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n=1, but I've sat in the room in contract renewal negotiations between a big insurer and a hospital. There was no collusion, it was two sides that nearly hate

n=1, but I've sat in the room in contract renewal negotiations between a big insurer and a hospital. There was no collusion, it was two sides that nearly hate each other arguing over rates. Hospital wanted more, insurer wanted to pay less.

chadash 6y ago
I can imagine this being true at a micro level. But at a macro level, Obamacare has a rule that insurers can have a maximum profit margin of 20%. So you have two ways to increase profits in the long run: 1) Increase number of subscribers. Possible to do, but the market is pretty saturated. 2) Raise prices of healthcare overall. 20% of larger costs is more than 20% of smaller costs. Intuitively, lowering costs would seem to be a money-making proposition, but if you are already at the 20% margin, it doesn't actually help you.
- matwood 6y ago
  Correct. I received a refund check from my insurance company this year because they did not spend 80% of premiums on healthcare.
- m16ghost 6y ago
  >Obamacare has a rule that insurers can have a maximum profit margin of 20%. So you have two ways to increase profits in the long run: >1) Increase number of subscribers. Possible to do, but the market is pretty saturated. >2) Raise prices of healthcare overall. 20% of larger costs is more than 20% of smaller costs. The 20% profit margin also has to cover the insurer's operating expenses. After covering the costs, an insurer typically makes 2-3% in profit. Also, the insurance industry in aggregate is typically paying 85%-86% of premiums as medical services, so they still have incentive to negotiate prices with hospitals[0]. The insurance industry is likely to make a greater profit in 2020 due to the pandemic. Consumers have deferred a lot of their medical procedures, but their premiums have stayed the same. [0]https://content.naic.org/sites/default/files/inline-files/2019%20Health%20Industry%20Commentary_0.pdf https://content.naic.org/sites/default/files/inline-files/20...
  - dragonwriter 6y ago
    > The insurance industry is likely to make a greater profit in 2020 due to the pandemic. Consumers have deferred a lot of their medical procedures, but their premiums have stayed the same. COVID will have drive up overhead, and also insurers will have COVID medical costs. If the net of the added medical costs of COVID and the reduced medical costs from deferring care is negative on medical costs, insurers will be driven over the 20% excess premiums cap and have to refund down; they don't get extra credit for COVID overhead. If it increases medical costs in net, they'll have to pay the increased medical costs plus the increased overhead out of the same premiums, and so really lose. The only way insurers win out of this is if medical costs are down enough to pay for the added overhead before hitting the 20% cap where refunds kick in. (Or through external windfalls outside of the whole premiums and medical costs system, like if they manage to get forgivable PPP loans or something.)
someguydave 6y ago
Then insurance’s negotiating position is much weaker than an individual, because it is likely the individual can get up and walk away and do business elsewhere, but the insurance must cover some hospitals.

chadash 6y ago

I can imagine this being true at a micro level. But at a macro level, Obamacare has a rule that insurers can have a maximum profit margin of 20%. So you have two ways to increase profits in the long run: 1) Increase number of subscribers. Possible to do, but the market is pretty saturated. 2) Raise prices of healthcare overall. 20% of larger costs is more than 20% of smaller costs. Intuitively, lowering costs would seem to be a money-making proposition, but if you are already at the 20% margin, it doesn't actually help you.

matwood 6y ago
Correct. I received a refund check from my insurance company this year because they did not spend 80% of premiums on healthcare.
m16ghost 6y ago
>Obamacare has a rule that insurers can have a maximum profit margin of 20%. So you have two ways to increase profits in the long run: >1) Increase number of subscribers. Possible to do, but the market is pretty saturated. >2) Raise prices of healthcare overall. 20% of larger costs is more than 20% of smaller costs. The 20% profit margin also has to cover the insurer's operating expenses. After covering the costs, an insurer typically makes 2-3% in profit. Also, the insurance industry in aggregate is typically paying 85%-86% of premiums as medical services, so they still have incentive to negotiate prices with hospitals[0]. The insurance industry is likely to make a greater profit in 2020 due to the pandemic. Consumers have deferred a lot of their medical procedures, but their premiums have stayed the same. [0]https://content.naic.org/sites/default/files/inline-files/2019%20Health%20Industry%20Commentary_0.pdf https://content.naic.org/sites/default/files/inline-files/20...
- dragonwriter 6y ago
  > The insurance industry is likely to make a greater profit in 2020 due to the pandemic. Consumers have deferred a lot of their medical procedures, but their premiums have stayed the same. COVID will have drive up overhead, and also insurers will have COVID medical costs. If the net of the added medical costs of COVID and the reduced medical costs from deferring care is negative on medical costs, insurers will be driven over the 20% excess premiums cap and have to refund down; they don't get extra credit for COVID overhead. If it increases medical costs in net, they'll have to pay the increased medical costs plus the increased overhead out of the same premiums, and so really lose. The only way insurers win out of this is if medical costs are down enough to pay for the added overhead before hitting the 20% cap where refunds kick in. (Or through external windfalls outside of the whole premiums and medical costs system, like if they manage to get forgivable PPP loans or something.)

someguydave 6y ago

Then insurance’s negotiating position is much weaker than an individual, because it is likely the individual can get up and walk away and do business elsewhere, but the insurance must cover some hospitals.