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They should. Unfortunately a lot of incentives are not aligned. Due to the profit cap as a percentage of premiums, generally higher medical spending increases

by cameldrv 10mo ago

They should. Unfortunately a lot of incentives are not aligned. Due to the profit cap as a percentage of premiums, generally higher medical spending increases health insurance profits rather than reducing them. It's the same thing with PG&E -- the only way for them to make more money is to increase costs. It's exactly the opposite of a normally functioning market, and you see the same result in both cases.

estearum 10mo ago
There are more powerful forces than the profit caps, namely that the big insurers now actually also own the doctors. And capped or not, the pay-vider structure allows intra-company eliminations to bury arbitrary amounts of money as "not profit" even though it effectively is. And even if that weren't true, the expected coverage term for a US patient is ~4 years due to it being tied to employment, so there is quite literally zero incentive to address any health issue that won't materialize as cost in the next few years (obesity being one such type of health problem).
- jmward01 10mo ago
  I hadn't thought about the 4 year aspect. That is a great insight. I am against the current US healthcare system in general but I wonder if decoupling healthcare from employment (slightly) could help. Maybe employers should be required to pay for coverage that an employee selects? (clearly a lot of hand waiving of the exact mechanism here but..) This would incentivize healthcare plans to actually compete for someone to sign up with them and to give them an incentive to keep that person healthy since they would likely stick around longer with them.
- lotsofpulp 10mo ago
  > And capped or not, the pay-vider structure allows intra-company eliminations to bury arbitrary amounts of money as "not profit" even though it effectively is. Source? There are 7 large publicly listed health insurers with public financials, all underperforming SP500 for more than a decade. There are myriad other non profits such as Kaiser/Cambia/Premera/Providence/various BCBS/etc, all with public financials as well. Where is all this fraud going? And it’s happening across hundreds of executive offices across the country? And getting past 50 state insurance regulators that have to approve prices for insurance? That would be remarkable levels of corruption and collusion.
  - estearum 10mo ago
    It's not "fraudulent" per se, nor does it require corruption or collusion beyond what people already openly accept when they accept the existence of payviders (which they shouldn't! Or at least not for-profit payviders). Payvider: An entity that is both a payer (insurer) and a provider (medical practice). Most payviders also have vertically integrated PBMs (pharmacy benefit managers), pharmacies, and labs, all of which participate in the same scheme. A few of the examples you listed are NOT payviders, they're just payers, and therefore do not have these levers available to them. Vertically integrated companies evade profit caps on their insurance division by shifting money to their unregulated provider, PBM, or labs divisions. It's pretty simple: the insurance arm overpays its own subsidiary doctors and clinics and records these internal transfers as mandatory "medical care" which is recorded as loss on the insurance side. The parent company then pockets the excess money as unrestricted profit on the provider/PBM/lab side, effectively bypassing the legal limit on how much insurance revenue they can keep and completely destroying the incentive to manage costs through their insurance division, at least when those costs originate from their own providers, which given that e.g. UHG is now the largest employer of doctors in the US, is increasingly often! Is it fraudulent, corrupt, or collusive for a health insurer to employ doctors who deliver care? Not per se, but it gives insurers the ability to more or less arbitrarily convert premium dollars into profit while still getting people to defend them with claims like "they've been underperforming the SP500 for more than a decade." Here are a few sources about different constituent behaviors, though you'd have to do a decent amount of reading to stitch together the full picture of how this works: https://www.statnews.com/2024/11/25/unitedhealth-higher-payments-optum-providers-converts-expenses-to-profits/ https://www.statnews.com/2024/11/25/unitedhealth-higher-paym... https://www.healthaffairs.org/content/forefront/insurers-own-providers-can-game-medical-loss-ratio-rules https://www.healthaffairs.org/content/forefront/insurers-own... https://www.wsj.com/us-news/unitedhealth-medicare-fraud-investigation-df80667f https://www.wsj.com/us-news/unitedhealth-medicare-fraud-inve... https://www.statnews.com/2024/07/25/united-health-group-medicare-advantage-strategy-doctor-clinic-acquisitions/ https://www.statnews.com/2024/07/25/united-health-group-medi...
    - lotsofpulp 10mo ago
      > Vertically integrated companies evade profit caps on their insurance division by shifting money to their unregulated provider, PBM, or labs divisions. It's pretty simple: the insurance arm overpays its own subsidiary doctors and clinics and records these internal transfers as mandatory "medical care" which is recorded as loss on the insurance side. The parent company then pockets the excess money as unrestricted profit on the provider/PBM/lab side, effectively bypassing the legal limit on how much insurance revenue they can keep and completely destroying the incentive to manage costs through their insurance division, at least when those costs originate from their own providers, which given that e.g. UHG is now the largest employer of doctors in the US, is increasingly often! Yes, UNH does better than the other managed care organizations because their healthcare business has higher margins than their insurance business. But it’s certainly not arbitrary, and it’s apparently not enough to make their shares worth buying. More importantly, UNH competed against other insurers. They don’t get to “arbitrarily” pay their doctors (as if any business wants to overpay their employees). If they pay too much, then they will have to charge higher premiums. Premiums which also have to be approved by state regulators. And it’s a fact that UNH’s premiums are comparable to everyone else’s premiums. Why else would people buy from them? >Is it fraudulent, corrupt, or collusive for a health insurer to employ doctors who deliver care? Not per se, but it gives insurers the ability to more or less arbitrarily convert premium dollars into profit while still getting people to defend them with claims like "they've been underperforming the SP500 for more than a decade." The silly claim is stating managed care organizations are booking outsize profits, yet they don’t show up in 10-Ks or even shateholders’ pockets. Underperformance relative to SP500 is a factual claim. 2% to 3% profit margin (objectively a tiny profit margin is a factual claim for 6 different businesses. UNH is at 5% to 7%, which is decent, but pathetic compared to tech/pharmaceutical/finance/real estate/oil companies. Hopefully you can see why this all sounds like unfounded conspiracy theories. Just the fact that it’s better to own SP500 than a health insurer stock should be enough to conclude there are no “unrestricted” arbitrary profits being taken. They are very much restricted, and their shareholders know.
lotsofpulp 10mo ago
> It's the same thing with PG&E An electric and gas utility is a structural monopoly, you cannot run multiple power wired and gas pipes to each property. Health insurance is easily switched. If Kaiser spends too much, then Anthem/United/Aetna/Cigna/etc can gain customers by offering a lower price.

estearum 10mo ago

There are more powerful forces than the profit caps, namely that the big insurers now actually also own the doctors. And capped or not, the pay-vider structure allows intra-company eliminations to bury arbitrary amounts of money as "not profit" even though it effectively is. And even if that weren't true, the expected coverage term for a US patient is ~4 years due to it being tied to employment, so there is quite literally zero incentive to address any health issue that won't materialize as cost in the next few years (obesity being one such type of health problem).

jmward01 10mo ago
I hadn't thought about the 4 year aspect. That is a great insight. I am against the current US healthcare system in general but I wonder if decoupling healthcare from employment (slightly) could help. Maybe employers should be required to pay for coverage that an employee selects? (clearly a lot of hand waiving of the exact mechanism here but..) This would incentivize healthcare plans to actually compete for someone to sign up with them and to give them an incentive to keep that person healthy since they would likely stick around longer with them.
lotsofpulp 10mo ago
> And capped or not, the pay-vider structure allows intra-company eliminations to bury arbitrary amounts of money as "not profit" even though it effectively is. Source? There are 7 large publicly listed health insurers with public financials, all underperforming SP500 for more than a decade. There are myriad other non profits such as Kaiser/Cambia/Premera/Providence/various BCBS/etc, all with public financials as well. Where is all this fraud going? And it’s happening across hundreds of executive offices across the country? And getting past 50 state insurance regulators that have to approve prices for insurance? That would be remarkable levels of corruption and collusion.
- estearum 10mo ago
  It's not "fraudulent" per se, nor does it require corruption or collusion beyond what people already openly accept when they accept the existence of payviders (which they shouldn't! Or at least not for-profit payviders). Payvider: An entity that is both a payer (insurer) and a provider (medical practice). Most payviders also have vertically integrated PBMs (pharmacy benefit managers), pharmacies, and labs, all of which participate in the same scheme. A few of the examples you listed are NOT payviders, they're just payers, and therefore do not have these levers available to them. Vertically integrated companies evade profit caps on their insurance division by shifting money to their unregulated provider, PBM, or labs divisions. It's pretty simple: the insurance arm overpays its own subsidiary doctors and clinics and records these internal transfers as mandatory "medical care" which is recorded as loss on the insurance side. The parent company then pockets the excess money as unrestricted profit on the provider/PBM/lab side, effectively bypassing the legal limit on how much insurance revenue they can keep and completely destroying the incentive to manage costs through their insurance division, at least when those costs originate from their own providers, which given that e.g. UHG is now the largest employer of doctors in the US, is increasingly often! Is it fraudulent, corrupt, or collusive for a health insurer to employ doctors who deliver care? Not per se, but it gives insurers the ability to more or less arbitrarily convert premium dollars into profit while still getting people to defend them with claims like "they've been underperforming the SP500 for more than a decade." Here are a few sources about different constituent behaviors, though you'd have to do a decent amount of reading to stitch together the full picture of how this works: https://www.statnews.com/2024/11/25/unitedhealth-higher-payments-optum-providers-converts-expenses-to-profits/ https://www.statnews.com/2024/11/25/unitedhealth-higher-paym... https://www.healthaffairs.org/content/forefront/insurers-own-providers-can-game-medical-loss-ratio-rules https://www.healthaffairs.org/content/forefront/insurers-own... https://www.wsj.com/us-news/unitedhealth-medicare-fraud-investigation-df80667f https://www.wsj.com/us-news/unitedhealth-medicare-fraud-inve... https://www.statnews.com/2024/07/25/united-health-group-medicare-advantage-strategy-doctor-clinic-acquisitions/ https://www.statnews.com/2024/07/25/united-health-group-medi...
  - lotsofpulp 10mo ago
    > Vertically integrated companies evade profit caps on their insurance division by shifting money to their unregulated provider, PBM, or labs divisions. It's pretty simple: the insurance arm overpays its own subsidiary doctors and clinics and records these internal transfers as mandatory "medical care" which is recorded as loss on the insurance side. The parent company then pockets the excess money as unrestricted profit on the provider/PBM/lab side, effectively bypassing the legal limit on how much insurance revenue they can keep and completely destroying the incentive to manage costs through their insurance division, at least when those costs originate from their own providers, which given that e.g. UHG is now the largest employer of doctors in the US, is increasingly often! Yes, UNH does better than the other managed care organizations because their healthcare business has higher margins than their insurance business. But it’s certainly not arbitrary, and it’s apparently not enough to make their shares worth buying. More importantly, UNH competed against other insurers. They don’t get to “arbitrarily” pay their doctors (as if any business wants to overpay their employees). If they pay too much, then they will have to charge higher premiums. Premiums which also have to be approved by state regulators. And it’s a fact that UNH’s premiums are comparable to everyone else’s premiums. Why else would people buy from them? >Is it fraudulent, corrupt, or collusive for a health insurer to employ doctors who deliver care? Not per se, but it gives insurers the ability to more or less arbitrarily convert premium dollars into profit while still getting people to defend them with claims like "they've been underperforming the SP500 for more than a decade." The silly claim is stating managed care organizations are booking outsize profits, yet they don’t show up in 10-Ks or even shateholders’ pockets. Underperformance relative to SP500 is a factual claim. 2% to 3% profit margin (objectively a tiny profit margin is a factual claim for 6 different businesses. UNH is at 5% to 7%, which is decent, but pathetic compared to tech/pharmaceutical/finance/real estate/oil companies. Hopefully you can see why this all sounds like unfounded conspiracy theories. Just the fact that it’s better to own SP500 than a health insurer stock should be enough to conclude there are no “unrestricted” arbitrary profits being taken. They are very much restricted, and their shareholders know.

lotsofpulp 10mo ago

> It's the same thing with PG&E An electric and gas utility is a structural monopoly, you cannot run multiple power wired and gas pipes to each property. Health insurance is easily switched. If Kaiser spends too much, then Anthem/United/Aetna/Cigna/etc can gain customers by offering a lower price.