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I've been wondering for a while now why health insurance companies exist at all. They introduce a massive bureaucracy and massive costs and provide very little

I've been wondering for a while now why health insurance companies exist at all. They introduce a massive bureaucracy and massive costs and provide very little value. They evolved from a reasonable idea into a monster that just drains our system and do not provide enough value to justify their existence in my opinion.

Buttons840 9y ago
Yeah. I've worked a few places in the healthcare industry, and I've always felt that I'm part of some ancillary service that would be better if regulated and automated. For healthcare to get cheaper the system must be made smaller, people will have to find new jobs.
conanbatt 9y ago
And yet, health insurance companies have very low profit margins, the lowest amongst the insurance companies. So who is getting all the money?
- wu-ikkyu 9y ago
  Pharmaceuticals
  - conanbatt 9y ago
    ding ding ding. These ones take most of the share. It is quite incredible that the U.S., the symbol of freedom, can't freely import drugs from abroad. Considering the rampant use of pharma specially, dropping the costs 1/2 of meds would lower the cost of healthcare overnight by an enormous amount.
    - tmnvix 9y ago
      Yep. An interesting bit of data that highlights just how profitable this industry can be comes from the wikipedia page for McKesson Corporation[1]: > On June 24, 2013, The Wall Street Journal reported that McKesson Chairman and CEO John Hammergren's pension benefits of $159 million had set a record for "the largest pension on file for a current executive of a public company, and almost certainly the largest ever in corporate America." A study in 2012 by GMI Ratings, which tracks executive pay, found that 60% of CEOs at S&P 500 companies have pensions, and their value averages $11.5 million. [1] https://en.wikipedia.org/wiki/McKesson_Corporation https://en.wikipedia.org/wiki/McKesson_Corporation
      - Pokepokalypse 9y ago
        yes, and before anyone says: "but muh R&D funding!" -- these companies generally have marketing budgets that are 2-3 times the R&D budget. (plus, most basic research is public or university funded). "but muh FDA certification costs" - - there are huge tax carve-outs for these. It's not a main driver. And no: marketing is not necessary for these products. TV commercials and other ads to public: not necessary.
        wu-ikkyu 9y ago
        Also worth noting that the US is 1 of only 2 countries in the world which allows direct advertising of drugs and also is the #1 per capita spender on drugs.
        conanbatt 9y ago
        Its incredible to me that an ad for prescription drugs can target consumers and pay off. I understand aspirin or over the counter stuff, but "ask your doctor about this drug" pays off? How is that reasonable at all.
- allannienhuis 9y ago
  It it too tin-foil-hat to think that the majority of shareholders in health insurance providers are medical professionals who benefit from the arrangement?
  - conanbatt 9y ago
    Providers get a decent slice, specially big hospitals and specialists. Doctor pay is really high in the US and its very regulated. Its expensive to be a doctor (long schooling, expensive mal praxis insurance), license ceilings, state-licensing and effective banning of doctor importation. Doctors get a decent share of the cost (1/10 i read somewhere), buts its still not the bulk. Nevertheless, just allowing doctors to come in and have unlimited licensing would hit costs a lot.
- javadocmd 9y ago
  It's a gigantic market though. (Revenue of $850 billion in 2016 according to https://www.statista.com/statistics/214544/total-revenue-of-us-life-and-health-insurance-industry/ https://www.statista.com/statistics/214544/total-revenue-of-... ) I'm not an economist, but it seems like a 5% margin on a $850 billion market is worth a 10% margin on a $425 billion market.
  - conanbatt 9y ago
    Thats not how capital investment works, at a certain scale, % of profit is all that matters, because it tells you how much you need to invest to make a buck. Its a big market, but insurance companies are not the ones making a killing.
- noobhacker 9y ago
  The high health care cost is due to a lot of unnecessary procedures being performed. This can happen in two ways. First, there are a lot of tests and procedures ordered by doctors that only have some, but very small, benefits for the patients [0]. Doctors are incentivized to do this because each procedure has a set price (negotiated with insurance companies and Medicare / Medicaid) and the only way to get more revenue is to perform more procedures. Second, patients themselves order a lot of procedures out of fear. Arguably, they can be better off without these procedures. A prime example is end-of-life care, where patients and families often want to "do everything possible" even if those intrusive medical procedures bring nothing but a few weeks of miserable living [1]. Those end-of-life procedures are extremely expensive while having questionable benefits in terms of bringing a "happy" life rather than just a longer life [2]. [0] https://www.scientificamerican.com/article/unnecessary-tests-and-treatment-explain-why-health-care-costs-so-much/ https://www.scientificamerican.com/article/unnecessary-tests... [1] https://www.npr.org/sections/money/2014/03/05/286126451/living-wills-are-the-talk-of-the-town-in-la-crosse-wis https://www.npr.org/sections/money/2014/03/05/286126451/livi... [2] https://www.amazon.com/Being-Mortal-Illness-Medicine-Matters/dp/1250081246 https://www.amazon.com/Being-Mortal-Illness-Medicine-Matters...
  - conanbatt 9y ago
    Sure, but then the 'bad actor' is the provider, not the health insurance company.
  - javadocmd 9y ago
    Insurance (including Medicare and Medicaid) can and do push back against things they identify as inappropriate treatment. There are many problems with this system -- too restrictive in some places, not restrictive enough in others -- but in theory this could be improved to act as a reasonable check on rogue doctors. Another relevant effect worth noting here is CYA medicine: doctors order tests aimed at catching highly unlikely conditions to protect themselves against the hypothetical lawsuit that asks "why didn't you test for that?" Whatever the truth is about malpractice suits, the perception in the industry seems to be that these cases are overwhelmingly biased against doctors if even one question can be raised about the course of treatment.
  - 9y ago
- bawana 9y ago
  bertolini walked away with 500 million when cvs bought aetna. those were health care dollars paid by working people as premiums
  - ams6110 9y ago
    A drop in the bucket. Insurance executive compensation is not the problem.
- Pokepokalypse 9y ago
  healthcare monopolies (hospital chains, lab chains; where nationally there is competition, but in local areas, particularly rural they are effectively a monopoly). They charge whatever the fuck they want. Also; equipment manufacturers and drug companies: who both abuse the shit out of our patent system. But even off-patent drugs are being priced ridiculously high now. Barriers to competition are still extremely high. Since manufacturing capacity of IV bags was taken out in PR, there is a national shortage. This is NOW causing rationing (in effect). Prices are going up, but nobody's addressing the manufacturing problem - because: Puerto Rico.
topspin 9y ago
I've studied this a little. There are many stories depending on what you choose to believe. I believe the current state of affairs is a consequence of tax policy; health insurance benefits are untaxed income, a tax policy often attributed to powerful labor unions in the early 20th century. ACA attempted to tax "Cadillac" plans but the sunrise on that was kicked years down the road and when it was about to take effect in 2015 the can was kicked again to 2020. The tax is likely to be repealed before then. So health insurance remains an enormous untaxed income benefit, one that grows in importance as health care costs spiral up. As a wise person once said; If you want more of something, subsidize it. Thus our present health insurance regime.
- thephyber 9y ago
  > is a consequence of tax policy; health insurance benefits are untaxed income, a tax policy often attributed to powerful unions in the early 20th century. I can't remember where I heard it, but IIRC employer-sponsored health benefits had to do with a fringe benefit that employers could give to attract employees during a national wage freeze (perhaps WW2). I just found this timeline[1] that confirms my broken memory (@see 1943). [1] https://www.ebri.org/publications/facts/index.cfm?fa=0302fact https://www.ebri.org/publications/facts/index.cfm?fa=0302fac...
  - Pokepokalypse 9y ago
    yes
- tasty_freeze 9y ago
  These problems far predate the ACA. I come from a large family (8 kids). When by mom was still alive, I asked her if making medical claims was a pain. Nope, she said: tell your information to the doctor, and sometimes she'd have to pay part of it. Now, even with "gold plated insurance", many of my families doctors don't handle insurance; we pay them directly, and we have to deal with the insurance companies ourselves. My wife spends countless hours dealing with what I assume is willful incompetence. For example, filing four identical (other than date) forms for a series of physical therapy sessions, and having the insurance company approve two and reject two because the codes were wrong. Or the it was unreadable. Followup calls get a different person every time, and when they review it they say: oh, I don't know why it was rejected, that is fine. I'll personally make sure it gets fixed. And then it doesn't get fixed. Having to call five for six times for one bill is common.
javadocmd 9y ago
Historically health insurance developed around the turn of the century along-side things like fire insurance. This sort of made sense at the time, when our understanding of health and our ability to treat disease was extremely primitive. Eventually science progressed to the point that medical care was an inevitability in people's lives; which is a surprisingly recent development due to modern medications, lab tests, improved treatments and surgeries, increasing preventive care, etc. Faced with this sea change, developed nations around the world transitioned to some form of universal health coverage. Only the United States persists in the delusion that an insurance-based system is an efficient way to provide healthcare.
DoreenMichele 9y ago
I've been wondering for a while now why health insurance companies exist at all. My understanding is that benefits like healthcare were a means to attract employees by increasing their compensation without giving them cash per se. I don't know all the one and outs, but that is my understanding of the actual origin. Of course, like anything, it then evolved.
c3534l 9y ago
> They introduce a massive bureaucracy and massive costs and provide very little value. I very much disagree. When I didn't have medical insurance, doctors charged me twice what they charged the insurance companies. Insurance companies have a vested interest in reducing the costs of medical care, while doctors have a vested interest in increasing them. Screwing patients out of payments is not an aligned business model, but it only becomes worse when you don't have someone there fighting to reduce costs on your behalf, willing and knowledgeable enough to know when a medical test is superfluous, or over-priced. Doctors are still prescribing name-brand drugs when equivalent generics are available. That's some really basic stuff that we're still struggling with. Forget it when a doctor asks for a test that you don't even know enough about to say what it does, let alone if you're getting fleeced for money. Insurance companies get to be the bad guy in the middle who both doctors and patients can blame for not paying for things the patient shouldn't have to pay for in the first place. But remove that stop-gap and you're relying on the blind trust of the doctor to do the work of appropriately minimizing costs for patients in the face business pressure to do otherwise. And if there's anything I know about human nature, is that we're capable of doing what's best for us, while honestly and truly thinking that isn't the true motivation. I've had mechanics try to sell me on nonsense that more knowledgeable friends of mine recognized as a scam. You don't want that when it comes to what is already one of the biggest expenses in a person's life.
- javadocmd 9y ago
  > When I didn't have medical insurance, doctors charged me twice what they charged the insurance companies. You've identified the symptom but misattributed the cause. You ran afoul of the charge master system of billing, which is a byproduct of our insurance-based healthcare system and the laws which uphold it. In short, providers are "forced" to set their base rates high in the knowledge that insurance companies (their most significant revenue source) will negotiate a fraction of the posted rate. Meanwhile, federal law enforces (under very stiff penalty) that individuals cannot negotiate nor be given a discount from the base rate. You are also correct to identify the inherent information imbalance in the doctor/patient economic exchange: you as the patient will never know for certain if the recommended course of treatment is appropriate. Realistically only a doctor has enough information to tackle that question. In a cash-based system you are indeed susceptible to abuses. (In fact, this is one of the main arguments against concierge or "executive" medicine: they will frequently throw in wasteful and dangerous tests like full body scans which have absolutely no justification in medical science.) But by the same token, insurance company incentives aren't aligned in your interest either, so there are even more abuses on that side. I believe a single-payer system is the best compromise -- the government's incentives are best aligned to improve the health of the populace (securing a healthy workforce) at the least cost. ("Least cost?!", I can hear the scoffs as I type.) Only government systems have enough scope and lifetime to realize the long-horizon payoffs of preventive healthcare, and cannot so easily escape their failures (the way insurance companies could with lifetime caps). Many people are surprised to learn that Medicare is at least on par in terms of efficiency and above par in terms of patient outcomes and satisfaction.
yorby 9y ago
health insurance is so expensive in the USA that it is usually cheaper to not have any... and the service providers usually give discounts for the uninsured... I wish that we still could get catastrophic-only health insurance, but Obama care doesn't allow me to do that anymore...
nitwit005 9y ago
They exist becaude the government has created rules to try to force health insurance to be a national health system: companies are encouraged or forced to buy insurance for employees, the healthy are forced to subsidize the sick and elderly, and insurance must cover most treatments. There are other non-insurance interventions like forcing hospitals to provide emergency care.

Buttons840 9y ago

Yeah. I've worked a few places in the healthcare industry, and I've always felt that I'm part of some ancillary service that would be better if regulated and automated. For healthcare to get cheaper the system must be made smaller, people will have to find new jobs.

conanbatt 9y ago

And yet, health insurance companies have very low profit margins, the lowest amongst the insurance companies. So who is getting all the money?

wu-ikkyu 9y ago
Pharmaceuticals
- conanbatt 9y ago
  ding ding ding. These ones take most of the share. It is quite incredible that the U.S., the symbol of freedom, can't freely import drugs from abroad. Considering the rampant use of pharma specially, dropping the costs 1/2 of meds would lower the cost of healthcare overnight by an enormous amount.
  - tmnvix 9y ago
    Yep. An interesting bit of data that highlights just how profitable this industry can be comes from the wikipedia page for McKesson Corporation[1]: > On June 24, 2013, The Wall Street Journal reported that McKesson Chairman and CEO John Hammergren's pension benefits of $159 million had set a record for "the largest pension on file for a current executive of a public company, and almost certainly the largest ever in corporate America." A study in 2012 by GMI Ratings, which tracks executive pay, found that 60% of CEOs at S&P 500 companies have pensions, and their value averages $11.5 million. [1] https://en.wikipedia.org/wiki/McKesson_Corporation https://en.wikipedia.org/wiki/McKesson_Corporation
    - Pokepokalypse 9y ago
      yes, and before anyone says: "but muh R&D funding!" -- these companies generally have marketing budgets that are 2-3 times the R&D budget. (plus, most basic research is public or university funded). "but muh FDA certification costs" - - there are huge tax carve-outs for these. It's not a main driver. And no: marketing is not necessary for these products. TV commercials and other ads to public: not necessary.
      - wu-ikkyu 9y ago
        Also worth noting that the US is 1 of only 2 countries in the world which allows direct advertising of drugs and also is the #1 per capita spender on drugs.
        conanbatt 9y ago
        Its incredible to me that an ad for prescription drugs can target consumers and pay off. I understand aspirin or over the counter stuff, but "ask your doctor about this drug" pays off? How is that reasonable at all.
allannienhuis 9y ago
It it too tin-foil-hat to think that the majority of shareholders in health insurance providers are medical professionals who benefit from the arrangement?
- conanbatt 9y ago
  Providers get a decent slice, specially big hospitals and specialists. Doctor pay is really high in the US and its very regulated. Its expensive to be a doctor (long schooling, expensive mal praxis insurance), license ceilings, state-licensing and effective banning of doctor importation. Doctors get a decent share of the cost (1/10 i read somewhere), buts its still not the bulk. Nevertheless, just allowing doctors to come in and have unlimited licensing would hit costs a lot.
javadocmd 9y ago
It's a gigantic market though. (Revenue of $850 billion in 2016 according to https://www.statista.com/statistics/214544/total-revenue-of-us-life-and-health-insurance-industry/ https://www.statista.com/statistics/214544/total-revenue-of-... ) I'm not an economist, but it seems like a 5% margin on a $850 billion market is worth a 10% margin on a $425 billion market.
- conanbatt 9y ago
  Thats not how capital investment works, at a certain scale, % of profit is all that matters, because it tells you how much you need to invest to make a buck. Its a big market, but insurance companies are not the ones making a killing.
noobhacker 9y ago
The high health care cost is due to a lot of unnecessary procedures being performed. This can happen in two ways. First, there are a lot of tests and procedures ordered by doctors that only have some, but very small, benefits for the patients [0]. Doctors are incentivized to do this because each procedure has a set price (negotiated with insurance companies and Medicare / Medicaid) and the only way to get more revenue is to perform more procedures. Second, patients themselves order a lot of procedures out of fear. Arguably, they can be better off without these procedures. A prime example is end-of-life care, where patients and families often want to "do everything possible" even if those intrusive medical procedures bring nothing but a few weeks of miserable living [1]. Those end-of-life procedures are extremely expensive while having questionable benefits in terms of bringing a "happy" life rather than just a longer life [2]. [0] https://www.scientificamerican.com/article/unnecessary-tests-and-treatment-explain-why-health-care-costs-so-much/ https://www.scientificamerican.com/article/unnecessary-tests... [1] https://www.npr.org/sections/money/2014/03/05/286126451/living-wills-are-the-talk-of-the-town-in-la-crosse-wis https://www.npr.org/sections/money/2014/03/05/286126451/livi... [2] https://www.amazon.com/Being-Mortal-Illness-Medicine-Matters/dp/1250081246 https://www.amazon.com/Being-Mortal-Illness-Medicine-Matters...
- conanbatt 9y ago
  Sure, but then the 'bad actor' is the provider, not the health insurance company.
- javadocmd 9y ago
  Insurance (including Medicare and Medicaid) can and do push back against things they identify as inappropriate treatment. There are many problems with this system -- too restrictive in some places, not restrictive enough in others -- but in theory this could be improved to act as a reasonable check on rogue doctors. Another relevant effect worth noting here is CYA medicine: doctors order tests aimed at catching highly unlikely conditions to protect themselves against the hypothetical lawsuit that asks "why didn't you test for that?" Whatever the truth is about malpractice suits, the perception in the industry seems to be that these cases are overwhelmingly biased against doctors if even one question can be raised about the course of treatment.
- 9y ago
bawana 9y ago
bertolini walked away with 500 million when cvs bought aetna. those were health care dollars paid by working people as premiums
- ams6110 9y ago
  A drop in the bucket. Insurance executive compensation is not the problem.
Pokepokalypse 9y ago
healthcare monopolies (hospital chains, lab chains; where nationally there is competition, but in local areas, particularly rural they are effectively a monopoly). They charge whatever the fuck they want. Also; equipment manufacturers and drug companies: who both abuse the shit out of our patent system. But even off-patent drugs are being priced ridiculously high now. Barriers to competition are still extremely high. Since manufacturing capacity of IV bags was taken out in PR, there is a national shortage. This is NOW causing rationing (in effect). Prices are going up, but nobody's addressing the manufacturing problem - because: Puerto Rico.

topspin 9y ago

I've studied this a little. There are many stories depending on what you choose to believe. I believe the current state of affairs is a consequence of tax policy; health insurance benefits are untaxed income, a tax policy often attributed to powerful labor unions in the early 20th century. ACA attempted to tax "Cadillac" plans but the sunrise on that was kicked years down the road and when it was about to take effect in 2015 the can was kicked again to 2020. The tax is likely to be repealed before then. So health insurance remains an enormous untaxed income benefit, one that grows in importance as health care costs spiral up. As a wise person once said; If you want more of something, subsidize it. Thus our present health insurance regime.

thephyber 9y ago
> is a consequence of tax policy; health insurance benefits are untaxed income, a tax policy often attributed to powerful unions in the early 20th century. I can't remember where I heard it, but IIRC employer-sponsored health benefits had to do with a fringe benefit that employers could give to attract employees during a national wage freeze (perhaps WW2). I just found this timeline[1] that confirms my broken memory (@see 1943). [1] https://www.ebri.org/publications/facts/index.cfm?fa=0302fact https://www.ebri.org/publications/facts/index.cfm?fa=0302fac...
- Pokepokalypse 9y ago
  yes
tasty_freeze 9y ago
These problems far predate the ACA. I come from a large family (8 kids). When by mom was still alive, I asked her if making medical claims was a pain. Nope, she said: tell your information to the doctor, and sometimes she'd have to pay part of it. Now, even with "gold plated insurance", many of my families doctors don't handle insurance; we pay them directly, and we have to deal with the insurance companies ourselves. My wife spends countless hours dealing with what I assume is willful incompetence. For example, filing four identical (other than date) forms for a series of physical therapy sessions, and having the insurance company approve two and reject two because the codes were wrong. Or the it was unreadable. Followup calls get a different person every time, and when they review it they say: oh, I don't know why it was rejected, that is fine. I'll personally make sure it gets fixed. And then it doesn't get fixed. Having to call five for six times for one bill is common.

javadocmd 9y ago

Historically health insurance developed around the turn of the century along-side things like fire insurance. This sort of made sense at the time, when our understanding of health and our ability to treat disease was extremely primitive. Eventually science progressed to the point that medical care was an inevitability in people's lives; which is a surprisingly recent development due to modern medications, lab tests, improved treatments and surgeries, increasing preventive care, etc. Faced with this sea change, developed nations around the world transitioned to some form of universal health coverage. Only the United States persists in the delusion that an insurance-based system is an efficient way to provide healthcare.

DoreenMichele 9y ago

I've been wondering for a while now why health insurance companies exist at all. My understanding is that benefits like healthcare were a means to attract employees by increasing their compensation without giving them cash per se. I don't know all the one and outs, but that is my understanding of the actual origin. Of course, like anything, it then evolved.

c3534l 9y ago

> They introduce a massive bureaucracy and massive costs and provide very little value. I very much disagree. When I didn't have medical insurance, doctors charged me twice what they charged the insurance companies. Insurance companies have a vested interest in reducing the costs of medical care, while doctors have a vested interest in increasing them. Screwing patients out of payments is not an aligned business model, but it only becomes worse when you don't have someone there fighting to reduce costs on your behalf, willing and knowledgeable enough to know when a medical test is superfluous, or over-priced. Doctors are still prescribing name-brand drugs when equivalent generics are available. That's some really basic stuff that we're still struggling with. Forget it when a doctor asks for a test that you don't even know enough about to say what it does, let alone if you're getting fleeced for money. Insurance companies get to be the bad guy in the middle who both doctors and patients can blame for not paying for things the patient shouldn't have to pay for in the first place. But remove that stop-gap and you're relying on the blind trust of the doctor to do the work of appropriately minimizing costs for patients in the face business pressure to do otherwise. And if there's anything I know about human nature, is that we're capable of doing what's best for us, while honestly and truly thinking that isn't the true motivation. I've had mechanics try to sell me on nonsense that more knowledgeable friends of mine recognized as a scam. You don't want that when it comes to what is already one of the biggest expenses in a person's life.

javadocmd 9y ago
> When I didn't have medical insurance, doctors charged me twice what they charged the insurance companies. You've identified the symptom but misattributed the cause. You ran afoul of the charge master system of billing, which is a byproduct of our insurance-based healthcare system and the laws which uphold it. In short, providers are "forced" to set their base rates high in the knowledge that insurance companies (their most significant revenue source) will negotiate a fraction of the posted rate. Meanwhile, federal law enforces (under very stiff penalty) that individuals cannot negotiate nor be given a discount from the base rate. You are also correct to identify the inherent information imbalance in the doctor/patient economic exchange: you as the patient will never know for certain if the recommended course of treatment is appropriate. Realistically only a doctor has enough information to tackle that question. In a cash-based system you are indeed susceptible to abuses. (In fact, this is one of the main arguments against concierge or "executive" medicine: they will frequently throw in wasteful and dangerous tests like full body scans which have absolutely no justification in medical science.) But by the same token, insurance company incentives aren't aligned in your interest either, so there are even more abuses on that side. I believe a single-payer system is the best compromise -- the government's incentives are best aligned to improve the health of the populace (securing a healthy workforce) at the least cost. ("Least cost?!", I can hear the scoffs as I type.) Only government systems have enough scope and lifetime to realize the long-horizon payoffs of preventive healthcare, and cannot so easily escape their failures (the way insurance companies could with lifetime caps). Many people are surprised to learn that Medicare is at least on par in terms of efficiency and above par in terms of patient outcomes and satisfaction.

yorby 9y ago

health insurance is so expensive in the USA that it is usually cheaper to not have any... and the service providers usually give discounts for the uninsured... I wish that we still could get catastrophic-only health insurance, but Obama care doesn't allow me to do that anymore...

nitwit005 9y ago

They exist becaude the government has created rules to try to force health insurance to be a national health system: companies are encouraged or forced to buy insurance for employees, the healthy are forced to subsidize the sick and elderly, and insurance must cover most treatments. There are other non-insurance interventions like forcing hospitals to provide emergency care.