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I used to work for a large health insurer(Blue Cross Blue Shield, in a southwestern state), and monopolistic trappings were all around us. A good example was ou

I used to work for a large health insurer(Blue Cross Blue Shield, in a southwestern state), and monopolistic trappings were all around us. A good example was our board was occupied by members who also held board seats at local [large] hospitals(Baptist / Methodist / Childrens), and vice versa. Often in the board minutes, phrases like "fix up the market" and "stitch up the market" were used. Other topics frequently discussed were how the 85/15 rule[1] ate into profit margins of both institutions, and what could be done about it. The common fix to 85/15 rule problems were inflating the cost of basic procedures, so the 15% of the 85/15 rule was a larger value. [1]: 85/15 rule is part of the ACA mandating that 85% of dollars taken in by an insurance provider must be paid to actual claims. The remaining 15% was the maximum gross profit an insurer could take in(before overhead and all expenses).

ecommerceguy 5y ago
The 85/15 you are referring to is called the Medical Loss Ratio. This applies to ACA coverage only (group or individual), and does not include carriers' Self Funded or Short Term products. When an insurer comes under the MLR (say, claims are 79% of premiums) the remainder upto 80% or 85% (depends on state) is paid back to the policyholders. For instance if you were on a UHC ACA plan in my geography last year, you would have received a portion of premium returned in the form of a check because UHC ran at 77%.
- bhupy 5y ago
  As far as I know, Self Funded plans in non-Dental/Vision are fairly rare due to the massive stop loss required. Even the Fortune 500 employers use fully funded plans for healthcare.
  - deleted 5y ago
    [deleted]
  - ecommerceguy 5y ago
    >>Even the Fortune 500 employers use fully funded plans for healthcare. Care to cite that stat? From wiki: >>Historically self-funding has been most effective for large corporations and Fortune 500 companies with over 1,000 employees https://en.wikipedia.org/wiki/Self-funded_health_care https://en.wikipedia.org/wiki/Self-funded_health_care
    - bhupy 5y ago
      You’re right. I was under the (incorrect) impression that the stop loss on traditional health plans was prohibitively higher than on dental and vision, but it appears not to be the case. Most employers seem to be buying level-funded reinsurance plans just for the stop loss component, on top of the self-funded pool. Very cool, either way.
missedthecue 5y ago
That rule along with the rule mandating healthcare benefits for all full-time employees seem like the most obviously and clearly short-sighted policy blunders, only a government could make them.
- bhupy 5y ago
  Not sure why you're getting downvoted, but this is an observation I've had as well, working in the industry. What we're seeing in healthcare costs is analogous to what you might see happen to airline ticket costs if we all got our air tickets through our employers: the vast majority of us would fly business class, while the unemployed would be simply unable to pay for business class fares out of pocket. Employers (especially medium-to-large businesses) have a much higher purchasing power (and hence, willingness to pay) than individuals. If you take this behavior and combine it with the fact that health insurers' profit margins are capped by law, insurers pay more absolute dollars for treatments (which doctors happily accept), charge more to employers (who are generally less price conscious vs individuals), thus bring in more absolute revenue, and therefore more profit because a capped profit percentage of a higher revenue is higher than a capped percentage of lower revenue. It's somewhat counter-intuitive, but the policy combination of an employer mandate and insurance profit cap results in the mother of all local optima.
- syops 5y ago
  It's a big stretch to say only government could make such a blunder. These rules were not blunders in the sense you make them out to be. They were the best option available given the reticence of roughly 50% of the population toward a single payer solution or other universal healthcare option. The designers of the ACA knew about these shortcomings but decided to kick the can down the road so to speak. Their goal was primarily to get far more people into the healthcare system and to get Americans used to the idea that pretty much everyone deserves access to healthcare. They achieved both goals.
  - missedthecue 5y ago
    But my point is that they could have achieved most of it without those specific policies. For instance, we now have a situation where instead of working 40 hours per week without health insurance, people in many occupations can only get 29 hours scheduled. So not only did it utterly fail in its goal of getting more people signed up for insurance, but it actively made the lives of those people worse by stunting their earning power unless they try to piece two part jobs into one week with all the chaos that involves. It's just awful incentive alignment and I see it time and time again in government policies that were developed with good intentions in mind.
merpnderp 5y ago
Inflating the cost of procedures to drive up profits has been around a lot longer than the ACA. My biggest disappointment with the ACA was not fixing that very issue, where insurance companies and hospitals both have an incentive to maximize costs.
spaetzleesser 5y ago
"A good example was our board was occupied by members who also held board seats at local [large] hospitals(Baptist / Methodist / Childrens), and vice versa" Same for municipalities who have hospitals. The local government leaders like mayors or country boards are often connected with groups of doctors, developers and construction companies who make sure they make as much money as possible. Or intentionally mismanage a public hospital to then sell it to their friends for cheap who can then raise prices and rake in the money.

ecommerceguy 5y ago

The 85/15 you are referring to is called the Medical Loss Ratio. This applies to ACA coverage only (group or individual), and does not include carriers' Self Funded or Short Term products. When an insurer comes under the MLR (say, claims are 79% of premiums) the remainder upto 80% or 85% (depends on state) is paid back to the policyholders. For instance if you were on a UHC ACA plan in my geography last year, you would have received a portion of premium returned in the form of a check because UHC ran at 77%.

bhupy 5y ago
As far as I know, Self Funded plans in non-Dental/Vision are fairly rare due to the massive stop loss required. Even the Fortune 500 employers use fully funded plans for healthcare.
- deleted 5y ago
  [deleted]
- ecommerceguy 5y ago
  >>Even the Fortune 500 employers use fully funded plans for healthcare. Care to cite that stat? From wiki: >>Historically self-funding has been most effective for large corporations and Fortune 500 companies with over 1,000 employees https://en.wikipedia.org/wiki/Self-funded_health_care https://en.wikipedia.org/wiki/Self-funded_health_care
  - bhupy 5y ago
    You’re right. I was under the (incorrect) impression that the stop loss on traditional health plans was prohibitively higher than on dental and vision, but it appears not to be the case. Most employers seem to be buying level-funded reinsurance plans just for the stop loss component, on top of the self-funded pool. Very cool, either way.

missedthecue 5y ago

That rule along with the rule mandating healthcare benefits for all full-time employees seem like the most obviously and clearly short-sighted policy blunders, only a government could make them.

bhupy 5y ago
Not sure why you're getting downvoted, but this is an observation I've had as well, working in the industry. What we're seeing in healthcare costs is analogous to what you might see happen to airline ticket costs if we all got our air tickets through our employers: the vast majority of us would fly business class, while the unemployed would be simply unable to pay for business class fares out of pocket. Employers (especially medium-to-large businesses) have a much higher purchasing power (and hence, willingness to pay) than individuals. If you take this behavior and combine it with the fact that health insurers' profit margins are capped by law, insurers pay more absolute dollars for treatments (which doctors happily accept), charge more to employers (who are generally less price conscious vs individuals), thus bring in more absolute revenue, and therefore more profit because a capped profit percentage of a higher revenue is higher than a capped percentage of lower revenue. It's somewhat counter-intuitive, but the policy combination of an employer mandate and insurance profit cap results in the mother of all local optima.
syops 5y ago
It's a big stretch to say only government could make such a blunder. These rules were not blunders in the sense you make them out to be. They were the best option available given the reticence of roughly 50% of the population toward a single payer solution or other universal healthcare option. The designers of the ACA knew about these shortcomings but decided to kick the can down the road so to speak. Their goal was primarily to get far more people into the healthcare system and to get Americans used to the idea that pretty much everyone deserves access to healthcare. They achieved both goals.
- missedthecue 5y ago
  But my point is that they could have achieved most of it without those specific policies. For instance, we now have a situation where instead of working 40 hours per week without health insurance, people in many occupations can only get 29 hours scheduled. So not only did it utterly fail in its goal of getting more people signed up for insurance, but it actively made the lives of those people worse by stunting their earning power unless they try to piece two part jobs into one week with all the chaos that involves. It's just awful incentive alignment and I see it time and time again in government policies that were developed with good intentions in mind.

merpnderp 5y ago

Inflating the cost of procedures to drive up profits has been around a lot longer than the ACA. My biggest disappointment with the ACA was not fixing that very issue, where insurance companies and hospitals both have an incentive to maximize costs.

spaetzleesser 5y ago

"A good example was our board was occupied by members who also held board seats at local [large] hospitals(Baptist / Methodist / Childrens), and vice versa" Same for municipalities who have hospitals. The local government leaders like mayors or country boards are often connected with groups of doctors, developers and construction companies who make sure they make as much money as possible. Or intentionally mismanage a public hospital to then sell it to their friends for cheap who can then raise prices and rake in the money.