capital base, and prohibit them from getting too high a ratio of premiums to surplus. The 10-Ks are prepared on a consolidated basis, including both health insurance business and related businesses. The segment definition varies across companies, so it isn’t possible to segregate premiums from other revenues. Net assets are difficult to compare.

I use revenues as a proxy for premiums, and investments as a proxy for surplus. I think ratio of the two is a fair proxy for the standard ratio. It gives us some idea of the financial strength of the insurance company, and should be fairly constant over time, depending on the degree of risk assumed by the company. I believe that companies manage the standard ratio in considering amounts to be held and amounts to be distributed to shareholders through dividends and share repurchases, which reduces investments on hand. Therefore, I think my proxy ratio should be reasonably good at predicting the future asset picture of health insurance companies as premiums increase.

I then apply this ratio to projected premiums for 2016. I explain my projection of premiums in this post. I use the estimate of the number of policies in 2016 in the letter from the CBO to Congressman Rangel, which provides an estimate of the budget impact of HR 3200, including the public option. The projected number of policies is on the chart on the second-to-last page. I assume that 92% of the covered people have a family policy, and the rest have single coverage. I combine these to get total premiums, and apply my average investment to premium ratio to get my estimate of the total investment in each year.

I don’t remember seeing any discussion in the business press about this. Hey Bloomberg: how much do you think the insurance companies will hold in 2016?