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> It is a competitive business without a lot of pricing power. But what it will do is provide consistent, reliable returns. And since more people are getting mo

by csa 4y ago

> It is a competitive business without a lot of pricing power. But what it will do is provide consistent, reliable returns. And since more people are getting more healthcare, the magnitude of the profits will obviously be higher, hence the increase in stock price. It seems like you’re theory-crafting here rather that describing what is actually happening in the industry. 1. I somewhat sloppily used the term “profits” in my previous post, and I should have used “gross margins”. Specifically, 80% of premium payments have to be used on healthcare expenses. Their profit (~5% as you mentioned) comes after they pay their relatively consistent operating expenses out of their gross margins. 2. The increased number of people getting insured is not what has driven up the insurance companies profits. Those numbers don’t add up. 3. The prices of name brand insurance have increased fairly consistently. It’s not competitive at all, imho. It’s an oligopoly. 4. If you know people who work in medical billing and/or you’ve known a handful of people with substantial medical bills, you will know that hospitals have increased prices for many things to ridiculous levels, and they “nickel and dime” patients at ridiculous markups for anything possible. Why? Insurance companies don’t bat an eye at these expenses any more, and they are not incentivized to do so. As money out increases via payments to providers, money in can increase via premiums, and thereby absolute gross margin can increase proportionally. If you need further proof, check out the actual prices that people pay when insurance doesn’t cover something. Miraculously, charges come down and substantial portions of the bill will be forgiven/waived. 5. Investors have warmed up to the idea that health insurance is a government-supported racket that ultimately screws people who have to pay their own premiums in part or in whole. Note that I am a fan of most parts of the ACA, but the 80/20 rule (and the misaligned incentives that it facilitated) needs to be fixed. That said, the hospitals and insurance companies are feeding at the trough, they have established a new excessive normal, and they will fight any change to the 80/20 rule by comically pleading poverty.

lotsofpulp 4y ago
Why is gross margin relevant? >Their profit (~5% as you mentioned) comes after they pay their relatively consistent operating expenses out of their gross margins. Just like in any other business. >The increased number of people getting insured is not what has driven up the insurance companies profits. Those numbers don’t add up. Their profit margin has not been driven up [0]. >It’s not competitive at all, imho. It’s an oligopoly. In an adjacent comment [0], I posted profit margins for 7 different publicly listed multi billion dollar health insurance businesses, which excludes Kaiser Permanente. If that is not a competitive business sector, I don’t know what is. If you are claiming collusion, I would need proof. >That said, the hospitals and insurance companies are feeding at the trough, they have established a new excessive normal, and they will fight any change to the 80/20 rule by comically pleading poverty. How are sub 5% profit margins feeding at the trough? If that is feeding at the trough, what is Apple, Microsoft, Visa, Alphabet, etc doing? If insurance companies had the pricing power you are claiming they have, why would the shareholders accept anemic profit margins? [0] https://news.ycombinator.com/item?id=33503127 https://news.ycombinator.com/item?id=33503127
- csa 4y ago
  Do you have any direct experience with the medical industry? If not, do you know anyone who has? It really seems like you are arm-chair quarterbacking your comments based on some quick online searches. I strongly encourage you to talk to folks who have worked in hospital billing pre- and post-ACA and (if possible) actuaries who work in the health insurance industry who will speak to you frankly (rather than toeing the industry line). The misaligned incentives are a complete shit show. > Why is gross margin relevant? If you can increase gross margin number while maintaining operation costs at about the same proportional level, then you end up with more absolute profit. So 100 premium, 20 gm and 5 profit can become 150 premium, 30 gm, and 7.5 profit. > How are sub 5% profit margins feeding at the trough? The percentage is not the issue. The absolute amount is. Some examples: - My premiums pre-ACA to now have almost quintupled. There are some good reasons to explain a small part of that increase (e.g., I’m older), but 4-5x is absurd. Way higher than inflation, and way higher than the quality of care has improved (for me specially, but also in general). - This link (https://khn.org/news/article/surprise-bill-iv-push-hospital-unbundling/ https://khn.org/news/article/surprise-bill-iv-push-hospital-...) is an example of hospitals feeding at the trough. Imagine this happening hundreds or thousands of times a day at every hospital. It’s absurd. I realize that this is basically a marketing piece by Kaiser, but the article is directionally correct based on folks I know who work in medicine, health insurance, and hospital billing. Their stories are all very consistent. - There are many other countries with functional healthcare systems that do not charge anywhere near this much (for most people). Japan comes to mind. I have lived there. Premiums are based on a percentage of your salary, and the cost is much less than the US for 95%+ of the population. If you have no salary, it’s about $100 a year. When the US system reforms, I hope that the reformers take lessons from Japan since the transition from our current system to something like theirs will be relatively easier than many/most other options. > If you are claiming collusion, I would need proof. This isn’t CSI, and collusion doesn’t have to be explicit, especially with oligopolies. Once the major players in any market in the US realize that they can take a win-win game theory approach to their pricing, they pretty much do so. They don’t have to have surreptitious back room meetings in order to realize that increasing prices more or less in step is mutually beneficial, especially in health insurance, which has a wide moat.
  - 4y ago

by csa 4y ago

lotsofpulp 4y ago

Why is gross margin relevant? >Their profit (~5% as you mentioned) comes after they pay their relatively consistent operating expenses out of their gross margins. Just like in any other business. >The increased number of people getting insured is not what has driven up the insurance companies profits. Those numbers don’t add up. Their profit margin has not been driven up [0]. >It’s not competitive at all, imho. It’s an oligopoly. In an adjacent comment [0], I posted profit margins for 7 different publicly listed multi billion dollar health insurance businesses, which excludes Kaiser Permanente. If that is not a competitive business sector, I don’t know what is. If you are claiming collusion, I would need proof. >That said, the hospitals and insurance companies are feeding at the trough, they have established a new excessive normal, and they will fight any change to the 80/20 rule by comically pleading poverty. How are sub 5% profit margins feeding at the trough? If that is feeding at the trough, what is Apple, Microsoft, Visa, Alphabet, etc doing? If insurance companies had the pricing power you are claiming they have, why would the shareholders accept anemic profit margins? [0] https://news.ycombinator.com/item?id=33503127 https://news.ycombinator.com/item?id=33503127

csa 4y ago
Do you have any direct experience with the medical industry? If not, do you know anyone who has? It really seems like you are arm-chair quarterbacking your comments based on some quick online searches. I strongly encourage you to talk to folks who have worked in hospital billing pre- and post-ACA and (if possible) actuaries who work in the health insurance industry who will speak to you frankly (rather than toeing the industry line). The misaligned incentives are a complete shit show. > Why is gross margin relevant? If you can increase gross margin number while maintaining operation costs at about the same proportional level, then you end up with more absolute profit. So 100 premium, 20 gm and 5 profit can become 150 premium, 30 gm, and 7.5 profit. > How are sub 5% profit margins feeding at the trough? The percentage is not the issue. The absolute amount is. Some examples: - My premiums pre-ACA to now have almost quintupled. There are some good reasons to explain a small part of that increase (e.g., I’m older), but 4-5x is absurd. Way higher than inflation, and way higher than the quality of care has improved (for me specially, but also in general). - This link (https://khn.org/news/article/surprise-bill-iv-push-hospital-unbundling/ https://khn.org/news/article/surprise-bill-iv-push-hospital-...) is an example of hospitals feeding at the trough. Imagine this happening hundreds or thousands of times a day at every hospital. It’s absurd. I realize that this is basically a marketing piece by Kaiser, but the article is directionally correct based on folks I know who work in medicine, health insurance, and hospital billing. Their stories are all very consistent. - There are many other countries with functional healthcare systems that do not charge anywhere near this much (for most people). Japan comes to mind. I have lived there. Premiums are based on a percentage of your salary, and the cost is much less than the US for 95%+ of the population. If you have no salary, it’s about $100 a year. When the US system reforms, I hope that the reformers take lessons from Japan since the transition from our current system to something like theirs will be relatively easier than many/most other options. > If you are claiming collusion, I would need proof. This isn’t CSI, and collusion doesn’t have to be explicit, especially with oligopolies. Once the major players in any market in the US realize that they can take a win-win game theory approach to their pricing, they pretty much do so. They don’t have to have surreptitious back room meetings in order to realize that increasing prices more or less in step is mutually beneficial, especially in health insurance, which has a wide moat.
- 4y ago