6 ms·

Something I don’t understand. Insurance companies seem to have an incentive (more profit) and collective bargaining power to reduce what they pay. Why don’t we

Something I don’t understand. Insurance companies seem to have an incentive (more profit) and collective bargaining power to reduce what they pay. Why don’t we see a downward pressure on healthcare prices, then? The typical narrative I hear around large healthcare bills is “racked up large charges because insurance will pay it” which is the opposite of what I would expect given the incentives I understand. Do insurance providers have a non-obvious incentive to keep costs high?

setr 6y ago
There's a strange relationship where the bill provided to you is not actually expected to be paid as-such when given to the insurance company -- they will generally challenge the bill, and through a court, it will be negotiated to something more sane -- and this bill will finally be paid out. So a doctor can charge you 10k, but the insurance company itself will only end up paying 2k to cover it (and you pay your deductible). So the charged price is entirely divorced from reality. You get fucked when you don't have insurance, because you can't participate in this process
- yks 6y ago
  Could you go to court as a private person to negotiate the bill down?
  - nradov 6y ago
    As a private person you don't need to go to court to negotiate. Just call the hospital, threaten not to pay, and offer a lower amount. Ask to speak to a manager. Every hospital has different policies on collections, and exceptions are always possible.
    - Borish_Johnson 6y ago
      In America, We are all Karen.
- tssva 6y ago
  Your general point about the bill being divorced from the reality of what the hospital expects to be paid is true but the idea that this usually involves the court system is not. In most but not all cases the insurance companies pay less because they have pre-negotiated rates with the hospital and not due to challenging a bill. Even when parts of a bill are challenged by an insurance company the issue is more frequently resolved without involving the courts. I have a chronic condition which requires monthly visits to a doctor. For every visit the doctor bills the insurance company $380 and the testing lab bills $75. For every visit the insurance company reduces the charges paid to $90.60 and $14 which are the rates they have pre-negotiated with the doctor and lab for these particular services. No court or case by case negotiation required.
- intopieces 6y ago
  >You get fucked when you don't have insurance, because you can't participate in this process This is not accurate. Cash payers just have to go through the administrative part themselves, cobbling together charity and self-negotiation, eventually landing on a payment plan that doesn't get reported to credit agencies.
  - jmchuster 6y ago
    So the medical industry is based on intentionally giving ridiculous bills that no one can pay and waiting for people to haggle them down in hopes of not having their finances crushed?
    - intopieces 6y ago
      Yes, this is accurate. There is no expectation, from anyone, that a person with a $1.1m medical bill will pay that. There's a specific group of people called Medical Bill Advocates that help people navigate the medical billing system. As well, people don't really go bankrupt from medical costs that often. Hospitalizations cause about 4% of bankruptcies among nonelderly adults. Among uninsured, this rate is about 6%. They mostly go bankrupt because they lose their jobs and income [0]. [0]https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5865642/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5865642/
salawat 6y ago
It's because insurance takes profit via spread. On the one hand you'd think insurance would want the lowest prices possible, but that would also shrink the magnitude of float that they have to generate profit off of. So in reality, prices stay high. As long as insurance is at the same time generating money via capital allocation and financial management, you'll still have the perverse incentive for price maximization in place.
- missedthecue 6y ago
  Why do car insurance premiums constantly get cheaper and cheaper relative to the assets they insure? There is strong competition and innovation in that market. Life insurance as well.
  - jmchuster 6y ago
    I think it's because the majority of insurance is not purchased by individuals shopping around. Rather, it gets negotiated at a company level, or commonly through providers a level beyond that. So, you have costs and structures that are optimized for large corporations, rather than individuals purchasing. And then these purchasers also don't consider bang-for-your-buck as the top priority the same way an individual might. If you get your insurance through your company, then it's expensive, but not impossibly so, so you grin and bear it. Anything outside of that system, and now you're trying to fight against a massive tide.
marojejian 6y ago
A core reason I think this is the case here is that the US insurers are not very "free-market": they are highly regulated & essentially oligopolistic. Their premium pricing bands are bounded by the Gov't who mandate that premiums don't exceed a certain % of what they actually spend on care. So, if they pay more for care, they can actually charge the customer more. This is like a contractor who can charge a % based on project size. Of course in a "free market" system, competition based on premium price should counteract this. However, due to another complex set of factors, this pressure does not seem to be very effective. (This includes the US system being employer based, and again the relatively oligopolistic structure of insurers). That said, I'm still very surprised there's not more competitive pricing pressure in the US, despite what seems to be some strong potential corrective forces, like employers self-insuring to reduce their costs. (setr's comment about the "retail" price not being the real one is true, but it's also true that insurers still pay more in reality in the US vs. other Countries). [not a pro on the regulations, so please correct me]
- marojejian 6y ago
  Thought of another potential force here [speculative, so please pros out there correct me]: A lot of the medical system payments come from the government, and I think this may be the force that sets a lot of the prices, more than, say, private companies negotiating, due to both the aggregate $$$ value and fewer negotiating parties in the gov't group. Thus the high prices might result from poor negotiating incentives on the Gov't side: 1) gov't is bad at it 2) they don't have the proper incentives to control their costs 3) capture by private companies (lobbyists for providers etc.) 4) I think their may be some areas where the Fed Gov't is not allowed to negotiate by law. (drug prices?)
  - zaphod12 6y ago
    Quite wrong, actually. Medicare/medicaid usually pays lower than private insurers because of the vast bargaining power. Hospitals that can will try to limit or avoid taking these patients or ensure a balance with private and self pay for this reason. There are also weird rules where sometimes Medicare is legally required to get the best rate of anyone. Healthcare industry is completely insane and to an earlier comment not a free market
m463 6y ago
I think this has to do with the concept of "setting expectations". In other words - if you get a low bill, everyone else will expect a low bill and there will be a lot of drama. If everyone gets a high bill, but then they get a special discount, they are usually overjoyed and happy. If someone tries drama, they are stuck with the high bill. https://i.imgur.com/CLUyh7x.jpg https://i.imgur.com/CLUyh7x.jpg

setr 6y ago

There's a strange relationship where the bill provided to you is not actually expected to be paid as-such when given to the insurance company -- they will generally challenge the bill, and through a court, it will be negotiated to something more sane -- and this bill will finally be paid out. So a doctor can charge you 10k, but the insurance company itself will only end up paying 2k to cover it (and you pay your deductible). So the charged price is entirely divorced from reality. You get fucked when you don't have insurance, because you can't participate in this process

yks 6y ago
Could you go to court as a private person to negotiate the bill down?
- nradov 6y ago
  As a private person you don't need to go to court to negotiate. Just call the hospital, threaten not to pay, and offer a lower amount. Ask to speak to a manager. Every hospital has different policies on collections, and exceptions are always possible.
  - Borish_Johnson 6y ago
    In America, We are all Karen.
tssva 6y ago
Your general point about the bill being divorced from the reality of what the hospital expects to be paid is true but the idea that this usually involves the court system is not. In most but not all cases the insurance companies pay less because they have pre-negotiated rates with the hospital and not due to challenging a bill. Even when parts of a bill are challenged by an insurance company the issue is more frequently resolved without involving the courts. I have a chronic condition which requires monthly visits to a doctor. For every visit the doctor bills the insurance company $380 and the testing lab bills $75. For every visit the insurance company reduces the charges paid to $90.60 and $14 which are the rates they have pre-negotiated with the doctor and lab for these particular services. No court or case by case negotiation required.
intopieces 6y ago
>You get fucked when you don't have insurance, because you can't participate in this process This is not accurate. Cash payers just have to go through the administrative part themselves, cobbling together charity and self-negotiation, eventually landing on a payment plan that doesn't get reported to credit agencies.
- jmchuster 6y ago
  So the medical industry is based on intentionally giving ridiculous bills that no one can pay and waiting for people to haggle them down in hopes of not having their finances crushed?
  - intopieces 6y ago
    Yes, this is accurate. There is no expectation, from anyone, that a person with a $1.1m medical bill will pay that. There's a specific group of people called Medical Bill Advocates that help people navigate the medical billing system. As well, people don't really go bankrupt from medical costs that often. Hospitalizations cause about 4% of bankruptcies among nonelderly adults. Among uninsured, this rate is about 6%. They mostly go bankrupt because they lose their jobs and income [0]. [0]https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5865642/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5865642/

salawat 6y ago

It's because insurance takes profit via spread. On the one hand you'd think insurance would want the lowest prices possible, but that would also shrink the magnitude of float that they have to generate profit off of. So in reality, prices stay high. As long as insurance is at the same time generating money via capital allocation and financial management, you'll still have the perverse incentive for price maximization in place.

missedthecue 6y ago
Why do car insurance premiums constantly get cheaper and cheaper relative to the assets they insure? There is strong competition and innovation in that market. Life insurance as well.
- jmchuster 6y ago
  I think it's because the majority of insurance is not purchased by individuals shopping around. Rather, it gets negotiated at a company level, or commonly through providers a level beyond that. So, you have costs and structures that are optimized for large corporations, rather than individuals purchasing. And then these purchasers also don't consider bang-for-your-buck as the top priority the same way an individual might. If you get your insurance through your company, then it's expensive, but not impossibly so, so you grin and bear it. Anything outside of that system, and now you're trying to fight against a massive tide.

marojejian 6y ago

A core reason I think this is the case here is that the US insurers are not very "free-market": they are highly regulated & essentially oligopolistic. Their premium pricing bands are bounded by the Gov't who mandate that premiums don't exceed a certain % of what they actually spend on care. So, if they pay more for care, they can actually charge the customer more. This is like a contractor who can charge a % based on project size. Of course in a "free market" system, competition based on premium price should counteract this. However, due to another complex set of factors, this pressure does not seem to be very effective. (This includes the US system being employer based, and again the relatively oligopolistic structure of insurers). That said, I'm still very surprised there's not more competitive pricing pressure in the US, despite what seems to be some strong potential corrective forces, like employers self-insuring to reduce their costs. (setr's comment about the "retail" price not being the real one is true, but it's also true that insurers still pay more in reality in the US vs. other Countries). [not a pro on the regulations, so please correct me]

marojejian 6y ago
Thought of another potential force here [speculative, so please pros out there correct me]: A lot of the medical system payments come from the government, and I think this may be the force that sets a lot of the prices, more than, say, private companies negotiating, due to both the aggregate $$$ value and fewer negotiating parties in the gov't group. Thus the high prices might result from poor negotiating incentives on the Gov't side: 1) gov't is bad at it 2) they don't have the proper incentives to control their costs 3) capture by private companies (lobbyists for providers etc.) 4) I think their may be some areas where the Fed Gov't is not allowed to negotiate by law. (drug prices?)
- zaphod12 6y ago
  Quite wrong, actually. Medicare/medicaid usually pays lower than private insurers because of the vast bargaining power. Hospitals that can will try to limit or avoid taking these patients or ensure a balance with private and self pay for this reason. There are also weird rules where sometimes Medicare is legally required to get the best rate of anyone. Healthcare industry is completely insane and to an earlier comment not a free market

m463 6y ago

I think this has to do with the concept of "setting expectations". In other words - if you get a low bill, everyone else will expect a low bill and there will be a lot of drama. If everyone gets a high bill, but then they get a special discount, they are usually overjoyed and happy. If someone tries drama, they are stuck with the high bill. https://i.imgur.com/CLUyh7x.jpg https://i.imgur.com/CLUyh7x.jpg