How exactly are outliers like this not "what insurance is for"? I'm curious (not arguing). I could understand that 'self insuring' is a different beast, but isn't the point of insurance in general (not just healthcare), to protect against outliers?
If the company didn't put aside enough money to account for unexpected cases, such as this, arn't they just being negligent (or at the very least causing their own financial problems)?
> the point of insurance in general (not just healthcare), to protect against outliers?
No, the point of insurance is to enrich the stockholders of the insurance company. This might sound like a leftist rant, but it's actually the singe most important thing to understand about the insurance business.
If a policy term doesn't contribute to the bottom line, it's changed to disfavor the policy holder. If a deductible amount eats too much into corporate profits, it's changed to disfavor the policy holder. These facts explain why some companies and individuals choose to self-insure.
If you buy an insurance policy, the policy's payments go into a corporate investment pool that benefits only the company's stockholders. If you self-insure, the funds you set aside to pay claims go into a personal investment pool that benefits you. For the life of me, I can't understand why more people don't know this.
Agreed, the point of 'any' company is to enrich the stockholders.
I was more saying the point of insurance in general to those buying the insurance is to protect against outliers.
Not debating the point that insurance companies are there to make a profit rather than to service people. Agree with what you're saying but it doesn't address what I was asking.
Edit: Also since AOL 'self insured' there wasn't an insurance company at the heart. AOL just decided to cut corners and 'put away money for a rainy day', and was shortsighted on how much to put away, to put it simply
> I was more saying the point of insurance in general to those buying the insurance is to protect against outliers.
Yes, and the basic principle of an insurance pool is to use the pool's size to absorb the impact of an outlier event. The larger the pool, the better it is able to absorb such an event. This means a small company can be a risky place to set up a self-insurance scheme on which the employees depend.
> since AOL 'self insured' there wasn't an insurance company at the heart. AOL just decided to cut corners and 'put away money for a rainy day', and was shortsighted on how much to put away, to put it simply
Yes, and that's a surprisingly common outcome -- it's the downside of self-insurance plans -- often a company or an individual doesn't actually have the resources to deal with an outlier, or a sudden surge in claims is synchronized with a business reversal.
But it's sold to payers of premiums as protection against outliers. And if it's sold as such, but isn't really, then it's fraud. Let a hundred lawsuits bloom.
That's all true, but even gigantic insurance companies are sometimes overwhelmed by a surge in claims. Is that fraud too?
People need to understand that insurance is a kind of gambling -- a bet that claims won't wipe out the fund pool, that a random act of nature won't undermine the actuarial assumptions on which the pool is designed.
If the company didn't put aside enough money to account for unexpected cases, such as this, arn't they just being negligent (or at the very least causing their own financial problems)?