If we start making these documents too easy to read lawyers across the country will be out on the streets begging for work! Health insurance, auto loans, mortgage agreements, credit card statements and even something as simple and crucial as a drug prescription can be overwhelming for the most educated consumer. Innovation and education take time from both parties to engage in constructive dialog, but can prove to save money, heartache, and even lives. One of the biggest lessons I have learned from being a designer is that while I might understand a blueprint after reviewing it for ten minutes a client could have it for ten days and still not know what is going on. We need to be able to drop the 'designer' (lawyer, doctor, architect, etc) talk, and engage consumers on a more simplistic level. No matter how great a design may be, it is as only as affective as the first time user perceives it.

Since I work in insurance as an actuary, although not health insurance, I can maybe offer a different perspective. A lot of companies don't sell directly to consumers because individuals don't buy health insurance. They market to agents who then in turn market the product. The agent then sells this product to either individuals or companies. The advantage of going through the agent is that the agent can sell products from multiple companies. It's not common to sell insurance to individuals also not cost effective so now agents are focusing on selling to companies. Sometimes these companies are professional employer organizations (PEO). These companies basically shop around for benefits that smaller companies can offer to their employees. So now we have 3 middlemen before the actual insurance reaches the consumer: The agent, the PEO, and the employer. Each middleman collects a fee down the way of course. With this many layers, it's not easy for the insurance company to explain coverage forms to the actual insureds.

Unfortunately, the government provides disincentives for the insurance companies to eliminate the middlemen and sell directly to consumers. I looked into opting out of my company health plans and getting my own because I'm young and healthy, but the tax deductibility of the employer health care gave it a huge leg up. If your employer offers health care, you are not allowed to deduct individually purchased health care. The insurance company might as well keep on selling products through their agents.

Now on transparency, every single form that insurance companies use is on file with your state insurance department and is available for public viewing. Not only that, your state insurance department approves those forms as being fair and understandable. The #1 reason these aren't very readable is that any ambiguity in the policy is ruled in favor of the individual. That means the wording in your policy and forms need to be extremely precise. Even then, lawyers are knocking at the insurance company doors every day. Another reason that these forms are complex is that your state insurance department isn't doing their job in mandating the forms being easily understandable. The state of Florida requires that every form have a Flesch ease of reading score under a certain level.

In terms of insurance profitability, generally between 70 to 90 cents on your dollar goes to paying losses. This is known as the loss ratio. The other 10-30 cents pay expenses to get business and the remaining goes to profit/(loss). I found a page showing commissions at 9% for health insurance. http://www.or.regence.com/agent/commission/individual/ This obviously varies by company and by state, but let's call this 10 cents on the dollar to make things simpler. Now there's 20 cents on the dollar left to pay expenses. Servicing the claims requires a lot of staff so lets say this is another 10 cents. There's 10 more cents left to pay the salaries and profit. If I have to guess, about 5 cents is left after paying salaries. So now the insurance company is only making a 5% profit from writing insurance. It's a pretty meager amount if you ask me. Since the insurance company collects money up front and pays it out later, it does have the chance to invest that money. A good insurance company needs 10% of investment income to get a 15% profit which would be low compared to the Fortune 500 companies.

Ken,

thank you for a great clarification. VERY interesting!