8 ms·

Aren't there laws that require insurance companies and utility companies to have specific margins? They could in theory just print infinite money so they need t

Aren't there laws that require insurance companies and utility companies to have specific margins? They could in theory just print infinite money so they need to be reigned in by governments.

thedougd 3y ago
Yes. https://www.healthcare.gov/health-care-law-protections/rate-review/#:~:text=The%2080%2F20%20Rule%20generally,Medical%20Loss%20Ratio%2C%20or%20MLR https://www.healthcare.gov/health-care-law-protections/rate-....
- jmole 3y ago
  So the only way to grow profits is by increasing the base cost of service.
  - lotsofpulp 3y ago
    An insurance company can also increase the number of customers.
- amluto 3y ago
  And this is a bad law. What do you think happens when a company has limited margins? Hint: almost all companies try to make a profit (which is fine). If the margins are unrestricted, the company can cut costs to increase profit, which is a good thing. If the margins are limited, the company must raise revenue to increase profit. For an insurance company (or a utility, and California has exactly the same broken rule for private utilities), this means raising rates or premiums. It gets worse. If an insurer raises rates, they are required to spend 80% of that money! They are required to be inefficient! If the insurer reduces their outflows by 5% by doing a good job, they lose 5% of their profits by law. So they are basically required to do a bad job.
  - lotsofpulp 3y ago
    Or a competing insurer takes their customers by offering lower premiums. There is a reason the health insurance business earns anemic profit margins, even though they can legally earn more.
  - efsavage 3y ago
    I don't think it's a _bad law_* as much as it's an _incomplete law_. I don't know what the complete version looks like, but it would include both customer cost controls and reward innovation-based efficiency gains. Alternatively, some places have taken the approach that these are mutually exclusive and just generally removed profit from the picture entirely by socializing it. * Health care costs were growing out of control before these laws, which seem to have slowed that trend short-term but not long-term as the industry pivoted.
    - amluto 3y ago
      IMO the most effective consumer cost control is competition. An actual, non-corrupt, free market where customers are not locked in and there are more than just a handful of providers generally results in low prices. We do not have this in healthcare. Providers form cartels - at least in Northern California, this is so bad that the state AG is investigating (not very effectually) [0]. Customers generally can't even tell what a provider charges, so there is no price competition. There aren't many insurers, and they compete on so many incomprehensible dimensions that customers can't usefully choose. (And the most useful thing customers can look at is the network, but see the above issue with provider cartels.) Pharmacy benefits are highly corrupt and incomprehensible. [0] We have Sutter Health, UCSF, Stanford, and Kaiser. There is very little in the way of independent providers left. Sutter Health in particular has aggressively merged with any available competition.
      - izzydata 3y ago
        Wouldn't a free market eventually lead to all these insurance companies combining into 1-2 even more mega insurance companies until there is no competition again? At least if all their profits are capped there is no reason to merge.
ochoseis 3y ago
The ACA caps insurer profitability at 20% by requiring 80% of premiums to go towards healthcare costs. Administrative / operational / marketing costs and profit come out of the remaining 20%. So, if you’re an insurer who wants to increase nominal profits, then you’re ok with spiraling healthcare costs. https://www.healthcare.gov/health-care-law-protections/rate-review/ https://www.healthcare.gov/health-care-law-protections/rate-...
- AnthonyMouse 3y ago
  > So, if you’re an insurer who wants to increase nominal profits, then you’re ok with spiraling healthcare costs. Not just okay, but actively incentivized to cause it, because then you get 20% of a bigger number. Laws like that are some of the most expensive of the perverse incentives created by naive idealists (or cynical opportunists, since the lobbyists for the medical providers know exactly what that would do).
  - lotsofpulp 3y ago
    In reality, there is sufficient competition such that the 7 largest publicly listed health insurance companies have 4% or less profit margins, and one has 6%. I always find it funny when people on this forum act like a certain business is so powerful when it can only earn low single digit profit margins, yet tech company employees work for companies so powerful they can earn 20%+ and 30%+ profit margins for years and years. https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-group/profit-margins https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-g... https://www.macrotrends.net/stocks/charts/ELV/elevance-health/net-profit-margin https://www.macrotrends.net/stocks/charts/ELV/elevance-healt... https://www.macrotrends.net/stocks/charts/CVS/cvs-health/profit-margins https://www.macrotrends.net/stocks/charts/CVS/cvs-health/pro... https://www.macrotrends.net/stocks/charts/CI/cigna-group/net-profit-margin https://www.macrotrends.net/stocks/charts/CI/cigna-group/net... https://www.macrotrends.net/stocks/charts/HUM/humana/profit-margins https://www.macrotrends.net/stocks/charts/HUM/humana/profit-... https://www.macrotrends.net/stocks/charts/CNC/centene/profit-margins https://www.macrotrends.net/stocks/charts/CNC/centene/profit... https://www.macrotrends.net/stocks/charts/MOH/molina-healthcare/profit-margins https://www.macrotrends.net/stocks/charts/MOH/molina-healthc...
paulddraper 3y ago
Correct. Insurance companies must pay 80% of all premiums directly to reimbursement. The remaining 20% is for administration, marketing, and profit. But that's a control for premium prices...it doesn't really say anything about the costs that doctors charge.

Aren't there laws that require insurance companies and utility companies to have specific margins? They could in theory just print infinite money so they need to be reigned in by governments.

thedougd 3y ago

Yes. https://www.healthcare.gov/health-care-law-protections/rate-review/#:~:text=The%2080%2F20%20Rule%20generally,Medical%20Loss%20Ratio%2C%20or%20MLR https://www.healthcare.gov/health-care-law-protections/rate-....

jmole 3y ago
So the only way to grow profits is by increasing the base cost of service.
- lotsofpulp 3y ago
  An insurance company can also increase the number of customers.
amluto 3y ago
And this is a bad law. What do you think happens when a company has limited margins? Hint: almost all companies try to make a profit (which is fine). If the margins are unrestricted, the company can cut costs to increase profit, which is a good thing. If the margins are limited, the company must raise revenue to increase profit. For an insurance company (or a utility, and California has exactly the same broken rule for private utilities), this means raising rates or premiums. It gets worse. If an insurer raises rates, they are required to spend 80% of that money! They are required to be inefficient! If the insurer reduces their outflows by 5% by doing a good job, they lose 5% of their profits by law. So they are basically required to do a bad job.
- lotsofpulp 3y ago
  Or a competing insurer takes their customers by offering lower premiums. There is a reason the health insurance business earns anemic profit margins, even though they can legally earn more.
- efsavage 3y ago
  I don't think it's a _bad law_* as much as it's an _incomplete law_. I don't know what the complete version looks like, but it would include both customer cost controls and reward innovation-based efficiency gains. Alternatively, some places have taken the approach that these are mutually exclusive and just generally removed profit from the picture entirely by socializing it. * Health care costs were growing out of control before these laws, which seem to have slowed that trend short-term but not long-term as the industry pivoted.
  - amluto 3y ago
    IMO the most effective consumer cost control is competition. An actual, non-corrupt, free market where customers are not locked in and there are more than just a handful of providers generally results in low prices. We do not have this in healthcare. Providers form cartels - at least in Northern California, this is so bad that the state AG is investigating (not very effectually) [0]. Customers generally can't even tell what a provider charges, so there is no price competition. There aren't many insurers, and they compete on so many incomprehensible dimensions that customers can't usefully choose. (And the most useful thing customers can look at is the network, but see the above issue with provider cartels.) Pharmacy benefits are highly corrupt and incomprehensible. [0] We have Sutter Health, UCSF, Stanford, and Kaiser. There is very little in the way of independent providers left. Sutter Health in particular has aggressively merged with any available competition.
    - izzydata 3y ago
      Wouldn't a free market eventually lead to all these insurance companies combining into 1-2 even more mega insurance companies until there is no competition again? At least if all their profits are capped there is no reason to merge.

ochoseis 3y ago

The ACA caps insurer profitability at 20% by requiring 80% of premiums to go towards healthcare costs. Administrative / operational / marketing costs and profit come out of the remaining 20%. So, if you’re an insurer who wants to increase nominal profits, then you’re ok with spiraling healthcare costs. https://www.healthcare.gov/health-care-law-protections/rate-review/ https://www.healthcare.gov/health-care-law-protections/rate-...

AnthonyMouse 3y ago
> So, if you’re an insurer who wants to increase nominal profits, then you’re ok with spiraling healthcare costs. Not just okay, but actively incentivized to cause it, because then you get 20% of a bigger number. Laws like that are some of the most expensive of the perverse incentives created by naive idealists (or cynical opportunists, since the lobbyists for the medical providers know exactly what that would do).
- lotsofpulp 3y ago
  In reality, there is sufficient competition such that the 7 largest publicly listed health insurance companies have 4% or less profit margins, and one has 6%. I always find it funny when people on this forum act like a certain business is so powerful when it can only earn low single digit profit margins, yet tech company employees work for companies so powerful they can earn 20%+ and 30%+ profit margins for years and years. https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-group/profit-margins https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-g... https://www.macrotrends.net/stocks/charts/ELV/elevance-health/net-profit-margin https://www.macrotrends.net/stocks/charts/ELV/elevance-healt... https://www.macrotrends.net/stocks/charts/CVS/cvs-health/profit-margins https://www.macrotrends.net/stocks/charts/CVS/cvs-health/pro... https://www.macrotrends.net/stocks/charts/CI/cigna-group/net-profit-margin https://www.macrotrends.net/stocks/charts/CI/cigna-group/net... https://www.macrotrends.net/stocks/charts/HUM/humana/profit-margins https://www.macrotrends.net/stocks/charts/HUM/humana/profit-... https://www.macrotrends.net/stocks/charts/CNC/centene/profit-margins https://www.macrotrends.net/stocks/charts/CNC/centene/profit... https://www.macrotrends.net/stocks/charts/MOH/molina-healthcare/profit-margins https://www.macrotrends.net/stocks/charts/MOH/molina-healthc...

paulddraper 3y ago

Correct. Insurance companies must pay 80% of all premiums directly to reimbursement. The remaining 20% is for administration, marketing, and profit. But that's a control for premium prices...it doesn't really say anything about the costs that doctors charge.