4 ms·

Doesn't that just mean that they have an interest in keeping these costs high? The higher the costs, the larger that % is for the in absolute dollars. If all

Doesn't that just mean that they have an interest in keeping these costs high? The higher the costs, the larger that % is for the in absolute dollars. If all the costs come down, they are allowed to make less money.

nimish 4y ago
Bingo. This is why they loved the ACA. Only allowed one scoop of ice cream? Great I'll use an enormous scoop.
- lotsofpulp 4y ago
  That enormous scoop results in 5% or less profit margins. Compare to tech companies’ profit margins.
  - CogitoCogito 4y ago
    So? They're insurance companies. Why should they have high profit margins?
    - lotsofpulp 4y ago
      I never wrote they should. I am disputing the notion that they earn huge profits (“enormous scoop”). Which is trivially disproven by looking at their financials.
      - CogitoCogito 4y ago
        How is it disproven exactly? Are you saying 5% is not a lot because it's the number 5 or something?
        lotsofpulp 4y ago
        From experience operating businesses and reading financials of various companies, 5% profit margin is on the low end. Walmart and other retail play in the 2% to 5% range.
        CogitoCogito 4y ago
        Why would you compare such different businesses profit margins? Anyway I just think saying a 5% profit margin is small because other businesses have larger profit margins is kind of naive. I mean if through competition insurance companies' profit margins dropped to 2%, then the current status quo of 5% would seem crazy. It's all just a matter of perspective. Saying 5% is low because other businesses have higher profit margins doesn't make much sense since the businesses are totally incomparable.
        lotsofpulp 4y ago
        The reason to compare it to other businesses is to see what kind of moat/regulatory capture/monopoly/monopsony power they have. For those purposes, a 5% profit margin indicates that health insurance companies do not have the pricing power that many other industries have. They actually have some of the lowest, which is fine, but then the claims of them being in control go out the window. Whether or not 5% itself is too high can be determined by looking at the competition. There are at least 7 other major publicly traded health insurers competing against each other, all with nearly the same profit margin. So either they are colluding with each other and there is corruption on a massive scale, or, the current parameters of the health insurance business simply result in a ~5% profit margin. If you think you can do better, then you are betting that you can do the job better than all the employees at these 7 companies, which is a lofty claim.
        jcranmer 4y ago
        S&P 500 average profit margin is typically around 10%. So, yes, 5% is low profit margins.
        CogitoCogito 4y ago
        I already said it elsewhere, but I think blindly comparing profit margins across totally different industries is kind of dumb. But continue to compare insurance companies to Apple if you'd like.
      - corrral 4y ago
        The "enormous scoop" refers to their incentive to drive prices higher so their "scoop" (the 5%) is bigger in absolute terms, I believe.
        lotsofpulp 4y ago
        My point was that if they could control the size of the scoop, then why would they limit it to 5%, when they could legally be getting 15% or 20%? Answer is that they do not control the size of the scoop (as the original poster I replied to implied).
magila 4y ago
Yes, this is one of the more unfortunate unintended consequences of the ACA.
- tryptophan 4y ago
  "unintended" Insurance companies wrote the bill.
  - ch4s3 4y ago
    Parts of it, but it’s not clear that MLR was one of those parts or even a net positive for insurers.
- heavyset_go 4y ago
  Insurance costs were increasing at a higher rate each year before the ACA was passed or went into effect.
  - ch4s3 4y ago
    The rate of growth didn’t go negative or to 0, it just slowed down.
    - heavyset_go 4y ago
      Correct
- mypalmike 4y ago
  Are you implying that before ACA, insurers had an incentive to keep costs low?
- vanattab 4y ago
  It may have been unintended but it was defiantly not unknown, I remember people pointing out this exact problem during the debate around ACA.
Spooky23 4y ago
Yes. Although painted by reactionaries as a communist plot, ACA was modeled after Massachusetts’ “Romneycare”. It’s typical old school GOP policy of leveraging private sector actors with public sector dollars. It’s not awful policy, but did create bad cost incentives and encourages cartel like health networks.
- coredog64 4y ago
  It’s called Romneycare because he got it implemented as a lightweight alternative to a pending proposal for more universal coverage. It’s also similar in nature to the Swiss system. Not a lot of GOP voters in Swiss cantons.
- ch4s3 4y ago
  You don’t need to be a reactionary to see that it was very poorly written and that the implementation was even worse.
jjeaff 4y ago
In a vacuum, that would make sense, but most of these insurers still have to compete with at least one or two other big players. So while you could increase your costs so that you can increase your premiums thus getting 5% of a larger pie, that assumes that you can increase your premiums without losing customers to competitors. For the most part, on the ACA marketplace, all the plans are pretty similar, so price is really your main differentiator. Perhaps the obstacles of switching providers makes this competition less of an issue.
ch4s3 4y ago
Yes, I agree that price controls set by the state are a bad idea.

nimish 4y ago

Bingo. This is why they loved the ACA. Only allowed one scoop of ice cream? Great I'll use an enormous scoop.

lotsofpulp 4y ago
That enormous scoop results in 5% or less profit margins. Compare to tech companies’ profit margins.
- CogitoCogito 4y ago
  So? They're insurance companies. Why should they have high profit margins?
  - lotsofpulp 4y ago
    I never wrote they should. I am disputing the notion that they earn huge profits (“enormous scoop”). Which is trivially disproven by looking at their financials.
    - CogitoCogito 4y ago
      How is it disproven exactly? Are you saying 5% is not a lot because it's the number 5 or something?
      - lotsofpulp 4y ago
        From experience operating businesses and reading financials of various companies, 5% profit margin is on the low end. Walmart and other retail play in the 2% to 5% range.
        CogitoCogito 4y ago
        Why would you compare such different businesses profit margins? Anyway I just think saying a 5% profit margin is small because other businesses have larger profit margins is kind of naive. I mean if through competition insurance companies' profit margins dropped to 2%, then the current status quo of 5% would seem crazy. It's all just a matter of perspective. Saying 5% is low because other businesses have higher profit margins doesn't make much sense since the businesses are totally incomparable.
        lotsofpulp 4y ago
        The reason to compare it to other businesses is to see what kind of moat/regulatory capture/monopoly/monopsony power they have. For those purposes, a 5% profit margin indicates that health insurance companies do not have the pricing power that many other industries have. They actually have some of the lowest, which is fine, but then the claims of them being in control go out the window. Whether or not 5% itself is too high can be determined by looking at the competition. There are at least 7 other major publicly traded health insurers competing against each other, all with nearly the same profit margin. So either they are colluding with each other and there is corruption on a massive scale, or, the current parameters of the health insurance business simply result in a ~5% profit margin. If you think you can do better, then you are betting that you can do the job better than all the employees at these 7 companies, which is a lofty claim.
      - jcranmer 4y ago
        S&P 500 average profit margin is typically around 10%. So, yes, 5% is low profit margins.
        CogitoCogito 4y ago
        I already said it elsewhere, but I think blindly comparing profit margins across totally different industries is kind of dumb. But continue to compare insurance companies to Apple if you'd like.
    - corrral 4y ago
      The "enormous scoop" refers to their incentive to drive prices higher so their "scoop" (the 5%) is bigger in absolute terms, I believe.
      - lotsofpulp 4y ago
        My point was that if they could control the size of the scoop, then why would they limit it to 5%, when they could legally be getting 15% or 20%? Answer is that they do not control the size of the scoop (as the original poster I replied to implied).

magila 4y ago

Yes, this is one of the more unfortunate unintended consequences of the ACA.

tryptophan 4y ago
"unintended" Insurance companies wrote the bill.
- ch4s3 4y ago
  Parts of it, but it’s not clear that MLR was one of those parts or even a net positive for insurers.
heavyset_go 4y ago
Insurance costs were increasing at a higher rate each year before the ACA was passed or went into effect.
- ch4s3 4y ago
  The rate of growth didn’t go negative or to 0, it just slowed down.
  - heavyset_go 4y ago
    Correct
mypalmike 4y ago
Are you implying that before ACA, insurers had an incentive to keep costs low?
vanattab 4y ago
It may have been unintended but it was defiantly not unknown, I remember people pointing out this exact problem during the debate around ACA.

Spooky23 4y ago

Yes. Although painted by reactionaries as a communist plot, ACA was modeled after Massachusetts’ “Romneycare”. It’s typical old school GOP policy of leveraging private sector actors with public sector dollars. It’s not awful policy, but did create bad cost incentives and encourages cartel like health networks.

coredog64 4y ago
It’s called Romneycare because he got it implemented as a lightweight alternative to a pending proposal for more universal coverage. It’s also similar in nature to the Swiss system. Not a lot of GOP voters in Swiss cantons.
ch4s3 4y ago
You don’t need to be a reactionary to see that it was very poorly written and that the implementation was even worse.

jjeaff 4y ago

In a vacuum, that would make sense, but most of these insurers still have to compete with at least one or two other big players. So while you could increase your costs so that you can increase your premiums thus getting 5% of a larger pie, that assumes that you can increase your premiums without losing customers to competitors. For the most part, on the ACA marketplace, all the plans are pretty similar, so price is really your main differentiator. Perhaps the obstacles of switching providers makes this competition less of an issue.

ch4s3 4y ago

Yes, I agree that price controls set by the state are a bad idea.