7 ms·

Lots of people are saying nonsense here. The actual reason commercial insurers pay more is that's the only way to can make more profits. Because of Obamacare r

Lots of people are saying nonsense here. The actual reason commercial insurers pay more is that's the only way to can make more profits. Because of Obamacare requiring 80% of the money they collect to be spent, the insurance companies just get to keep 20%. So insurance companies spend more so they can collect higher premiums. That's how they make more money. Several doctor friends have told me this as well.

skybrian 7mo ago
I was under the impression that some companies that provide insurance also provide healthcare?
shdudns 7mo ago
This. It's hard to believe that the Obama team could have been this financially incompetent.
- bmcahren 7mo ago
  It's easy with hindsight to believe you could have capped expense at 200% medicare but getting what we got passed was nearly impossible at the time. Before Affordable Care Act, insurers had every tool available to deny care, maximize profits, and skim more than 20% off the top. It's great we're getting closer to the point that it feels to you like incompetence that these things aren't fixed today but your anger with the medical lobby is clearly misplaced here. Every major piece of legislation needs revisions to chase circumvention and we're well past due on updates but no legitimate bills have been presented that cover these topics and that's not a one-party issue.
  - cogman10 7mo ago
    Yup, pre-existing conditions, in particular, was a beast. The patient protection portion of the ACA is one of the better parts of the whole bill.
    - prirun 7mo ago
      Private insurance companies still do not cover pre-existing conditions. How? By not writing insurance to individuals except during ACA open enrollment. I know this because I tried to get private insurance before going to Mayo Clinic, because my ACA insurance with Ambetter was out of network. When I got through to an insurance company sales person for individual coverage, they told me they don't cover pre-existing conditions for 6 months. When I challenged them and said that's illegal, they hung up on me. Most companies I called had a phone menu that, when I pushed the buttons for individual coverage, would lead me into a loop, hang up on me, put me on hold forever, etc. They simply won't write individual coverage outside a couple of months at the end of the year. This effectively allows them to not cover pre-existing conditions, at least for individuals. For company employees, yes, the coverage of pre-existing conditions is a win. I ended up paying $12K to Mayo for a week of appointments. Private insurance, if I could have gotten it, would have been at least $1000/mo for premiums (in 2020) plus $10K deductible, so I actually saved money just paying Mayo instead of getting private insurance. IMO the only reason insurance companies allowed the ACA to pass was the stipulation that everyone in the US was required to get insurance coverage or face a penalty. When the Supreme Court ruled that provision illegal, I'm sure the insurance companies were furious that they were duped.
      - nradov 7mo ago
        Your story is missing some pieces. Why didn't you sign up during ACA open enrollment? Those policies absolutely do cover pre-existing conditions. But not every provider organization will be in network for every health plan.
      - glenstein 7mo ago
        >Private insurance companies still do not cover pre-existing conditions. How? By not writing insurance to individuals except during ACA open enrollment. Sorry I'm struggling to follow here. You think the open enrollment period effectively means that there's no prohibition on pre-existing conditions? Think you're kind of bending words outside of their normal usage because quite literally pre-existing condition policies are banned. The compensating counterbalance is a neutral open enrollment period so people don't just jump when they learn they have a health problem, it's a compromise to ensure financial sustainability. You do understand that before this, it was worse right? One comment after another here is comparing the ACA to a magical fantasy, rather than the status quo that it improved upon.
- vjvjvjvjghv 7mo ago
  Obamacare was totally subverted by the medical lobby during its creation. They had a lot of great ideas but there were way too many politicians in Congress who had sold out to the lobby (Lieberman, Baucus on the democrat side) and would block anything that would reduce cost. And since then it has been a fight for survival without much chance for improvement. The republican refuse anything that could improve it but want to “repeal and replace” but are struggling a little with the “replace” part. And the democrats are too timid to make another push. So we end up with the worst of all worlds. Super expensive, overall results not very good and super complex.
  - catlover76 7mo ago
    [dead]
- raw_anon_1111 7mo ago
  It was the best they could do to get 60 votes because universal health care was too radical even though every industrialized country in the world does it.
- watersb 7mo ago
  It's almost as if no healthcare legislation gets passed before private insurers have figured out how to extract shareholder value. (Which makes the system worse. The fiction of a fiduciary responsibility to extract top dollar from a business regardless of consequences is the opposite of "capitalism". Which derives its name from the practice of sound investment to build something of lasting value. To say nothing of the social deviance of for-profit healthcare.)
- dboreham 7mo ago
  Obama had nothing to do with what's in the ACA. It was ideas from moderate Republicans (previously prototyped in Massachusetts under governor Mitt Romney), advanced on the basis that it would receive bipartisan support as a result. But it didn't, so it was heavily amended until John McCain provided the last vote to get it through.
genthree 7mo ago
These limits don’t apply to self-funded programs that are administered by big insurance companies (most large employers’ plans, then) or plans less than two years old (whether there are measures in place to prevent simply rotating plans often to exploit this, I do not know)
cogman10 7mo ago
This seems like we need similar price caps for healthcare providers, medical equipment providers, pharmaceuticals, etc. Done just in isolation for 1 part of the healthcare industry results in this obvious bad effect. Removing the rule wouldn't help things.
- nradov 7mo ago
  Price caps always and everywhere cause shortages, including long queues for certain types of care. This may be acceptable but we need to understand the trade-offs when making any changes.
  - mothballed 7mo ago
    Price caps create shortages when they are the rate limiting factor, which is always the case when imposed on a free market whenever the cap is below the market price, so this is an extremely accurate statement when dealing with things like lightly regulated commodities. Whether they would be the rate limiting factor in health care remain to be seen, since health care is highly regulated with regulatory capture, licensing, and violence enforced market manipulations. As a thought experiment, in the extreme that health care were a pure monopoly, then I could envision some price caps somewhere between cost and price where the supply curve is relatively flat on either side thus creating minimal effects to supply.
    - nradov 7mo ago
      You don't need to waste time with though experiments, you can just look around at various national healthcare systems. Wherever there are price caps, certain treatments have long queues or are simply not available at all. That's why affluent Canadians often come to the USA as medical tourists and pay cash for MRI scans or joint replacement surgery. Every system rations care somehow and price caps aren't necessarily the worst way to do it so let's just be real about the consequences.
      - mothballed 7mo ago
raw_anon_1111 7mo ago
So I happen to be in Costa Rica for the month. Just like every other 1st world country, it has managed to have universal health care that is better and cheaper without private insurance. Even if you do get private insurance for quicker access, it’s still much cheaper than the US. I just spoke to someone who flew down here to save $30K on dental work. The problem isn’t the ACA, it’s the ass backwards American health care system. I was at a meetup of American ex-pats here and half of them said they established residency here to join CAJA - the health care system
- nostrebored 7mo ago
  ACA enshrined the worst parts of the American healthcare system for years to come. It is a politicized victory that is the best solution for no American citizens. Places I’ve been with fully privatized healthcare or single payer are both significantly better for consumers. Insurance companies have raised prices to restore profit, were briefly a mandatory expense, and will exist for years to come.
  - lotsofpulp 7mo ago
    > Insurance companies have raised prices to restore profit, were briefly a mandatory expense, and will exist for years to come. Why do their stocks underperform so badly? https://imgur.com/S8bNSM2 https://imgur.com/S8bNSM2
    - rybosworld 7mo ago
      Why would a 3-year stock chart be indicative of underperformance?
      - lotsofpulp 7mo ago
        It is a 5 year chart, and the 10 year is not free on that website. You can find out similar results for longer periods here: https://dqydj.com/stock-return-calculator/ https://dqydj.com/stock-return-calculator/ https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/
phil21 7mo ago
In a vacuum sure. But insurance companies operate the only part of the healthcare system that is moderately competitive. In the end employers are the ones largely paying and they are professional negotiators enough to put price pressure on insurance plans. 20% of $0 is $0. As such, as light of an incentive it is - it’s the only party in the entire system that is incentivized in any way whatsoever to keep costs down. Insurance providers also rarely operate at the full freight 20% either way though. So they are at least at this time incentivized to control costs at some level since every dollar saved is a dollar added to the profit line. Otherwise they would not be known for denying claims so often. This is ignoring a whole lot of very important complexities as well - such as self funded insurance plans that most major companies utilize. There the insurance company is simply a plan administrator getting paid the same either way. It’s one of those tropes that has a source of truth behind it but the actual reality is far less satisfying of an answer. Makes for great sound bites and ability to shut down further thought on the subject though. The uncomfortable truth is that there is no simple fix and no one bad actor that is the cause of all the insanity.
- cogman10 7mo ago
  It's such a small market that it's really not competitive. Further, because medicine is so expensive, it means there aren't going to be newcomers to the market who can shake thing up. It requires way too much startup capital to start a new insurance company. The agencies with the most negotiation power don't because it negatively affects their bottom line. This is why there needs to be a real second option. A public option like medicare for all would be the way to go. Let everyone choose between either private insurance or public insurance. Then you'd actually see some real competition.
  - phil21 7mo ago
    Insurance is really not the issue, it’s provider cost. And just the total cost entirely of the system of insanity. If you look closely into it there is no single (or few even) knobs you can tweak to fix the system. Not even Medicaid for all, at least as it’s currently designed. No argument from me that insurance is not competitive enough. But they are almost all public corporations that are highly regulated so the numbers on profit and expense ratios are easy to get for yourself to prove the point. No need to take my, or anyone with an agenda word for it. Almost everyone wants a simple answer to a complex interdependent problem that does not have one. If there was a single solitary answer of “what is the problem with US healthcare” I’d have to go with it being a principle agent problem. If everyone who consumed healthcare had to pay up front very few services would cost what they do. Even changing it so people were billed directly and then had to submit insurance claims later like how pet insurance or car insurance works would go a long ways. But even that doesn’t solve the problem entirely, as it leaves massive gaps. Second answer would be “administrative class bloat” like in all areas of the US today. Single payer is certainly a major part of the answer, but in isolation it’d solve almost nothing and potentially make things even worse as all the inane cross-subsidy comes crashing down overnight. Edit: the point is medical loss ratios, admin overhead, etc. is public information not hidden behind some private company firewall. The fact non profits haven’t captured 100% of the market by being crazily cheaper should be telling on its own.
thaumasiotes 7mo ago
You've identified a real issue with cost-plus pricing. But there's more to it than that. Commercial insurers have to pay more than Medicare, for the very simple reason that Medicare's pricing terms are that they get a discount beyond whatever the lowest price is that you charge anyone for the same thing. (Is it a 60% discount? No; a 150% margin has to be explained in other ways. But the phenomenon is real and important.)
SideQuark 7mo ago
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nradov 7mo ago
It's a bit more complicated than that. First, most large health plans regulated under the Affordable Care Act are actually subject to an 85% minimum medical loss ratio. Some of the larger payers which also have their own providers as employees within the same parent corporation are able to shift money around with internal pricing agreements so that they make larger profits on the care delivery side. But at the same time, the business is still pretty competitive with the employers and consumers who purchase policies or rent networks being price sensitive. Employers will switch carriers to get a significant cost savings so that holds down prices (and carrier profits) to an extent. Most large employers (and unions) are now self-funded so the "insurance" company isn't actually bearing much risk, they just set up a provider network and process the claims. Most doctors are almost completely ignorant about the broader issues of healthcare financing and medical economics so take anything you hear from your friends with a grain of salt. (And to be fair, it's not something we should expect them to be experts in.)
Aunche 7mo ago
Most insurance is funded by employers who would switch insurers if they feel they're getting screwed by them. > So insurance companies spend more so they can collect higher premiums. This part is still true though. Insurers want you to consume more healthcare, so they'll happily pay for your chiropractor, acupuncturist, acne treatment, and Chanel gift bag [1]. Patients are happy with their benefits. Employers are happy with increasing employee retention in a tax advantaged way. Insurers are happy with the profit. Of course, you aren't going to see much health improvement from this though. [1] https://nypost.com/2024/07/25/lifestyle/nyc-hospital-bills-36k-per-birth-but-you-get-a-free-chanel-gift/ https://nypost.com/2024/07/25/lifestyle/nyc-hospital-bills-3...
dmitrygr 7mo ago
Ding Ding Ding. We have the correct answer. And this was a predicted consequence of that profit cap.
- lotsofpulp 7mo ago
  >So insurance companies spend more so they can collect higher premiums. That's how they make more money. > If this is correct, then how come there are so many complaints about insurance denying payment for healthcare or the hoops they make patients and doctors jump through for pre authorizations? If the path to more profit was spend more money, then there would be no reason to question a doctors’ orders? Nor threaten doctors and hospitals with leaving the network if they don’t agree to lower prices? Yet, one often hears about so and so plan will not have so and so hospital system in network unless they come to an agreement.
  - rayiner 7mo ago
    > If this is correct, then how come there are so many complaints about insurance denying payment for healthcare or the hoops they make patients and doctors jump through for pre authorizations? Because those anecdotes get reader and viewer engagement. Charts comparing how much U.S. insurers pay on average for common procedures compared to, say, the UK NHS, don’t drive forward the narrative. You should interrogate the media sources you consume and ask why you’re fed so many stories like that, and investigate what the real data is. A few years ago my friend got a continuous glucose monitor for Type 2 diabetes. I looked at the coverage polices for continuous glucose monitoring (for Type 2) for my insurer and some of the other big ones. Turns out that most US insurers, Medicare, and Medicaid in 45 states+DC cover continuous glucose monitors for people who have type 2 even those that don’t use insulin. At the time, most Canadian provincial systems didn’t cover the technology except for Type 1 or people who take insulin. UK NHS was worse, covering it only for Type 1, or Type 2 with certain conditions (such as you’d otherwise need to do 8 or more pin prick tests a day). https://www.diabetes.org.uk/about-diabetes/looking-after-diabetes/technology/continuous-glucose-monitors/can-i-get-cgm-on-the-nhs https://www.diabetes.org.uk/about-diabetes/looking-after-dia...
    - 7mo ago
Manuel_D 7mo ago
This is the same problem with cost-plus contracts in the military. In theory, capping profit is meant to reduce profiteering. But in practice, if your profit is fixed at 6% of the cost to built a jet fighter then you're incentivized to make that jet fighter as expensive as possible. The way to maximize profit under a cost-plus regime is to maximize the cost.
- glenstein 7mo ago
  I will piggy back off of your comment because I was going to say a very similar thing. In my state, electric utilities are guaranteed a rate of return on investment of approximately 12%, if I remember correctly. And so there's a lot of incentive for build out and maintenance that's high in total dollar amount and high in volume of work done. In some ways it's the system working as designed but the "cap" can incentivize erroneous build out, as you noted in the jet fighter example.
  - pixl97 7mo ago
    So you have an excessively built out electrical system... sounds like a win to me.
    - CGMthrowaway 7mo ago
      I'm sure it sounds good to you as long as it's OPM https://en.wikipedia.org/wiki/Averch%E2%80%93Johnson_effect https://en.wikipedia.org/wiki/Averch%E2%80%93Johnson_effect
    - toomuchtodo 7mo ago
      They said excessively expensive, not excessively robust. There is a difference.
      - glenstein 7mo ago
        There's not necessarily a difference because they overlap on the venn diagram. The returns to the shareholders go up the more you build out, the benefits and performance face diminishing returns. Different utilities around the country get different scores for reliability and infrastructure integrity, because a dollar spent by one utility on one grid doesn't necessarily have the same impact as a dollar spent by another.
omgJustTest 7mo ago
This is correct, but neglects the compounding effect. Insurers are also adding some %+ increase on premiums every year, which is taken as a % of their yearly spend, ie 2-3%. ie (1+inflation)^N*(base_prem+overpay_prem_increase) = new_premium. The compounding of $ returned is pretty big on this. That being said underwriting risk, under the law and avoiding correlated risks, is tough.
djoldman 7mo ago
This isn't the whole story. There's a lot of "legal" self-dealing going on where insurance companies essentially own providers and then pay the providers which allows the insurance companies to circumvent the medical loss ratios. More here: https://healthcareuncovered.substack.com/p/self-dealing-illegal-in-most-industries https://healthcareuncovered.substack.com/p/self-dealing-ille...
etchalon 7mo ago
Several doctor friends told me your doctor friends aren't real.
kshacker 7mo ago
I remember consulting for a healthcare company in .... 2003. Very short assignment so I never got deep into it, but anyways my consulting company made me read up an in house guide about ALR and MLR (Administrative or Medical Loss Ratios). Obamacare or not, such constraints already exists. Maybe they varied by state, maybe there were other loopholes such as not supporting pre-existing conditions, but IIRC there were restraints on pure profits, so even then the same perverse incentives existed. More revenue you can get more profits. I am going by very old memory of a few days/weeks of work, but it will be good for a medical system historian to chime in.
ropable 7mo ago
You mean that there is a rule which prevents for-profit companies offering personal health insurance from pocketing more than 20% of revenue? Those poor, benighted shareholders. What a socialist hellscape.
jandrewrogers 7mo ago
There are other structural issues at work that you see across US government procurement generally, Medicare just being one example. The unit costs of doing business with the US government are higher than with private companies even after accounting for economies of scale. The US government also requires that they pay the lowest price. Consequently, unit economics are usually worse when dealing with the government than when dealing with private companies. The maths often don't math but the law doesn't care. Most inexplicable and bizarre pricing you see related to government procurement are structural tricks vendors use to indirectly fix the unit economics across their customers while technically staying compliant with bad regulations. Everyone else who is not the government is collateral damage of that byzantine theater. Ideally, we would all drop the pretense that the US government deserves the lowest price just because they are very large, instead letting it reflect the true overhead cost.
- Rury 7mo ago
  I'd argue it's a subsidy/incentive problem. Since every subsidy works by raising a cost somewhere which is used to subsidize a cost elsewhere, I'm inclined to believe in the Bennett hypothesis. Our government mostly subsidizes demand, and does little to incentivize productivity/outcomes. You see high prices everywhere the government funnels money: in education, healthcare, even the military - as where's the incentive to lower costs if the government is on the hook and will fund it no matter the cost?
SilverElfin 7mo ago
The problem is the market isn’t competitive due to hidden pricing and also anti competitive aspects like insurance. The supply of doctors is itself artificially low. There is a lot more regulation needed than something as simple as Obamacare.
airstrike 7mo ago
This would only hold empirically if prior to the ACA, commercial insurers did not pay more.
0xbadcafebee 7mo ago
That's not why prices continue to increase. They can't just let prices skyrocket to pad their pockets. If they try, government regulators will block premium hikes, regular people will ditch them for cheaper competitors, and big businesses that pay premiums from cash will fire them for not keeping medical bills lower.
- bandofthehawk 7mo ago
  But prices already have skyrocketed, and insurance execs have already become significantly richer. Why didn't the feedback loops work?
- SV_BubbleTime 7mo ago
  > regular people will ditch them for cheaper competitors I love the particular irony of people who advocate for regulations then attempt refutation of free market theory for what is already unquestionably and objectively not a free market.
raincole 7mo ago
> The people who design easily gameable systems belong in the lowest circle of hell. -- Charlie Munger
jmspring 7mo ago
Managed risk pools should not be for profit.
noelsusman 7mo ago
You can really just say anything and get upvoted on this website. If this were true then private insurers would have paid comparable rates to Medicare prior to the ACA passing, and that's just not the case. This fact has been a fixture of the US healthcare system since the creation of Medicare.
apical_dendrite 7mo ago
My understanding is that there are a number of reasons why commercial insurance companies pay more. A big one is that Medicare has enormous pricing power because people on Medicare are a huge segment of the population and also the segment that consumes the most healthcare services. Your local healthcare system can't NOT take Medicare. They're effectively stuck with the reimbursement rates that Medicare sets. On the other hand, healthcare systems have a ton of power in their local markets. A healthcare system can afford to not be in network for a particular insurer, but if that insurer loses access to the biggest healthcare system in a particular market, it can be devastating for them. A major employer is not going to be happy if their executives have to all change doctors because the big local hospital system is no longer in network.
dominotw 7mo ago
> Obamacare requiring 80% of the money they collect to be spent, did they not write unit tests for this when it was proposed to catch obvious subversions like you mentioned.

skybrian 7mo ago

I was under the impression that some companies that provide insurance also provide healthcare?

shdudns 7mo ago

This. It's hard to believe that the Obama team could have been this financially incompetent.

bmcahren 7mo ago
It's easy with hindsight to believe you could have capped expense at 200% medicare but getting what we got passed was nearly impossible at the time. Before Affordable Care Act, insurers had every tool available to deny care, maximize profits, and skim more than 20% off the top. It's great we're getting closer to the point that it feels to you like incompetence that these things aren't fixed today but your anger with the medical lobby is clearly misplaced here. Every major piece of legislation needs revisions to chase circumvention and we're well past due on updates but no legitimate bills have been presented that cover these topics and that's not a one-party issue.
- cogman10 7mo ago
  Yup, pre-existing conditions, in particular, was a beast. The patient protection portion of the ACA is one of the better parts of the whole bill.
  - prirun 7mo ago
    Private insurance companies still do not cover pre-existing conditions. How? By not writing insurance to individuals except during ACA open enrollment. I know this because I tried to get private insurance before going to Mayo Clinic, because my ACA insurance with Ambetter was out of network. When I got through to an insurance company sales person for individual coverage, they told me they don't cover pre-existing conditions for 6 months. When I challenged them and said that's illegal, they hung up on me. Most companies I called had a phone menu that, when I pushed the buttons for individual coverage, would lead me into a loop, hang up on me, put me on hold forever, etc. They simply won't write individual coverage outside a couple of months at the end of the year. This effectively allows them to not cover pre-existing conditions, at least for individuals. For company employees, yes, the coverage of pre-existing conditions is a win. I ended up paying $12K to Mayo for a week of appointments. Private insurance, if I could have gotten it, would have been at least $1000/mo for premiums (in 2020) plus $10K deductible, so I actually saved money just paying Mayo instead of getting private insurance. IMO the only reason insurance companies allowed the ACA to pass was the stipulation that everyone in the US was required to get insurance coverage or face a penalty. When the Supreme Court ruled that provision illegal, I'm sure the insurance companies were furious that they were duped.
    - nradov 7mo ago
      Your story is missing some pieces. Why didn't you sign up during ACA open enrollment? Those policies absolutely do cover pre-existing conditions. But not every provider organization will be in network for every health plan.
    - glenstein 7mo ago
      >Private insurance companies still do not cover pre-existing conditions. How? By not writing insurance to individuals except during ACA open enrollment. Sorry I'm struggling to follow here. You think the open enrollment period effectively means that there's no prohibition on pre-existing conditions? Think you're kind of bending words outside of their normal usage because quite literally pre-existing condition policies are banned. The compensating counterbalance is a neutral open enrollment period so people don't just jump when they learn they have a health problem, it's a compromise to ensure financial sustainability. You do understand that before this, it was worse right? One comment after another here is comparing the ACA to a magical fantasy, rather than the status quo that it improved upon.
vjvjvjvjghv 7mo ago
Obamacare was totally subverted by the medical lobby during its creation. They had a lot of great ideas but there were way too many politicians in Congress who had sold out to the lobby (Lieberman, Baucus on the democrat side) and would block anything that would reduce cost. And since then it has been a fight for survival without much chance for improvement. The republican refuse anything that could improve it but want to “repeal and replace” but are struggling a little with the “replace” part. And the democrats are too timid to make another push. So we end up with the worst of all worlds. Super expensive, overall results not very good and super complex.
- catlover76 7mo ago
  [dead]
raw_anon_1111 7mo ago
It was the best they could do to get 60 votes because universal health care was too radical even though every industrialized country in the world does it.
watersb 7mo ago
It's almost as if no healthcare legislation gets passed before private insurers have figured out how to extract shareholder value. (Which makes the system worse. The fiction of a fiduciary responsibility to extract top dollar from a business regardless of consequences is the opposite of "capitalism". Which derives its name from the practice of sound investment to build something of lasting value. To say nothing of the social deviance of for-profit healthcare.)
dboreham 7mo ago
Obama had nothing to do with what's in the ACA. It was ideas from moderate Republicans (previously prototyped in Massachusetts under governor Mitt Romney), advanced on the basis that it would receive bipartisan support as a result. But it didn't, so it was heavily amended until John McCain provided the last vote to get it through.

genthree 7mo ago

These limits don’t apply to self-funded programs that are administered by big insurance companies (most large employers’ plans, then) or plans less than two years old (whether there are measures in place to prevent simply rotating plans often to exploit this, I do not know)

cogman10 7mo ago

This seems like we need similar price caps for healthcare providers, medical equipment providers, pharmaceuticals, etc. Done just in isolation for 1 part of the healthcare industry results in this obvious bad effect. Removing the rule wouldn't help things.

nradov 7mo ago
Price caps always and everywhere cause shortages, including long queues for certain types of care. This may be acceptable but we need to understand the trade-offs when making any changes.
- mothballed 7mo ago
  Price caps create shortages when they are the rate limiting factor, which is always the case when imposed on a free market whenever the cap is below the market price, so this is an extremely accurate statement when dealing with things like lightly regulated commodities. Whether they would be the rate limiting factor in health care remain to be seen, since health care is highly regulated with regulatory capture, licensing, and violence enforced market manipulations. As a thought experiment, in the extreme that health care were a pure monopoly, then I could envision some price caps somewhere between cost and price where the supply curve is relatively flat on either side thus creating minimal effects to supply.
  - nradov 7mo ago
    You don't need to waste time with though experiments, you can just look around at various national healthcare systems. Wherever there are price caps, certain treatments have long queues or are simply not available at all. That's why affluent Canadians often come to the USA as medical tourists and pay cash for MRI scans or joint replacement surgery. Every system rations care somehow and price caps aren't necessarily the worst way to do it so let's just be real about the consequences.
    - mothballed 7mo ago

raw_anon_1111 7mo ago

So I happen to be in Costa Rica for the month. Just like every other 1st world country, it has managed to have universal health care that is better and cheaper without private insurance. Even if you do get private insurance for quicker access, it’s still much cheaper than the US. I just spoke to someone who flew down here to save $30K on dental work. The problem isn’t the ACA, it’s the ass backwards American health care system. I was at a meetup of American ex-pats here and half of them said they established residency here to join CAJA - the health care system

nostrebored 7mo ago
ACA enshrined the worst parts of the American healthcare system for years to come. It is a politicized victory that is the best solution for no American citizens. Places I’ve been with fully privatized healthcare or single payer are both significantly better for consumers. Insurance companies have raised prices to restore profit, were briefly a mandatory expense, and will exist for years to come.
- lotsofpulp 7mo ago
  > Insurance companies have raised prices to restore profit, were briefly a mandatory expense, and will exist for years to come. Why do their stocks underperform so badly? https://imgur.com/S8bNSM2 https://imgur.com/S8bNSM2
  - rybosworld 7mo ago
    Why would a 3-year stock chart be indicative of underperformance?
    - lotsofpulp 7mo ago
      It is a 5 year chart, and the 10 year is not free on that website. You can find out similar results for longer periods here: https://dqydj.com/stock-return-calculator/ https://dqydj.com/stock-return-calculator/ https://dqydj.com/sp-500-return-calculator/ https://dqydj.com/sp-500-return-calculator/

phil21 7mo ago

In a vacuum sure. But insurance companies operate the only part of the healthcare system that is moderately competitive. In the end employers are the ones largely paying and they are professional negotiators enough to put price pressure on insurance plans. 20% of $0 is $0. As such, as light of an incentive it is - it’s the only party in the entire system that is incentivized in any way whatsoever to keep costs down. Insurance providers also rarely operate at the full freight 20% either way though. So they are at least at this time incentivized to control costs at some level since every dollar saved is a dollar added to the profit line. Otherwise they would not be known for denying claims so often. This is ignoring a whole lot of very important complexities as well - such as self funded insurance plans that most major companies utilize. There the insurance company is simply a plan administrator getting paid the same either way. It’s one of those tropes that has a source of truth behind it but the actual reality is far less satisfying of an answer. Makes for great sound bites and ability to shut down further thought on the subject though. The uncomfortable truth is that there is no simple fix and no one bad actor that is the cause of all the insanity.

cogman10 7mo ago
It's such a small market that it's really not competitive. Further, because medicine is so expensive, it means there aren't going to be newcomers to the market who can shake thing up. It requires way too much startup capital to start a new insurance company. The agencies with the most negotiation power don't because it negatively affects their bottom line. This is why there needs to be a real second option. A public option like medicare for all would be the way to go. Let everyone choose between either private insurance or public insurance. Then you'd actually see some real competition.
- phil21 7mo ago
  Insurance is really not the issue, it’s provider cost. And just the total cost entirely of the system of insanity. If you look closely into it there is no single (or few even) knobs you can tweak to fix the system. Not even Medicaid for all, at least as it’s currently designed. No argument from me that insurance is not competitive enough. But they are almost all public corporations that are highly regulated so the numbers on profit and expense ratios are easy to get for yourself to prove the point. No need to take my, or anyone with an agenda word for it. Almost everyone wants a simple answer to a complex interdependent problem that does not have one. If there was a single solitary answer of “what is the problem with US healthcare” I’d have to go with it being a principle agent problem. If everyone who consumed healthcare had to pay up front very few services would cost what they do. Even changing it so people were billed directly and then had to submit insurance claims later like how pet insurance or car insurance works would go a long ways. But even that doesn’t solve the problem entirely, as it leaves massive gaps. Second answer would be “administrative class bloat” like in all areas of the US today. Single payer is certainly a major part of the answer, but in isolation it’d solve almost nothing and potentially make things even worse as all the inane cross-subsidy comes crashing down overnight. Edit: the point is medical loss ratios, admin overhead, etc. is public information not hidden behind some private company firewall. The fact non profits haven’t captured 100% of the market by being crazily cheaper should be telling on its own.

thaumasiotes 7mo ago

You've identified a real issue with cost-plus pricing. But there's more to it than that. Commercial insurers have to pay more than Medicare, for the very simple reason that Medicare's pricing terms are that they get a discount beyond whatever the lowest price is that you charge anyone for the same thing. (Is it a 60% discount? No; a 150% margin has to be explained in other ways. But the phenomenon is real and important.)

SideQuark 7mo ago

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nradov 7mo ago

It's a bit more complicated than that. First, most large health plans regulated under the Affordable Care Act are actually subject to an 85% minimum medical loss ratio. Some of the larger payers which also have their own providers as employees within the same parent corporation are able to shift money around with internal pricing agreements so that they make larger profits on the care delivery side. But at the same time, the business is still pretty competitive with the employers and consumers who purchase policies or rent networks being price sensitive. Employers will switch carriers to get a significant cost savings so that holds down prices (and carrier profits) to an extent. Most large employers (and unions) are now self-funded so the "insurance" company isn't actually bearing much risk, they just set up a provider network and process the claims. Most doctors are almost completely ignorant about the broader issues of healthcare financing and medical economics so take anything you hear from your friends with a grain of salt. (And to be fair, it's not something we should expect them to be experts in.)

Aunche 7mo ago

Most insurance is funded by employers who would switch insurers if they feel they're getting screwed by them. > So insurance companies spend more so they can collect higher premiums. This part is still true though. Insurers want you to consume more healthcare, so they'll happily pay for your chiropractor, acupuncturist, acne treatment, and Chanel gift bag [1]. Patients are happy with their benefits. Employers are happy with increasing employee retention in a tax advantaged way. Insurers are happy with the profit. Of course, you aren't going to see much health improvement from this though. [1] https://nypost.com/2024/07/25/lifestyle/nyc-hospital-bills-36k-per-birth-but-you-get-a-free-chanel-gift/ https://nypost.com/2024/07/25/lifestyle/nyc-hospital-bills-3...

dmitrygr 7mo ago

Ding Ding Ding. We have the correct answer. And this was a predicted consequence of that profit cap.

lotsofpulp 7mo ago
>So insurance companies spend more so they can collect higher premiums. That's how they make more money. > If this is correct, then how come there are so many complaints about insurance denying payment for healthcare or the hoops they make patients and doctors jump through for pre authorizations? If the path to more profit was spend more money, then there would be no reason to question a doctors’ orders? Nor threaten doctors and hospitals with leaving the network if they don’t agree to lower prices? Yet, one often hears about so and so plan will not have so and so hospital system in network unless they come to an agreement.
- rayiner 7mo ago
  > If this is correct, then how come there are so many complaints about insurance denying payment for healthcare or the hoops they make patients and doctors jump through for pre authorizations? Because those anecdotes get reader and viewer engagement. Charts comparing how much U.S. insurers pay on average for common procedures compared to, say, the UK NHS, don’t drive forward the narrative. You should interrogate the media sources you consume and ask why you’re fed so many stories like that, and investigate what the real data is. A few years ago my friend got a continuous glucose monitor for Type 2 diabetes. I looked at the coverage polices for continuous glucose monitoring (for Type 2) for my insurer and some of the other big ones. Turns out that most US insurers, Medicare, and Medicaid in 45 states+DC cover continuous glucose monitors for people who have type 2 even those that don’t use insulin. At the time, most Canadian provincial systems didn’t cover the technology except for Type 1 or people who take insulin. UK NHS was worse, covering it only for Type 1, or Type 2 with certain conditions (such as you’d otherwise need to do 8 or more pin prick tests a day). https://www.diabetes.org.uk/about-diabetes/looking-after-diabetes/technology/continuous-glucose-monitors/can-i-get-cgm-on-the-nhs https://www.diabetes.org.uk/about-diabetes/looking-after-dia...
  - 7mo ago

Manuel_D 7mo ago

This is the same problem with cost-plus contracts in the military. In theory, capping profit is meant to reduce profiteering. But in practice, if your profit is fixed at 6% of the cost to built a jet fighter then you're incentivized to make that jet fighter as expensive as possible. The way to maximize profit under a cost-plus regime is to maximize the cost.

glenstein 7mo ago
I will piggy back off of your comment because I was going to say a very similar thing. In my state, electric utilities are guaranteed a rate of return on investment of approximately 12%, if I remember correctly. And so there's a lot of incentive for build out and maintenance that's high in total dollar amount and high in volume of work done. In some ways it's the system working as designed but the "cap" can incentivize erroneous build out, as you noted in the jet fighter example.
- pixl97 7mo ago
  So you have an excessively built out electrical system... sounds like a win to me.
  - CGMthrowaway 7mo ago
    I'm sure it sounds good to you as long as it's OPM https://en.wikipedia.org/wiki/Averch%E2%80%93Johnson_effect https://en.wikipedia.org/wiki/Averch%E2%80%93Johnson_effect
  - toomuchtodo 7mo ago
    They said excessively expensive, not excessively robust. There is a difference.
    - glenstein 7mo ago
      There's not necessarily a difference because they overlap on the venn diagram. The returns to the shareholders go up the more you build out, the benefits and performance face diminishing returns. Different utilities around the country get different scores for reliability and infrastructure integrity, because a dollar spent by one utility on one grid doesn't necessarily have the same impact as a dollar spent by another.

omgJustTest 7mo ago

This is correct, but neglects the compounding effect. Insurers are also adding some %+ increase on premiums every year, which is taken as a % of their yearly spend, ie 2-3%. ie (1+inflation)^N*(base_prem+overpay_prem_increase) = new_premium. The compounding of $ returned is pretty big on this. That being said underwriting risk, under the law and avoiding correlated risks, is tough.

djoldman 7mo ago

This isn't the whole story. There's a lot of "legal" self-dealing going on where insurance companies essentially own providers and then pay the providers which allows the insurance companies to circumvent the medical loss ratios. More here: https://healthcareuncovered.substack.com/p/self-dealing-illegal-in-most-industries https://healthcareuncovered.substack.com/p/self-dealing-ille...

etchalon 7mo ago

Several doctor friends told me your doctor friends aren't real.

kshacker 7mo ago

I remember consulting for a healthcare company in .... 2003. Very short assignment so I never got deep into it, but anyways my consulting company made me read up an in house guide about ALR and MLR (Administrative or Medical Loss Ratios). Obamacare or not, such constraints already exists. Maybe they varied by state, maybe there were other loopholes such as not supporting pre-existing conditions, but IIRC there were restraints on pure profits, so even then the same perverse incentives existed. More revenue you can get more profits. I am going by very old memory of a few days/weeks of work, but it will be good for a medical system historian to chime in.

ropable 7mo ago

You mean that there is a rule which prevents for-profit companies offering personal health insurance from pocketing more than 20% of revenue? Those poor, benighted shareholders. What a socialist hellscape.

jandrewrogers 7mo ago

There are other structural issues at work that you see across US government procurement generally, Medicare just being one example. The unit costs of doing business with the US government are higher than with private companies even after accounting for economies of scale. The US government also requires that they pay the lowest price. Consequently, unit economics are usually worse when dealing with the government than when dealing with private companies. The maths often don't math but the law doesn't care. Most inexplicable and bizarre pricing you see related to government procurement are structural tricks vendors use to indirectly fix the unit economics across their customers while technically staying compliant with bad regulations. Everyone else who is not the government is collateral damage of that byzantine theater. Ideally, we would all drop the pretense that the US government deserves the lowest price just because they are very large, instead letting it reflect the true overhead cost.

Rury 7mo ago
I'd argue it's a subsidy/incentive problem. Since every subsidy works by raising a cost somewhere which is used to subsidize a cost elsewhere, I'm inclined to believe in the Bennett hypothesis. Our government mostly subsidizes demand, and does little to incentivize productivity/outcomes. You see high prices everywhere the government funnels money: in education, healthcare, even the military - as where's the incentive to lower costs if the government is on the hook and will fund it no matter the cost?

SilverElfin 7mo ago

The problem is the market isn’t competitive due to hidden pricing and also anti competitive aspects like insurance. The supply of doctors is itself artificially low. There is a lot more regulation needed than something as simple as Obamacare.

airstrike 7mo ago

This would only hold empirically if prior to the ACA, commercial insurers did not pay more.

0xbadcafebee 7mo ago

That's not why prices continue to increase. They can't just let prices skyrocket to pad their pockets. If they try, government regulators will block premium hikes, regular people will ditch them for cheaper competitors, and big businesses that pay premiums from cash will fire them for not keeping medical bills lower.

bandofthehawk 7mo ago
But prices already have skyrocketed, and insurance execs have already become significantly richer. Why didn't the feedback loops work?
SV_BubbleTime 7mo ago
> regular people will ditch them for cheaper competitors I love the particular irony of people who advocate for regulations then attempt refutation of free market theory for what is already unquestionably and objectively not a free market.

raincole 7mo ago

> The people who design easily gameable systems belong in the lowest circle of hell. -- Charlie Munger

jmspring 7mo ago

Managed risk pools should not be for profit.

noelsusman 7mo ago

You can really just say anything and get upvoted on this website. If this were true then private insurers would have paid comparable rates to Medicare prior to the ACA passing, and that's just not the case. This fact has been a fixture of the US healthcare system since the creation of Medicare.

apical_dendrite 7mo ago

My understanding is that there are a number of reasons why commercial insurance companies pay more. A big one is that Medicare has enormous pricing power because people on Medicare are a huge segment of the population and also the segment that consumes the most healthcare services. Your local healthcare system can't NOT take Medicare. They're effectively stuck with the reimbursement rates that Medicare sets. On the other hand, healthcare systems have a ton of power in their local markets. A healthcare system can afford to not be in network for a particular insurer, but if that insurer loses access to the biggest healthcare system in a particular market, it can be devastating for them. A major employer is not going to be happy if their executives have to all change doctors because the big local hospital system is no longer in network.

dominotw 7mo ago

> Obamacare requiring 80% of the money they collect to be spent, did they not write unit tests for this when it was proposed to catch obvious subversions like you mentioned.