4 ms·

No, this is a terrible (but surprisingly common) argument. Most insurers operate in competitive markets - even if they let costs balloon, their competitor proba

by 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.
      - riahi 7y ago
        Insurers will deliberately not credential physicians on their plans when trying to keep networks deliberately narrow. I and others have been denied enrollment because the "panel is full". Narrow networks are not always because the physician doesn't want in. Sometimes it's a deliberate insurance strategy.
        jcrben 7y ago
        That seems like the type of thing your state medical association should lobby against. Btw, in California the state medical and hospital associations are definitely more influential than insurers. And I bet that's true in MA too.
zbsnsbskd 7y ago
”No, this is a terrible (but surprisingly common) argument. ” Well I don’t know it’s a terrible argument. You confirmed that there is a cost floor. This does create a perverse incentive. Whether it is or any consequence is another matter. If the perverse incentive is pushing insurance companies to have their costs go up depends entirely on the market conditions, I.e what are typical profit margins w/out ACA and what are the cost of market entry. there could be an equilibrium where insurance companies want their costs to go up. There is another equilibrium where the allowed profits are far above and therefore ACA limits are meaningless. Now, you can argue that we’re in the competitive operating regime. Fine. But give me numbers And citations, not adjectives!

by jcrben 7y ago

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.
    - riahi 7y ago
      Insurers will deliberately not credential physicians on their plans when trying to keep networks deliberately narrow. I and others have been denied enrollment because the "panel is full". Narrow networks are not always because the physician doesn't want in. Sometimes it's a deliberate insurance strategy.
      - jcrben 7y ago
        That seems like the type of thing your state medical association should lobby against. Btw, in California the state medical and hospital associations are definitely more influential than insurers. And I bet that's true in MA too.

zbsnsbskd 7y ago

”No, this is a terrible (but surprisingly common) argument. ” Well I don’t know it’s a terrible argument. You confirmed that there is a cost floor. This does create a perverse incentive. Whether it is or any consequence is another matter. If the perverse incentive is pushing insurance companies to have their costs go up depends entirely on the market conditions, I.e what are typical profit margins w/out ACA and what are the cost of market entry. there could be an equilibrium where insurance companies want their costs to go up. There is another equilibrium where the allowed profits are far above and therefore ACA limits are meaningless. Now, you can argue that we’re in the competitive operating regime. Fine. But give me numbers And citations, not adjectives!