A health insurance investment can be a great idea for investors expanding their portfolios. It is not an industry exempt from economic hardship, but it is one that can withstand problems better than other types of investments. This type of insurance is a product that provides necessary services. Most people and companies are not likely to ditch their health insurance in bad times. But they will cut back on it. It is a fairly safe investment as far as investments go, but it also takes a hit in hard times.
Before considering this type of insurance investment, you should have a good idea of the basic workings of it. There are several categories of health care insurance companies. Most of these can be distinguished by the payor structure. Some companies will have payors from all the categories and some will specialize in one. Payors can be individuals, private companies, and government. Most large insurance companies have a basis of several types of payors. Understanding the payors helps you to know better what risks, cash flows, and profitability you are getting into. Of the three payor categories, private companies are considered the most stable. Each type of payor administers the insurance differently and has different products. This can also have an effect on the success of the insurance company.
When looking into such an investment, it is a good idea to draw up an MCR, or medical cost ratio. This will help you crunch the right numbers so that you can see exactly what the medical costs verses the premiums will be. In other words, it tells what percentage of the premiums are medical expenses. A low medical cost ratio makes for a better investing scenario. It is also helpful to compare the rise in medical expenses and pricing over the years. If the two are close to the same, pricing yields are lower and investing a better idea.
A health insurance investment is a great idea because it is generally safe from economic downturn because it offers a necessary service. But it is not completely safe during hard times either. As new employment slows, so does the rate of new members requiring health insurance. Companies cut back on services and raise employee deductibles in an attempt to keep overall premiums lower. That means that the insured will use the insurance less thus affecting the medical costs for the insurance company.