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> An insurance company's only goal nowadays is to make as much money as possible How can that be true when their profits are capped on collected premiums? Look

> An insurance company's only goal nowadays is to make as much money as possible How can that be true when their profits are capped on collected premiums? Look up the Medical Loss Ratio (MLR) rule to see what I'm referring to. If you wanted to squeeze money out of people, health insurance would be the least appealing industry to do that in since you're required to spend 80-85% of premiums on medical care.

lozenge 1y ago
So increase the health care spending, then you can raise premiums. An issue the ACA drafters already knew about, and tried (and failed) to deal with.
- lotsofpulp 1y ago
  The linked article is about insurers trying to reduce spending by downcoding. So which is it? Insurers unfairly denying reimbursement for what should be valid claims, or insurers unfairly increasing spending on claims so they can increase their profits. Also, go look at 5, 10, and 15 year returns for the big insurers (UNH/Elevance/CVS/Cigna/Humana/Molina/Centene) if you think health insurance is a good business for earning money. Spoiler alert: they’re less than desirable, stick with SP500.
wat10000 1y ago
A 25% margin is pretty good, and companies aren't hitting the limit currently.
- lotsofpulp 1y ago
  The 7 publicly listed health insurers have ~2% profit margins, with the exception of UNH at 6%, but that is due to its healthcare provider business earning higher margins. The other insurers are almost all non profit (various BCBS affiliated insurers, Kaiser, Providence, etc).
  - wat10000 1y ago
    Not sure what the relevance of that is. If anything, small profit margins just further incentivize trying to pay out less.
    - lotsofpulp 1y ago
      You wrote they had 25% margins. And obviously a business with 2% profit margins is incentivized to spend less, if they didn’t, they would be out of business!
      - wat10000 1y ago
        Gross versus net margin. The other commenter was saying they don't have incentives to cut costs because of the MLR limit, but that limit is a 25% margin over the cost of their "product." For a product that boils down to just moving money around, 25% is pretty good. This is illustrated by the fact that they aren't actually bumping into the legal MLR limit currently. It would make sense if they don't care about cutting costs because the law doesn't allow them to spend less, but that's not where they are at the moment. If they could cut their medical spending by 1% they could increase their profit by 40%.
        lotsofpulp 1y ago
        > The other commenter was saying they don't have incentives to cut costs because of the MLR limit, but that limit is a 25% margin over the cost of their "product." For a product that boils down to just moving money around, 25% is pretty good. I don’t know where you are getting 25% from. See exhibit 2: https://www.oliverwyman.com/our-expertise/insights/2024/sep/health-insurer-financial-insights-q2-2024.html https://www.oliverwyman.com/our-expertise/insights/2024/sep/... Medical loss ratios float between 80% to 90%, leaving 10% to 20% for operating costs and profit. Their “product” requires enormous manpower to negotiate contracts, handle customer service, lawyers for the government, and most of all, employ doctors and pharmacists to adjudicate claims. > It would make sense if they don't care about cutting costs because the law doesn't allow them to spend less, but that's not where they are at the moment. Of course, and the obvious fact of the matter is insurance prices are heavily regulated and there is competition, so they already have an incentive to control costs in order to control premiums. Which is literally what their customers pay them for, to negotiate with healthcare providers with whom customers usually wouldn’t have leverage against. >If they could cut their medical spending by 1% they could increase their profit by 40%. Sure, but in industries like insurance and retail, the low single digit profit margins indicate a more pressing need to survive, rather than increase nominal profit.
malfist 1y ago
Let me tell you about this little thing called Hollywood accounting
- lotsofpulp 1y ago
  Hollywood accounting has nothing to do with legal accounting standards that are followed for publicly listed companies’ required SEC reports. https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting The only thing Hollywood accounting does is affect poorly written contracts between businesses.

lozenge 1y ago

So increase the health care spending, then you can raise premiums. An issue the ACA drafters already knew about, and tried (and failed) to deal with.

lotsofpulp 1y ago
The linked article is about insurers trying to reduce spending by downcoding. So which is it? Insurers unfairly denying reimbursement for what should be valid claims, or insurers unfairly increasing spending on claims so they can increase their profits. Also, go look at 5, 10, and 15 year returns for the big insurers (UNH/Elevance/CVS/Cigna/Humana/Molina/Centene) if you think health insurance is a good business for earning money. Spoiler alert: they’re less than desirable, stick with SP500.

wat10000 1y ago

A 25% margin is pretty good, and companies aren't hitting the limit currently.

lotsofpulp 1y ago
The 7 publicly listed health insurers have ~2% profit margins, with the exception of UNH at 6%, but that is due to its healthcare provider business earning higher margins. The other insurers are almost all non profit (various BCBS affiliated insurers, Kaiser, Providence, etc).
- wat10000 1y ago
  Not sure what the relevance of that is. If anything, small profit margins just further incentivize trying to pay out less.
  - lotsofpulp 1y ago
    You wrote they had 25% margins. And obviously a business with 2% profit margins is incentivized to spend less, if they didn’t, they would be out of business!
    - wat10000 1y ago
      Gross versus net margin. The other commenter was saying they don't have incentives to cut costs because of the MLR limit, but that limit is a 25% margin over the cost of their "product." For a product that boils down to just moving money around, 25% is pretty good. This is illustrated by the fact that they aren't actually bumping into the legal MLR limit currently. It would make sense if they don't care about cutting costs because the law doesn't allow them to spend less, but that's not where they are at the moment. If they could cut their medical spending by 1% they could increase their profit by 40%.
      - lotsofpulp 1y ago
        > The other commenter was saying they don't have incentives to cut costs because of the MLR limit, but that limit is a 25% margin over the cost of their "product." For a product that boils down to just moving money around, 25% is pretty good. I don’t know where you are getting 25% from. See exhibit 2: https://www.oliverwyman.com/our-expertise/insights/2024/sep/health-insurer-financial-insights-q2-2024.html https://www.oliverwyman.com/our-expertise/insights/2024/sep/... Medical loss ratios float between 80% to 90%, leaving 10% to 20% for operating costs and profit. Their “product” requires enormous manpower to negotiate contracts, handle customer service, lawyers for the government, and most of all, employ doctors and pharmacists to adjudicate claims. > It would make sense if they don't care about cutting costs because the law doesn't allow them to spend less, but that's not where they are at the moment. Of course, and the obvious fact of the matter is insurance prices are heavily regulated and there is competition, so they already have an incentive to control costs in order to control premiums. Which is literally what their customers pay them for, to negotiate with healthcare providers with whom customers usually wouldn’t have leverage against. >If they could cut their medical spending by 1% they could increase their profit by 40%. Sure, but in industries like insurance and retail, the low single digit profit margins indicate a more pressing need to survive, rather than increase nominal profit.

malfist 1y ago

Let me tell you about this little thing called Hollywood accounting

lotsofpulp 1y ago
Hollywood accounting has nothing to do with legal accounting standards that are followed for publicly listed companies’ required SEC reports. https://en.wikipedia.org/wiki/Hollywood_accounting https://en.wikipedia.org/wiki/Hollywood_accounting The only thing Hollywood accounting does is affect poorly written contracts between businesses.