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This is not that plausible as an analysis of the role of chargemasters. I agree that the chargemaster prices are fake, but what you are proposing is: Hospital

This is not that plausible as an analysis of the role of chargemasters. I agree that the chargemaster prices are fake, but what you are proposing is: Hospital: "Our insurance partners pay us a fraction x of Chargemaster charge X, so let's make C larger." The insurer understands the game being played here, just like you do. It's not like the insurer doesn't also realize just like you do that the chargemaster price is fake. The insurers are not going to say "Oh C got bigger this year? Well, let's pay more!" More important are failures of competition in the marketplace, especially consolidation on the hospital side (most markets are now served by large hospital systems, so insurers cannot plausibly threaten to exclude hospitals from networks), the lack of exposure of consumers to most of the price, and the lack of incentives on the consumer side to search for cheaper prices (plus a general lack of any information about which facilities might be cheaper).

eightysixfour 6y ago
My understanding is the insurance companies are incented for C to increase as well - under the ACA insurance companies can only have a certain profit margin, so the only way to increase profit is to increase revenue and payouts.
- peytn 6y ago
  From a personal conversation with an insurance company board member, I’ve been told this isn’t a factor as most aren’t running anywhere close to that line. The bigger factor in his eyes is healthcare providers building local monopolies. I don’t know how true that is, but I wanted to share.
  - fakedang 6y ago
    Well he was just shoving the issues under the rug. In fairness, he's not wrong, and neither is parent. Hospitals companies have local monopolies, which they can use to charge ridiculously high prices. On the other hand, insurance companies do get a kickback of sorts when the hospitals bump prices - the negotiators get compensation based on the dollar amount of savings they can bring from negotiation, so effectively, even if the hospital bumps prices high enough and renegotiates the chargemaster rates to a lower one, while still ensuring a profit for the negotiators, they'll go for it. Bloomberg did a nice write up of it a few years back, but it's now behind pay wall.
    - peytn 6y ago
      Yeah, that’s another good nuance. Ultimately many factors drive hyperinflationary healthcare costs. Everyone’s making money. I think my takeaway from the whole conversation is that the insurance business can be counterintuitive to outsiders. Salvation may not be as simple as getting rid of them. Another tidbit is that insurance companies don’t mind being the bad guys. I’m not sure if our focus on that industry blinds us to effective solutions for controlling costs.
      - chaboud 6y ago
        I don't think eliminating private insurers is a panacea. I just think that the nature of incentives and negotiation between hospitals and insurers has resulted in plainly ridiculous chargemaster prices that harm uninsured and underinsured patients (including those who are "out of network"). Public disclosure and reputational price-indexing as well as regulation of emergency and regionally-monopolized non-elective care would help a lot, but backing the train up on decades of broken incentives and profit-optimized behavior is no small task.
chaboud 6y ago
I'm saying that the hospitals and insurers, while somewhat adversarial at times, are largely aligned in their incentives. Chargemaster prices can drift upwards while negotiated discount rates fall to compensate. The hospital makes more margin off of people not covered by the insurer, the insurer is largely insulated from the change, and everybody comes away okay... except the uninsured patient who has no negotiating power.

eightysixfour 6y ago

My understanding is the insurance companies are incented for C to increase as well - under the ACA insurance companies can only have a certain profit margin, so the only way to increase profit is to increase revenue and payouts.

peytn 6y ago
From a personal conversation with an insurance company board member, I’ve been told this isn’t a factor as most aren’t running anywhere close to that line. The bigger factor in his eyes is healthcare providers building local monopolies. I don’t know how true that is, but I wanted to share.
- fakedang 6y ago
  Well he was just shoving the issues under the rug. In fairness, he's not wrong, and neither is parent. Hospitals companies have local monopolies, which they can use to charge ridiculously high prices. On the other hand, insurance companies do get a kickback of sorts when the hospitals bump prices - the negotiators get compensation based on the dollar amount of savings they can bring from negotiation, so effectively, even if the hospital bumps prices high enough and renegotiates the chargemaster rates to a lower one, while still ensuring a profit for the negotiators, they'll go for it. Bloomberg did a nice write up of it a few years back, but it's now behind pay wall.
  - peytn 6y ago
    Yeah, that’s another good nuance. Ultimately many factors drive hyperinflationary healthcare costs. Everyone’s making money. I think my takeaway from the whole conversation is that the insurance business can be counterintuitive to outsiders. Salvation may not be as simple as getting rid of them. Another tidbit is that insurance companies don’t mind being the bad guys. I’m not sure if our focus on that industry blinds us to effective solutions for controlling costs.
    - chaboud 6y ago
      I don't think eliminating private insurers is a panacea. I just think that the nature of incentives and negotiation between hospitals and insurers has resulted in plainly ridiculous chargemaster prices that harm uninsured and underinsured patients (including those who are "out of network"). Public disclosure and reputational price-indexing as well as regulation of emergency and regionally-monopolized non-elective care would help a lot, but backing the train up on decades of broken incentives and profit-optimized behavior is no small task.

chaboud 6y ago

I'm saying that the hospitals and insurers, while somewhat adversarial at times, are largely aligned in their incentives. Chargemaster prices can drift upwards while negotiated discount rates fall to compensate. The hospital makes more margin off of people not covered by the insurer, the insurer is largely insulated from the change, and everybody comes away okay... except the uninsured patient who has no negotiating power.