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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 ups
by 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 agoNo, 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 agoThese 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 agoWhat 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 agoInsurers 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 agoThat 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.