4 ms·

Correct me if I’m wrong, I’m not in the field. I thought the ACA put limits on insurance company’s profit margins, by saying that they had to pay out a certain

Correct me if I’m wrong, I’m not in the field. I thought the ACA put limits on insurance company’s profit margins, by saying that they had to pay out a certain minimum from the total monies collected. This is a perverse incentive for the insurance company to encourage the medical industry to increase costs. Am I wrong about the ACA?

riahi 7y ago
This is correct. Their profits are capped at 20%. If they make too much money, they have to refund premiums.
- dehrmann 7y ago
  Even pre-ACA, I don't remember insurance companies having margins that big. Progressives like to paint insurance companies as villains, but they're not printing money, and definitely not like tech or financials. Not that insurance companies don't add bloat, but healthcare cost in the US is due to a lot of factors. - Overtreatment to mitigate liability - Overtreatment of the elderly - Poor end-of-life management - Insurance bureaucracy - Siloed providers - Intervention rather than prevention - Conflict with other policies (like the farm bill) The ACA tried to fix, um, not really any of them. But props to Michelle Obama for axing the food pyramid.
  - vkou 7y ago
    Insurers are absolutely villains (But not the only villains in this game). They are the reason that hospitals have such bloated billing departments, and who gets to pay for all that? Well, I, as the patient, do.
jcrben 7y ago
No, this is a terrible (but surprisingly common) argument. Most insurers operate in competitive markets - even if they let costs balloon, their competitor probably doesn't and can undercut them. There are a few that operate in non-competitive markets but the larger and startup insurers (e.g. Oscar Health) are aggressively entering new regions these days. Most insurers are pretty aggressive at managing costs thru managed care techniques (described at https://en.wikipedia.org/wiki/Managed_care#Techniques https://en.wikipedia.org/wiki/Managed_care#Techniques).
- riahi 7y ago
  Their profits are capped at 20% by law. They can increase profits in one of two ways; either by increasing premiums or by increasing subscriber count. The upstarts can try to undercut the big guys, but they still are stuck at a 20% profit margin; if they make too much, they have to refund the excess premiums.
  - jcrben 7y ago
    No, their net income margin is capped at 20% (well, technically their total administrative expenses are capped at 20%). Their total valuation is mostly a multiple of total net income, which is driven by higher revenue. New upstarts are probably looking to operate at a lower margin anyhow (similar to other growth-oriented companies e.g. Amazon) to achieve higher valuation from revenue growth. It's quite clear that the insurers are aggressively trying to control costs when you consider that networks on exchanges are extremely narrow and denial rates are actually pretty high - IIRC nearly 1/3 of claims are initially denied for ACA plans. These companies are also bringing the narrow network model to the small and large group markets too, where utilization review is also quite aggressive and has been for a long time. It basically works out like textbook oligopolistic competition models where the Nash equilibrium resembles a prisoner's dilemma. For companies to increase "total market size" by allowing costs to balloon would require unusual collusion and there's no evidence of it.
    - riahi 7y ago
      These factors would then push for the insurance carrier to lobby state legislatures to cripple the negotiating position of their contractors. Narrow networks are a big problem, having been denied access myself while trying to be in network.
      - jcrben 7y ago
        What do you mean about lobbying? There's always lobbying by both sides. Narrow networks are usually a symptom of few and picky doctors imo. But I don't really know. Economics suggests that more insurers in a market should benefit providers.
heisenbit 7y ago
Insurances make money but a lot more money is made from the whole intransparent chaos by many player.
- zbsnsbskd 7y ago
  To be clear, I’ve never gotten mad at my insurance company. They play a game and they lay out the rules. It annoying that I have to read reams of papers when I start a new job. But they play within those rules. My hospital, on the other hand, doesn’t know what they will charge me for a service they will do yesterday.

riahi 7y ago

This is correct. Their profits are capped at 20%. If they make too much money, they have to refund premiums.

dehrmann 7y ago
Even pre-ACA, I don't remember insurance companies having margins that big. Progressives like to paint insurance companies as villains, but they're not printing money, and definitely not like tech or financials. Not that insurance companies don't add bloat, but healthcare cost in the US is due to a lot of factors. - Overtreatment to mitigate liability - Overtreatment of the elderly - Poor end-of-life management - Insurance bureaucracy - Siloed providers - Intervention rather than prevention - Conflict with other policies (like the farm bill) The ACA tried to fix, um, not really any of them. But props to Michelle Obama for axing the food pyramid.
- vkou 7y ago
  Insurers are absolutely villains (But not the only villains in this game). They are the reason that hospitals have such bloated billing departments, and who gets to pay for all that? Well, I, as the patient, do.

jcrben 7y ago

No, this is a terrible (but surprisingly common) argument. Most insurers operate in competitive markets - even if they let costs balloon, their competitor probably doesn't and can undercut them. There are a few that operate in non-competitive markets but the larger and startup insurers (e.g. Oscar Health) are aggressively entering new regions these days. Most insurers are pretty aggressive at managing costs thru managed care techniques (described at https://en.wikipedia.org/wiki/Managed_care#Techniques https://en.wikipedia.org/wiki/Managed_care#Techniques).

riahi 7y ago
Their profits are capped at 20% by law. They can increase profits in one of two ways; either by increasing premiums or by increasing subscriber count. The upstarts can try to undercut the big guys, but they still are stuck at a 20% profit margin; if they make too much, they have to refund the excess premiums.
- jcrben 7y ago
  No, their net income margin is capped at 20% (well, technically their total administrative expenses are capped at 20%). Their total valuation is mostly a multiple of total net income, which is driven by higher revenue. New upstarts are probably looking to operate at a lower margin anyhow (similar to other growth-oriented companies e.g. Amazon) to achieve higher valuation from revenue growth. It's quite clear that the insurers are aggressively trying to control costs when you consider that networks on exchanges are extremely narrow and denial rates are actually pretty high - IIRC nearly 1/3 of claims are initially denied for ACA plans. These companies are also bringing the narrow network model to the small and large group markets too, where utilization review is also quite aggressive and has been for a long time. It basically works out like textbook oligopolistic competition models where the Nash equilibrium resembles a prisoner's dilemma. For companies to increase "total market size" by allowing costs to balloon would require unusual collusion and there's no evidence of it.
  - riahi 7y ago
    These factors would then push for the insurance carrier to lobby state legislatures to cripple the negotiating position of their contractors. Narrow networks are a big problem, having been denied access myself while trying to be in network.
    - jcrben 7y ago
      What do you mean about lobbying? There's always lobbying by both sides. Narrow networks are usually a symptom of few and picky doctors imo. But I don't really know. Economics suggests that more insurers in a market should benefit providers.

heisenbit 7y ago

Insurances make money but a lot more money is made from the whole intransparent chaos by many player.

zbsnsbskd 7y ago
To be clear, I’ve never gotten mad at my insurance company. They play a game and they lay out the rules. It annoying that I have to read reams of papers when I start a new job. But they play within those rules. My hospital, on the other hand, doesn’t know what they will charge me for a service they will do yesterday.