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Trading Lessons from the Most Notorious Business
There really is no business quite like the health insurance business ๐ฅ๐ฐ.

There really is no business quite like the health insurance business ๐ฅ๐ฐ.
It can charge you up to $25,000/year for family coverage and literally provide you nothing in return except a once-a-year check-up and a blood test ๐ฉบ๐งช. It is truly the perfect business model. It collects money every month ๐ธ. You can never cancel it ๐. And it rarely has to pay out any claims, making it the easiest $40 billion of profit in all of the American economy ๐บ๐ธ๐ต.
The health care insurance companies may be the scummiest businesses on earth, but they are also brilliant at what they do, and we as traders can learn a lot from their tactics ๐๐ง .
The first thing insurance companies always do is capitate. This is a fancy word for placing risk limits ๐ซ๐ธ. Basically, no single individual is an uncapped risk. Every policy comes with a hard money stop so that no one chronically ill person can bleed them of their capital ๐๐ต. Usually, most health insurance policies stop payouts after $1 million dollars ๐ฐ. Most of us, of course, have no idea that this exists because fortunately, most of us will never accrue such large medical costs. But you can be sure that the guys on the other side of that trade know their limits, and we should all keep that lesson in mind next time we are mindlessly plowing money into a losing position hoping that it will recover ๐๐ธ.
But if stop losses are the foundation of the insurance business, their most important business practice is discrimination โ๏ธ๐. Yes, no one discriminates quite like the insurance companies. If they had their druthers, they would only offer policies to 35-year-olds who rarely get anything more than a cold ๐คง, have no history of surgery or illness ๐ฅ, and take zero prescriptions ๐ while happily paying them $20,000 a year for essentially โpeace of mindโ ๐ง.
Until they were forced by law to stop it, insurance companies were the greatest discriminators in the world ๐๐, using reams of data analysis to approve only those customers who were never likely to get sick ๐ค. In short, insurance companies always look to make as many โwinning tradesโ as possible ๐๐. They do this by walking away from even the slightest threat of risk ๐ถโโ๏ธโ ๏ธ.
Scummy or not, health insurance companies are masters of controlling their environment by relentlessly discriminating against risk ๐ฏ๐ซ. We can certainly question the morality of their tactics, but we canโt ignore the effectiveness of their approach. Since the only thing we traders ever kill is money ๐ต๐, adopting their methods wonโt compromise our values but almost certainly will improve our results ๐๐.