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Seconded. ACA puts a cap on the profits of insurers. They are not just increasing the premiums and pocketing the difference. Most, if not all of the difference
by smnrchrds 10y ago
Seconded. ACA puts a cap on the profits of insurers. They are not just increasing the premiums and pocketing the difference. Most, if not all of the difference is going towards medical care by law.
"MLR measures the share of health care premium dollars spent on medical benefits, as opposed to company expenses such as overhead or profits. For example, if an insurer collects $100,000 in premiums and spends $85,000 on medical care, the MLR is 85%. In general, the higher the MLR, the more value a policyholder receives for his or her premium dollar. The ACA requires an annual, minimum 80% MLR for individual and small
group insurance plans, and an annual, minimum 85% MLR for large group plans." [1]
Source: https://fas.org/sgp/crs/misc/R42735.pdf https://fas.org/sgp/crs/misc/R42735.pdf
- jrs235 10y agoSo insurance is bounded by cost plus pricing now. They have no problem if actual health care costs go up, their bottom line profits go up too! The insurance companies interests are now misaligned. Yeah they want to keep costs down to increase their spread, but if the spread is limited and allowed now they have no problem if hospitals charge $200 for what was a $100 procedure last year because $30 is more than $15 and they'll just increase premiums!
- phil21 10y agoI never understood why this is not glaringly obvious before anyone implements such a plan. Or maybe it was and this was intended? Seems just as likely at this point. I mean, this is a constant joke in professional circles. If you are hourly billing and you can use your shitty talent to create something in 8 hours that your good talent would create in 1 - it's usually economically beneficial to have the worse employees do the work as it's more profitable overall. Up until the point where you lose the customer - but in this case that's not a concern.
- will_pseudonym 10y agoIt's right up there with excess taxes on gambling and tobacco. Governments become dependent on those excesses and are disincentivized to decrease the activities they're ostensibly trying to lower.
- daveguy 10y ago> excess taxes on gambling and tobacco You may be mishearing the term "excise tax". An excise tax is a tax on any specific good, such as tobacco or gasoline. Those taxes are included in the cost of the good (it just costs more at the pump or on the shelf). Yes, they are typically used to reduce consumption, or to pay for costs associated with consumption (eg roads).
- will_pseudonym 10y agoI'm aware of what excise taxes are, but I see why it might seem like that's what I meant, because I wasn't really explaining what I meant by that phrase. By "excess tax", I mean taxes in excess of the cost of the behavior they're trying to regulate. Both of these examples are both excise taxes, the rates of which are in excess of the costs borne to society of those activities.
- sesqu 10y agoDisincentivizing taxes are usually very profitable, because they're targeting goods that are considered overly desired. Their effectiveness is not too clear, but it is commonly accepted that they do reduce consumption. For example, a recent study on soft drink taxes concluded that retailers absorbed half of the extra cost to keep consumption high. An alternative income source might be luxury taxes. There are a number of luxuries where consumption correlates positively with price - but it would be politically difficult to implement a tax on extravagance.
- gleb 10y agoIts safe to assume that it was obvious to everybody involved. And therefore was quid-pro-quo for passing ACA.
- mooreds 10y ago> but in this case that's not a concern Why? It seems that if premiums are rising relentlessly for one company that the insured will seek out other companies, and hence that one company will "lose the customer". Or am I missing something?
- jrs235 10y agoTo add to this, before, insurance companies tried pushing care costs down and tried to keep premiums lower in order to compete with other insurers. Now with a mandate for coverage the competitive pressure to keep premiums lower in order to steal customers away from others and induce new uncovered buyers went away. A silent industry wide "gentlemen's" agreement now exists. Don't compete on lower premiums, let health care costs go up so they all benefit. It's easier to allow costs to go up and profit more by passing costs onto customers than it is to compete on having lower premiums by reducing costs and being more efficient. You can only cut expenses so much, but the sky is the limit to profits if cost plus pricing is in play and costs go up for the entire industry.
- abalashov 10y agoSo insurance is bounded by cost plus pricing now. They're defence contractors now! :joy:
- jrs235 10y agoWhy repair a tire when it makes "financial sense" to blow up the truck and order a new one?!
- cmdrfred 10y agoIf you've ever run a business 20% profit is gigantic. Your local supermarket runs margins around 2 - 3%
- jtuente 10y agoThat 20% also covers employee salaries, building and maintenance costs, whatever IT infrastructure is needed, etc. That's not net profit like the 2-3% supermarket number you offer.
- smnrchrds 10y ago20% is not the profit. It's the maximum they are allowed not to pay to healthcare providers. Most of it will probably be spent of the cost of running their business: salaries, office space, advertising, office supplies, etc.
- mythrwy 10y agoThe huge tower skyscraper in the middle of town... Seriously, something is wrong with the whole setup. ACA does address some of it but it has jacked my premiums sky high. Single Payer is the answer in my estimation. The sooner we come to this and stop fiddling around trying to make people we shouldn't happy the better off we will be.
- 10y ago
- ChuckMcM 10y agoIt is unfortunate it does not put a cap on the profits of medical providers. Hence the 'pain cream' fraud[1] and others. Sunlight is an amazing disinfectant and it is my hope that our government mandates every doctor and facility publish the total cost of every prescription and procedure they employ. We will collect that data and disinfect the high cost of health care. [1] https://www.fisherbroyles.com/marketers-for-compounded-pain-creams-indicted-in-massive-health-care-fraud-and-kickback-investigation/ https://www.fisherbroyles.com/marketers-for-compounded-pain-...
- CalChris 10y agoJust to be clear, medical insurance != medical providers. The cap that the ACA set was on insurance companies. And it would be good to put a cap on the profits of medical providers that are paid by the ACA coverage. That however is very complicated. By comparison, Bush's Medicare Part D prevented the Feds from even negotiating drug prices. Its author, Billy Tauzin, is now a Big Pharma lobbyist.
- ChuckMcM 10y agoYup, and medical providers (like the compounding pharmacy in the pain cream case) need some attention as well and that is missing in the ACA.
- cmiles74 10y agoI agree wholeheartedly. In my opinion, insurance providers and providers of health care (hospitals in particular) are trapped in a co-dependent cycle. Capping one without the other seems short-sighted to me.
- BurningFrog 10y agoThe insurers are actually losing billions on the ACA plans. This is why they're abandoning it, and why the system is in its infamous "death spiral".
- deleted 10y ago[deleted]
- basch 10y agoa cap on profit as a percentage makes it beneficial for insurance companies when medical costs rise ...
- merpnderp 10y agoThe cap is a percentage of cost, a truly evil incentive to encourage ever increasing health care costs.
- jonlucc 10y agoExcept that premiums have increased slower in the 5 years after ACA than the 2 5-year periods before [1] and the rate of expenditures, while not decreasing, is basically unchanged after ACA [2]. [1] http://www.factcheck.org/UploadedFiles/2015/02/kff-chart.png http://www.factcheck.org/UploadedFiles/2015/02/kff-chart.png [2] http://data.worldbank.org/indicator/SH.XPD.PCAP?end=2014&locations=US&start=1995&view=chart http://data.worldbank.org/indicator/SH.XPD.PCAP?end=2014&loc...
- gleb 10y agoDisputed at best, the opposite reality at worst (i.e. it bent the cost curve up): http://blogs-images.forbes.com/theapothecary/files/2016/04/Slide1.jpg?width=960 http://blogs-images.forbes.com/theapothecary/files/2016/04/S... It was the recession.
- mgkimsal 10y agoThis was not my experience at all, at least as someone purchasing directly (not through an employer). Before ACA, our premiums went up ~5% per year - 8% one year - every year was under 10%. Since ACA, I've seen increases of 25%, 20%, 20%, 25%, then 11% then 13%. This is in NC with Blue Cross - the numbers possibly were different elsewhere (was in Michigan before that but wasn't paying as much attention, unfortunately). The price increases I was seeing seemed primarily in line with inflationary numbers pre-ACA; post-ACA they seem to have no correlation to inflation, and seem to have more to do with a much larger overall cost for the insurance company covering more people, no lifetime caps, more services covered, etc. EDIT: On, that factcheck chart - that looks to be showing premium increases for employer-provided health insurance. Employers cutting back their contributions to the premium would account for much/most of those increases. Effectively, it doesn't say anything about the actual insurance premium increases, only what employer-covered workers were having to pay - in my view, that's a big difference.
- will_pseudonym 10y agoACA puts a cap on the profit margins of insurers. It does not put a cap on the total profit of insurers. Mandatory minimum medical loss ratios (MLR) actually could have the opposite of the desired effect. To maintain $X in profits that they enjoyed before the minimum MLR, an insurance company would just need to increase total premiums and benefits. This means that they're less incentivized to reduce benefits/premiums, since their profits rise when both rise. It also more strongly encourages mergers of insurance companies, reducing competition.
- lxmorj 10y agoI used to work for a utility company and there was a huge aversion to any innovation that drove costs down. Guaranteed ROI is incredibly counter-productive as a regulatory measure.
- RA_Fisher 10y agoGotta keep that cost basis high to apply the ROR against! Build a big nuclear reactor paid for by the rate-payers pass go and collect 8-10% ROR!
- smallnamespace 10y agoThere's actually little incentive to do this because increasing the cost basis usually costs more investor dollars.
- RA_Fisher 10y agoNot if they get pre-approval in a rate case. Well and like the OP mentions it's often done by overlooking efficiency gains.
- amluto 10y ago> ACA puts a cap on the profits of insurers. They are not just increasing the premiums and pocketing the difference. Unfortunately, I think it's percentage cap, not an absolute cap. So, if you're an insurer and want to increase profits by a dollar, you need to increase costs by a few dollars.