8 ms·

Is there any reason not to make discounted rates for insurers illegal?

octorian 7y ago
Yeah, if discounted rates were illegal, then some of the more simplified Republican arguments against requiring and/or subsidizing health insurance might actually make sense. This whole system of discounted rates is why you're pretty much forced to have insurance as a "payment intermediary," even for stuff that you'd otherwise think paying out of pocket would be reasonable for.
- maerF0x0 7y ago
  > some of the more simplified Republican arguments against requiring and/or subsidizing health insurance might actually make sense. Which arguments are those?
pingpongchef 7y ago
What reasons are there to make them illegal?
- Retric 7y ago
  Cost shifting in healthcare is zero sum at significant economic cost. Aka, the net result of these negotiations is higher healthcare costs even if they can benefit the participants. On the other hand healthcare providers competing on an open market with transparent pricing would presumably actually reduce costs.
- asark 7y ago
  It'd effectively make insurers (and everyone else who pays for healthcare) one big negotiating block. The weakest payer gets the benefits of scale of the largest. One might hope that would push prices down. (for the record I personally just want the simplest thing that's very likely to work—single payer—rather than any complicated poke-the-market-and-pray solutions, but I think that's the idea of such a measure)
- hk2001 7y ago
  I’ve posted this in another thread before, on the high costs of insulin, but if you replace ”pharma company” with healthcare provider and “medication” healthcare services, the same will largely hold true: Insurance companies in the US have enormous leverage over just about every other party involved in healthcare: the patients, the providers, and the pharmaceutical manufacturers. This is even more true for medications like insulin, where there isn’t much difference in efficacy between brands. In a normal market, these companies would try to compete on price. But for insulin, price continues to rise. This is because insurance companies, and their negotiators, Pharmacy Benefit Managers (aka PBMs) have a vested interest in prices rising. PBMs make their money by negotiating prices with pharma companies to secure discounted prices for insurers, and in doing so, create the insurers’ “formularies”, which are basically the list of all the medications an insurer will cover, the prices they will pay, and the conditions that must be met. PBMs get a cut of the discount they negotiate with the pharma company. If drug A has a list price of $200, and they negotiate it down to $150 for their insurance clients, they take home x% of all the savings that are made at $50 a pop. This creates a perverse incentive however: a PBM stands to make more from a drug that costs $300 and is negotiated down to $150 than a drug that is $200 that is negotiated down to $150, even if everything else is the same. That means you are more likely to get better insurance coverage for your drug by starting high and giving deep discounts. And for drugs like insulin, where similarities between products are so small that the only place you can compete is price, how well you are covered by insurers compared to your competitors will make or break your business. Insurance companies themselves also love drugs with high costs that are then discounted deeply, because when they charge a patient coinsurance, it’s based on the list price, and not the price the insurer is paying. So even though they’ve negotiated the price of insulin down by over 50% with the pharma company, they are still going to charge you y% based on the full price. So if they continue to get insulin from manufacturers for $Y per unit every year, they continue to charge you 20% of a cost that continues to rise further and further away from $Y, meaning they are actually paying less and less as prices rise. They will claim to be using the reduced costs to lower premiums, but if reduced costs are only the result of increased costs for the sick, then all we’ve done is create an insurance system where the sick are subsidizing the healthy, which is entirely backwards. So now we have a system where manufacturers raise prices year after year, only to also give ever increasing discounts to insurance companies and PBMs, in hopes that it actually increases the number of patients who can afford their products (i.e. those with decent insurance). But those left holding the bag are the individuals without insurance or those with high deductible plans (which are becoming increasingly common). It’s also important to note exactly how much power these middlemen have. It’s a common narrative that Big Pharma is able to get away with bad practices because of their power. But in reality, only a single pharmaceutical company is in the Fortune 50, and none of the insulin makers are. In contrast, 80% of the PBM market is controlled by 3 companies, 2 of which are Fortune 50, and the third is a subsidiary of United Health, which is an insurer and is also Fortune 50. In fact, 10 of the Fortune 50 companies are middlemen (insurers, PBMs, or drug distributors) in the healthcare industry. Basically, discounting and rebates have ironically been a big driver behind increasing healthcare costs. They serve primarily to reduce insurers costs but they don’t pass those benefits to consumers, and have actually created a system that rewards high-cost healthcare.
- b_tterc_p 7y ago
  My logic is: The wider the gap between costs for insurers to pay for operation A vs for you to pay for operation A, the more value you get as a consumer get from having insurance which means the insurance company can earn more profit. Dumb example. If it costs you a billion dollars and the insurance company a million dollars. The insurance company can comfortably charge you a premium that protects you from the billion dollar risk instead of the million dollar risk. I would assume that, if rates were equal for both parties, insurance premiums would go up and insurance profitability would go down. If insurance profitability goes down, suddenly the insurance company is incentivized to decrease the costs of healthcare for everyone. Right now the insurance company has the incentive to INCREASE the generic cost of healthcare and decrease for them only. I am not an expert here.
rlpb 7y ago
I'm not sure that'd be workable. Define a discounted rate. What if the suppliers simply don't chase the insurers for remaining balance above the level of the "discount"? What about common practices (not sure about the US medical industry specifically) such as discounts for early payment? It seems to be that there would be too many workarounds. I do like the idea though. How about taxing suppliers on the published rate, rather than what they actually get paid? That might stop them being quite as egregious. If they charge an uninsured person more for an equivalent procedure, their tax bill will suddenly go up.
- Glyptodon 7y ago
  Just being as simple as "suppliers must offer the same terms to all parties" might be sufficient, though I suppose the loophole is just making the terms insanely complicated in that case.
  - jfnixon 7y ago
    How about "must charge only published prices?"
    - rlpb 7y ago
      What they charge isn't what they eventually agree to settle though. Insurers still get _charged_ the full amount, AIUI, but have a negotiated settlement rate. Eg. "we will only pay 20% of your bill and you will consider the matter settled".
- amluto 7y ago
  I think insurance should be turned around and should reimburse the patient, not the provider. Specifically, if I go to a hospital, I should get a bill from the hospital that does not depend on my insurance status. My insurance can pay some or all of it pursuant to the terms of the insurance. Whatever they don’t pay is my liability. If the insurer and hospital cooperate, the insurer can pay their share before my bill is due, and that’s all. On top of this, medical providers must disclose the full cost structure of any non-emergency service up front and get my initials, just like auto mechanics. Emergency services should be strongly regulated. The goal here is to have price transparency where it matters: with the patient, and to prevent insurance from corrupting the market. Abusive medical consolidation like we have in the Bay Area won’t happen, since there would be no benefit for providers to merge to improve their insurance contracts. As evidence that this could work, look at dentistry. Every dental provider I have ever encountered can tell you, in advance, exactly what they will charge. The prices are not insane the way non-dental medical prices are. And there are no surprise bills in dentistry.
red-indian 7y ago
"Is there any reason not to make discounted rates for insurers illegal?" Flat pricing for all is possible and workable under single-payer.
- kelnos 7y ago
  I'm in favor of single payer, but single payer is not required for this. Requiring all prices to be published, and simply passing legislation to make discounted rates illegal, should do it. (Sure, there are probably ways to game that system, but ideally there are also ways to catch worst offenders and punish them with fines to the tune of several multiples of the discount.)
- ivalm 7y ago
  It's also probably doable as a law (which is to say a law that states that healthcare org must sell services using a fixed price list, which the org determines beforehand).
woofyman 7y ago
This would effectively eliminate networks, right?
- b_tterc_p 7y ago
  Not quite I think Insurers would still have hospitals they deem to be good enough and cheap enough It would just mean that the cheap enough part isn’t a special deal for them specifically. I am not an expert in this area.

Yeah, if discounted rates were illegal, then some of the more simplified Republican arguments against requiring and/or subsidizing health insurance might actually make sense. This whole system of discounted rates is why you're pretty much forced to have insurance as a "payment intermediary," even for stuff that you'd otherwise think paying out of pocket would be reasonable for.

maerF0x0 7y ago
> some of the more simplified Republican arguments against requiring and/or subsidizing health insurance might actually make sense. Which arguments are those?

pingpongchef 7y ago

What reasons are there to make them illegal?

Retric 7y ago
Cost shifting in healthcare is zero sum at significant economic cost. Aka, the net result of these negotiations is higher healthcare costs even if they can benefit the participants. On the other hand healthcare providers competing on an open market with transparent pricing would presumably actually reduce costs.
asark 7y ago
It'd effectively make insurers (and everyone else who pays for healthcare) one big negotiating block. The weakest payer gets the benefits of scale of the largest. One might hope that would push prices down. (for the record I personally just want the simplest thing that's very likely to work—single payer—rather than any complicated poke-the-market-and-pray solutions, but I think that's the idea of such a measure)
hk2001 7y ago
I’ve posted this in another thread before, on the high costs of insulin, but if you replace ”pharma company” with healthcare provider and “medication” healthcare services, the same will largely hold true: Insurance companies in the US have enormous leverage over just about every other party involved in healthcare: the patients, the providers, and the pharmaceutical manufacturers. This is even more true for medications like insulin, where there isn’t much difference in efficacy between brands. In a normal market, these companies would try to compete on price. But for insulin, price continues to rise. This is because insurance companies, and their negotiators, Pharmacy Benefit Managers (aka PBMs) have a vested interest in prices rising. PBMs make their money by negotiating prices with pharma companies to secure discounted prices for insurers, and in doing so, create the insurers’ “formularies”, which are basically the list of all the medications an insurer will cover, the prices they will pay, and the conditions that must be met. PBMs get a cut of the discount they negotiate with the pharma company. If drug A has a list price of $200, and they negotiate it down to $150 for their insurance clients, they take home x% of all the savings that are made at $50 a pop. This creates a perverse incentive however: a PBM stands to make more from a drug that costs $300 and is negotiated down to $150 than a drug that is $200 that is negotiated down to $150, even if everything else is the same. That means you are more likely to get better insurance coverage for your drug by starting high and giving deep discounts. And for drugs like insulin, where similarities between products are so small that the only place you can compete is price, how well you are covered by insurers compared to your competitors will make or break your business. Insurance companies themselves also love drugs with high costs that are then discounted deeply, because when they charge a patient coinsurance, it’s based on the list price, and not the price the insurer is paying. So even though they’ve negotiated the price of insulin down by over 50% with the pharma company, they are still going to charge you y% based on the full price. So if they continue to get insulin from manufacturers for $Y per unit every year, they continue to charge you 20% of a cost that continues to rise further and further away from $Y, meaning they are actually paying less and less as prices rise. They will claim to be using the reduced costs to lower premiums, but if reduced costs are only the result of increased costs for the sick, then all we’ve done is create an insurance system where the sick are subsidizing the healthy, which is entirely backwards. So now we have a system where manufacturers raise prices year after year, only to also give ever increasing discounts to insurance companies and PBMs, in hopes that it actually increases the number of patients who can afford their products (i.e. those with decent insurance). But those left holding the bag are the individuals without insurance or those with high deductible plans (which are becoming increasingly common). It’s also important to note exactly how much power these middlemen have. It’s a common narrative that Big Pharma is able to get away with bad practices because of their power. But in reality, only a single pharmaceutical company is in the Fortune 50, and none of the insulin makers are. In contrast, 80% of the PBM market is controlled by 3 companies, 2 of which are Fortune 50, and the third is a subsidiary of United Health, which is an insurer and is also Fortune 50. In fact, 10 of the Fortune 50 companies are middlemen (insurers, PBMs, or drug distributors) in the healthcare industry. Basically, discounting and rebates have ironically been a big driver behind increasing healthcare costs. They serve primarily to reduce insurers costs but they don’t pass those benefits to consumers, and have actually created a system that rewards high-cost healthcare.
b_tterc_p 7y ago
My logic is: The wider the gap between costs for insurers to pay for operation A vs for you to pay for operation A, the more value you get as a consumer get from having insurance which means the insurance company can earn more profit. Dumb example. If it costs you a billion dollars and the insurance company a million dollars. The insurance company can comfortably charge you a premium that protects you from the billion dollar risk instead of the million dollar risk. I would assume that, if rates were equal for both parties, insurance premiums would go up and insurance profitability would go down. If insurance profitability goes down, suddenly the insurance company is incentivized to decrease the costs of healthcare for everyone. Right now the insurance company has the incentive to INCREASE the generic cost of healthcare and decrease for them only. I am not an expert here.

rlpb 7y ago

I'm not sure that'd be workable. Define a discounted rate. What if the suppliers simply don't chase the insurers for remaining balance above the level of the "discount"? What about common practices (not sure about the US medical industry specifically) such as discounts for early payment? It seems to be that there would be too many workarounds. I do like the idea though. How about taxing suppliers on the published rate, rather than what they actually get paid? That might stop them being quite as egregious. If they charge an uninsured person more for an equivalent procedure, their tax bill will suddenly go up.

Glyptodon 7y ago
Just being as simple as "suppliers must offer the same terms to all parties" might be sufficient, though I suppose the loophole is just making the terms insanely complicated in that case.
- jfnixon 7y ago
  How about "must charge only published prices?"
  - rlpb 7y ago
    What they charge isn't what they eventually agree to settle though. Insurers still get _charged_ the full amount, AIUI, but have a negotiated settlement rate. Eg. "we will only pay 20% of your bill and you will consider the matter settled".
amluto 7y ago
I think insurance should be turned around and should reimburse the patient, not the provider. Specifically, if I go to a hospital, I should get a bill from the hospital that does not depend on my insurance status. My insurance can pay some or all of it pursuant to the terms of the insurance. Whatever they don’t pay is my liability. If the insurer and hospital cooperate, the insurer can pay their share before my bill is due, and that’s all. On top of this, medical providers must disclose the full cost structure of any non-emergency service up front and get my initials, just like auto mechanics. Emergency services should be strongly regulated. The goal here is to have price transparency where it matters: with the patient, and to prevent insurance from corrupting the market. Abusive medical consolidation like we have in the Bay Area won’t happen, since there would be no benefit for providers to merge to improve their insurance contracts. As evidence that this could work, look at dentistry. Every dental provider I have ever encountered can tell you, in advance, exactly what they will charge. The prices are not insane the way non-dental medical prices are. And there are no surprise bills in dentistry.

red-indian 7y ago

"Is there any reason not to make discounted rates for insurers illegal?" Flat pricing for all is possible and workable under single-payer.

kelnos 7y ago
I'm in favor of single payer, but single payer is not required for this. Requiring all prices to be published, and simply passing legislation to make discounted rates illegal, should do it. (Sure, there are probably ways to game that system, but ideally there are also ways to catch worst offenders and punish them with fines to the tune of several multiples of the discount.)
ivalm 7y ago
It's also probably doable as a law (which is to say a law that states that healthcare org must sell services using a fixed price list, which the org determines beforehand).

woofyman 7y ago

This would effectively eliminate networks, right?

b_tterc_p 7y ago
Not quite I think Insurers would still have hospitals they deem to be good enough and cheap enough It would just mean that the cheap enough part isn’t a special deal for them specifically. I am not an expert in this area.