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The ACA caps insurer profitability at 20% by requiring 80% of premiums to go towards healthcare costs. Administrative / operational / marketing costs and profit

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...
  - AnthonyMouse 3y ago
    That's their profit margin, not including the administrative overhead that counts against the 20%.
    - lotsofpulp 3y ago
      I do not think health insurance company shareholders are interested in paying employees extra for no reason and earning less profit for themselves.
      - AnthonyMouse 3y ago
        Health insurance company executives are though, aren't they? Their compensation is the "administrative overhead." And a lot of the administrative overhead is proportional to expenses. Commissions are commonly a fixed percentage. How much it's worthwhile to spend on fraud prevention is in proportion to the size and amount of claims. So when premiums and claims costs go up, actual administrative costs go up, but shareholders and executives still prefer that to making less profit and compensation once you take lowering claims costs off the table as a way to make more money.
        deleted 3y ago
        [deleted]
        lotsofpulp 3y ago
        >Health insurance company executives are though, aren't they? Their compensation is the "administrative overhead." Yes, and considering they health insurance company executives are not all the richest people in the US, there must exist some pressure to contain their compensation. >once you take lowering claims costs off the table as a way to make more money. This is a pretty big assumption. Surely, UHC/Elevance/CVS/Cigna/Humana risk losing clients if they let their costs go up compared to competitors, and hence their premiums go up, and then a competitor offers their customers lower premiums.
        3y ago
deleted 3y ago
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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...
- AnthonyMouse 3y ago
  That's their profit margin, not including the administrative overhead that counts against the 20%.
  - lotsofpulp 3y ago
    I do not think health insurance company shareholders are interested in paying employees extra for no reason and earning less profit for themselves.
    - AnthonyMouse 3y ago
      Health insurance company executives are though, aren't they? Their compensation is the "administrative overhead." And a lot of the administrative overhead is proportional to expenses. Commissions are commonly a fixed percentage. How much it's worthwhile to spend on fraud prevention is in proportion to the size and amount of claims. So when premiums and claims costs go up, actual administrative costs go up, but shareholders and executives still prefer that to making less profit and compensation once you take lowering claims costs off the table as a way to make more money.
      - deleted 3y ago
        [deleted]
      - lotsofpulp 3y ago
        >Health insurance company executives are though, aren't they? Their compensation is the "administrative overhead." Yes, and considering they health insurance company executives are not all the richest people in the US, there must exist some pressure to contain their compensation. >once you take lowering claims costs off the table as a way to make more money. This is a pretty big assumption. Surely, UHC/Elevance/CVS/Cigna/Humana risk losing clients if they let their costs go up compared to competitors, and hence their premiums go up, and then a competitor offers their customers lower premiums.
        3y ago

deleted 3y ago

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