Thoughts on Insurance | Hacker News Reader

Thoughts on Insurance

blog.ycombinator.com

518 pointsakharris413 comments

> After paying for broker commissions, fronting costs, reinsurance, customer service, claims processing, there’s often around 50% of the original premium dollar left to pay claims – which is the primary purpose of an insurance company.

What about shareholders? One of the biggest problem I have with insurance companies as for-profit enterprises is the inherent conflict of interest that comes from trying to service claims and customers as best as possible and turning a profit for shareholders.

I've always felt that insurance companies should be run as not-for-profits, or at the very least co-ops..

Don't get me wrong here, still pay the employees and the executives competitively (you want things to run efficiently and by talented teams so you need to attract top talent), but otherwise the whole enterprise should be working hard to make sure every other dollar goes to helping the customers who pay the premiums, and that's it.

Something this article did not cover and which is often overlooked is that insurance companies invest the premiums they receive in order to help defray the cost of claims. Companies that are both talented and ethical will get a good rate of return on the investments, thus serving as good stewards for the money.

I am not a fan of general health insurance. I think the government should provide universal basic health care and there should be health insurance for emergencies and the like.

I don't think it matters so much whether it is a for profit business or a not-for-profit or a co-op. It will basically come down to: Are they actually ethical? Are they actually talented at what they do? Is the model of policy any good?

Those will be problems regardless of the form of the organization.

(Background: I worked for a big insurance company for over 5 years. As an employee there, I was sent by my employer to a local technical college to get training to do my entry level job. At least while there, this training entitled me to the spiffy title of "Certified Life and Health Insurance Specialist.")

This is one of biggest misnomers when we talk about health insurance. We buy life insurance but don't plan to die once a month. We buy car insurance but don't plan to crash once a month. We buy health insurance and although we don't plan to go to the ER once a month, we may plan on seeing a primary care physician once a month whether for a chronic condition or maintenance or mental health or... Insurance is intended for unexpected things not expected things.

I think the way to fix this is similar to what you said. Primary care should be provided for everyone and the way you drive that cost down is by using more PAs, CRNP/other nurses and having only one actual Dr. for oversight and tougher cases. There are huge system costs that can be removed just by focusing on things like treatment compliance, pre-habilitation, healthy lifestyle, good mental health, etc.

Imagine if you paid for gas by using your auto insurance card? And also used insurance to cover normal car maintenance such as brakes, tires and oil changes. Now the co-pay on a tank of gas would be about 40 bucks, and if you tried to buy gas without insurance it would cost a couple thousand to fill the tank. But the insurance companies get a discount, and only end up paying 5 dollars per tank.

Yes, I basically agree. I posted this link about Direct Primary Care elsewhere in this discussion:

http://micheleincalifornia.blogspot.com/2017/01/direct-prima...

Direct Primary Care is on the rise in the U.S. It is a saner solution than Obamacare, which forces premiums up crazily for everyone and is a terrible model. If we, as a nation, want to insist on market based solutions instead of the government playing a more central role, then Direct Primary Care is a far saner answer. You pay for basic care out of pocket in a way that helps keep costs down and you get insurance for actual unexpected emergencies and major health events.

The other problem with health insurance is that it doesn't serve the preventive role that car insurance serves. Car insurance is required by the state you live in and the details vary by state, but if you get too many tickets or have too many accidents, your premiums go up. So, it serves as a deterrent to bad driving behaviors. Furthermore, it doesn't just cover your losses. It covers damages done to other people. If you get in an accident and are found to be at fault, your insurance pays for their repairs.

Unlike car insurance, health insurance does not play a real role in pressuring people to behave more responsibly. So far, we have found no means to really do that effectively. Health issues are far more complicated than safe driving issues. You don't drive 24/7, but being alive 24/7 impacts our health for good for ill and in ways we don't completely understand. So it is a very hard problem to solve.

What we do know is that when people do not have access to basic health care in an affordable manner, health outcomes are worse and, thus, more expensive. So we need to find a means to get health access to more people in a way that is preventative. Direct Primary Care and government funded services seem to do that. Health insurance really does not.

It is interesting and that is one thing that I didn't mention. You can do primary care as free or a HSA path. I think the states should offer an HSA so it isn't dependent on your job. Then you can use it for dental or checkups or whatever.

I think the only way to handle the the deterrent/incentive piece is to find a metric that can be used. BMI is worthless as people vary too much. The best thing in my opinion is HA1C levels, but use it as a discount on your premium. You can't cheat A1C and most of our chronic diseases and inflammation causes are caused by poor diet. This forces people away from that if they want the discount. The only problem is high carb diets are cheap (rice/pasta) and healthy diets are expensive (lean protein/vegetables).

The biggest thing we need to change is to remove all the middlemen from the system. Each takes a cut and adds to the cost without having value. The biggest problem with health insurance is it isn't event driven like death or a crash. How do we stop everyone from being on the cheap plan for emergencies and then switching to the best if they get cancer? (Although one piece may be in the incentivizing better diet reducing cancer risk). I do keep wondering if it makes sense to flip it and make that the emergency part is tax based and mostly free to the person. You can then make the deductible based on the person maintaining healthy stats. Never go to the doctor and eat junk? You pay 25% of the total cost. Eat healthy and go for routine check ups? You pay 5% of the cost. Tough to know without running numbers.

All tough questions with no easy answers.

My home insurance in Sweden was a co-op, and they'd pay back any profit they ended up making as a refund https://en.m.wikipedia.org/wiki/Länsförsäkringar

Is there a practical difference in cost though? A Dutch insurer (Univé) used to do the same, but in practice there turned out to be no significant different in total amount of money spent by customers. Even though they gave their profit back to their customers at the end of the year, they couldn't compete on price.

One big non-profit player will drive all the prices down thanks to competition.

There is no reason for private insurance to be more expensive if they have non-profit competitor. If this competitor was to disappear, on the other hand, the costs would probably sky-rocket.

Or not, because the for profit businesses might be more efficient, since they have incentive to be.

I live in Sweden too, and Länsförsäkringar weren't cheaper than the alternatives for the things I looked at (car insurance, home insurance).

That's just looking at the premiums though, there's no way to see any potential refunds and take those into account.

I just looked it up again for my car insurance.

I pay 758 SEK per month now and with Länsförsäkringar I'd end up paying 968 SEK for the same coverage. I do have a 10% discount on my current insurance due to having several policies at the same company. That's still less than the difference though, so Länsförsäkringar would have to refund me around 1200 SEK per year to break even.

That would be around 10-15% of the entire yearly cost, and I don't think they can promise those kinds of refunds year over year.

> Is there a practical difference in cost though?

There has to be since no shareholders are involved assuming the rest of the setup is the same. If they are not cheaper then it's more likely that the coop is badly run which sadly is not uncommon.

There's at least one other alternative. The NFP uses the excess to pay better wages across the board. Thus benefiting every community those wages are spent in, which will usually be local (both to the business and it's clients).

Monies move toward local, low cost and essential spending as opposed to remote, high cost and luxury spending that one would expect to dominate with dividends paid out by for profit businesses.

For me getting a home insurance for my rental apartment in Sweden, Länsförsäkringar in my region (They're split up in regions) was the cheapest one at the time I was looking.

My home and auto insurer, Amica, is mutual company today. I'm not sure if there's a difference between a mutual company and a co-op.

A co-op could be a mutual company (i.e. owned by its customers) or it could be owned by its employees. It's an umbrella term for both.

Ah, makes perfect sense.

A lot of life insurance companies (e.g. the Prudential) started as mutuals. In the UK in the 90s there was a wave of "demutualisation" where the customers decided they'd take a one-off payment in return for handing control over to shareholders.

I don't know if it was done similarly in every case in every country, but my experience is that the customers became shareholders (with an option to sell the shares immediately, which I guess almost everyone exercised).

Came here to say this. Probably most of the insurance companies were mutuals prior to demutualization.

Probably the biggest consumer-owned business we have today would be Vanguard, when it comes to investment funds, but for a variety of reasons most industries have shifted to the corporate model.

That's one of the hardest questions to answer. In order to generate profits for shareholders the carriers have to generate return on their float. That was "easy" during the big bull market that started in the 80s, but has become increasingly difficult.

There are a number of very large and successful mutual insurance companies - take a look at USAA. They also happen to enjoy some of the highest customer satisfaction ratings in all of financial services.

USAA is still affected by many of the same forces that affect for-profit insurers. USAA has changed a lot in the last 20 years as they've opened up to more members.

I guess I don't really see your point.

Suppose we take two situations:

#1 As described in the article, between the premium and the actual claims pool there's 50% lost to all the entities involved -- from brokers up through reinsurance companies and back down to the entity that actually cuts the claim check. But further suppose that all these companies happen to be co-ops and so no dollars are lost to passive investors.

#2 There's a vertically integrated insurance company that is highly efficient. It only sells directly and doesn't use commissioned salespeople. It has overhead of only 25% and pays a 10% of revenue dividend to its shareholders, leaving 65% of premiums to pay claims. This enables the company to offer lower premiums for the same coverage.

Is #1 somehow morally superior to #2? Do you think it is impossible for #2 to exist?

I think Sebastian is introducing an orthogonal perspective, which has nothing to do with morals. The theoretical ideal is that an insurance company nets zero profit while operating at maximal efficiency. Introducing a third-party (investors) that benefit from extracting revenue is a form of overhead that decreases that potential efficiency. This isn't all bad though. Likely, if it were not for the investors, the company would never exist, so they should have rights to a piece of the pie. Unfortunately, the trade-off introduced is conflict of interest.

Investors reward behaviors that maximize revenues be it through cost-cutting, premium hikes, or benefit reductions (or potentially the opposite assuming sales increase enough.) Granted, some of the more negative actions might cause customers to move from one provider to the next because of free markets and whatnot, and theoretically, the market should reward the company that provides the best balance for customers... except that almost all insurance companies are owned by investors, and over the long run, these investors incentivized to maximize revenue in prisoner's-dilemma-like fashion.[0]

So... I'd argue introducing investors over the short term is a fantastic idea, but at some point, it's probably wisest give them a heap of profits, and turn off the tap. Otherwise, the company will turn into yet another publicly-traded monstrosity with a mechanical conscience.

[0]: https://en.wikipedia.org/wiki/Tacit_collusion

I think your example is overly simplistic, but I understand what you're saying...

To stay at that level, I would say that while there's nothing inherently bad about #2 it would be better if 75% remained to pay claims, and then they would not only offer lower premiums but better coverage.

And as someone else said, this isn't about morals, it's about priorities.. An insurance company should exist primarily to protect it's customers.

That said, if investors were contractually bound to accept only a fixed return over a period of time (almost like a bond or a GIC or something?) and had no voting power or influence in the direction of the company, that could work?

My issue is less about "investors" and more about focus and priorities I suppose..

I once read an interesting story about the host* business. Apparently the dominant player is a for-profit business.

The competition is convents around the country that have traditionally supplied them to parish churches. Here you have organizations that are as non-profit as they come -- convents aren't like many hospitals where the CEO and other high level employees are raking off a huge salaries as quasi-profit. And the motives and priorities couldn't be any purer, their work is essentially in the service of what they consider the glorification of God.

Yet they are being out-competed by a for-profit company that explicitly tries to make on every sale in order to compensate the owners.

How do you explain this if you view profit as deadweight loss that can only be at the expense of customers?

Edit: https://www.vice.com/en_us/article/vvaeyb/the-surprisingly-c...

*The bread that is used during Catholic masses.

> Do you think it is impossible for #2 to exist?

not the OP but, in the long term, yes, I do believe a for profit entity is at odds with that. Shareholders clamor for more profit and will not be content with no growth.

Shouldn't we expect plenty of revenue growth since the efficiency edge over competitors means they can charge lower prices? 10% of a growing revenue stream looks like a recipe for pretty happy shareholders.

You can certainly expect it short to medium term yes. Longer term I don't think so.

Lemonade is a NYC based insurance start-up that is doing this idea but one better. They are building two halves of the business: a for-benefit corporation that is the insurance carrier, and a for-profit, broker side that takes a flat 10% commission on premiums. They are getting great traction in the few states where they currently sell insurance

https://www.lemonade.com/blog/its-not-our-money/

In CA there is heavy competition between not-for-profits and for-profit. Kaiser and Blue Shield are both not-for-profits. I'm not sure why you would pick a for-profit here given those options

Blue Shield of California lost their tax-exempt status in California a few years back.

They lost their ca tax exempt not for profit status but they are still not for profit... which means they pay normal taxes and still operate as a non profit, which is actually pretty amazing in my opinion.

They also limit net income to 2% of revenue and refund anything more.

https://www.blueshieldca.com/bsca/bsc/public/member/mp/conte...

Ah. "Not-for-profit." Yeah. Right. How many millions do the execs get in salary? Those are costs, not profits, right?

edit: typos

Not for profit doesn't mean that the people doing the work don't get paid. It means that the entity doesn't exist to payback a financial return to its investors.

Think of it this way, a not-for-profit insurance company has to pay its executives, staff, and so forth, while a for-profit insurance company has to do all of that and show a return for its investors.

I think in insurance, there should be two separate pools of money, one for the insurance fund itself, and the other for managing the fund (management of the risk model) and making profits for the owners of the insurance company. These should be separate items on your insurance bill, and no money should ever cross the line from one pool to another.

In a for-profit company, there's a group of people at the top who are paid handsomely for cutting costs (i.e. stock-based compensation). This doesn't exist in NGO's, and so for large organizations with lots of cash flow, bloat balloons exponentially (because the default, human loyalty of an employer is to their employees, not their customer)

NGO are trying to cut cost down. They tray to focus to their mission as efficient that they can. Doctor without Border is faster in some case than public emergency service.

The difference is that what is seen as cost, private company often see the product they deliver as a cost.

Is generating enough income to give a profit to investors so different from generating enough income to meet operating expenses. Even without investors, if I was working at an insurance operation I'd feel a conflict between trying to be good to customers and trying to keep the lights on.

Insurance companies used to run as mutual companies. Part of insurance is investing all that money. A lot of mutual companies become pseudo public companies so they could access cheap capital then grow faster. Of course once nationwide grew as big as they did they went private.

There are alternatives.. we are setting up an insurer with a new business model in the UK.

We earn a flat fee every time we settle a claim for members of our community - they provide the funds to cover for each other.

No conflict of interest, fair pricing, everything instant.

Have a look. insureathing.com

Interesting, but the variable premium scares me. Is there no limit on liability? What happens if lots of people claim in the same month?

If there are outliers and the premium would skyrocket we cap your premium at market rate through an agreement with a reinsurer. It's a standard financial tool insurers are using as well and costs us next to nothing.

Aren't car-insurances sort of co-op's? Atleast I've read verbiage in my California car insurance policy from Farmer's that indicates that the insurance policy is really owned by the pool of users taking insurance and Farmer's is just a manager taking a government controlled percentage for their operating costs + profit.

In your case, that's true. Farmers is a reciprocal, meaning that the policyholders own it. Not all car insurance companies work this way.

I believe that Farmers is owned by Zurich Insurance.

I feel like this is the case for a lot of big industries in the US. Insurance, especially health insurance. Personal banking with credit unions. Maybe even pharmaceutical companies.

Disclosure: I've worked in both P&C and Reinsurance for several years. Also on Wall Street for a couple years. Also in Healthcare for a couple years.

Overall I think this is a nice briefing on the state of the insurance market in the modern economic landscape. It is extensively regulated with rates set and various nuances. All of this, of course, comprises part of a grand "data set" that looks quite appealing to modernization.

Unfortunately, I think there should be a strong expectation that the market (industry) will both be openly hostile to "disruption" oriented attitudes a la Uber, but laugh at any ability to raise capital to compete at any meangingful level.

I applaud your interest in perhaps improving a legally sanctioned form of graft (I prefer Mutual Organizations myself). Conversely, my experience leads me to laugh a little because I've seen the numbers and the complexity behind the scenes. I've got no interest in the industry beyond the paycheck it provided, but it is quite fascinating in numerous respects. Just the naming conventions alone once you get to Bermuda is a trip. Good luck.

I agree with you that there are going to be challenges in building these companies, but not all of existing players aren't as openly hostile as I think you expect. I've spoken with a lot of P&C folks at different companies, and they know things will have to change, they're just trying to figure out how.

Some of the more forward thinking companies are actively investing in new models and companies. I think that's going to accelerate.

Even without that, over time, new models and companies will succeed. Some of these are going to look like stock insurance, some will look like Mutuals and reciprocals, and some will solve insurance like problems in new ways.

We certainly agree on the bulk of your points (see my top-level post elsewhere in this thread). There is opportunity, though in my opinion, a really good way to get there is to work with an incumbent on a "modern" strategy. That's really hand-wavy, I know, but you gotta find the guy who's willing to piss off its brokers and start there.

We're doing much that at Neos at the moment. We've taken a series A mostly funded by a couple of big insurance companies who are interested in what we can introduce to the market.

Are you the guys using smart home (is that the right word?) devices to try and mitigate homeowners claims by preventing or catching problems as they occur (presumably to respond quickly and limit the extent of damage)? If so, that's a pretty good idea. Carriers already give discounts for things like alarms, sprinklers, etc, but virtually none partner directly with a company that can better assure the quality of monitoring. I'm sure there's a privacy hurdle to work on, but it has to do something to loss activity, right?

Best of luck!

We are indeed. Out philosophy is that its better for everyone to prevent a claim before it escalates into one. To that end we provide smoke, flood, motion, and door sensors, along with an (optional) camera. We've got some other cool things in the pipeline capable of not only detecting problems but also responding to them before they become a crisis.

You're definitely right that there are privacy issues to be answered but we try to be as transparent as possible about what we're doing with customer's data, and by being stringent about who has access to sensor data.

Thanks for responding. The whole motivation of why I wrote my post was, to paraphrase "You're late to the party, there are already extremely competent experienced players already working hard in what you think is ideal." Seeing your quick input pretty much affirms my impression that yes, improvements can be made but it's hilarious to think a couple years of outside study might reveal some kind of gem.

As in, there are already block-chain based deployments going for portions of the industry. That's some pretty aggressive shit in my opinion. These are also industries with loads and loads of proprietary data that simply can not afford to play fast-and-loose with integrity.

That's why Cyber Insurance now exists. Even the Industry itself knows how to layer risk models.

Hey though, if somebody wants to march into Stalingrad in the Winter and prove me wrong, they can reap the rewards. Full stop.

When I started with Neos I was genuinely surprised at quite how on the ball the insurance industry is. I'd had the same impression that it was a bunch of people stuck in the 90s throwing together spreadsheets and hoping for the best. What I've actually seen is a lot of companies providing some pretty advanced technology (just a single example, a company which given an address can return the projected cost in claims over a year, broken down by types of claim), and a lot of people who's entire job is to take large amounts of data and extract insight into people's behaviour from it, it really wouldn't surprise me if some of these data teams are on a par with Google's ad-targeting teams.

Having said that, there are a great many advantage to doing greenfield development in an industry full of entrenched companies who've been around for a long time, mostly around the level of complexity. We can get away with much simpler solutions because we're currently super focused on home insurance so don't need to deal with all the edge cases around providing fifteen different types of cover.

Since you should know, is TFA's description: "Reinsurer – There are companies that purchase insurance risk from carriers." a conventional way to put this? ISTM a reinsurer is paid to take risk, which is the opposite of how one thinks of purchasing.

The relationship between a carrier and the reinsurer is a bit of an odd one, with the relationship in my experience being more symbiotic than the description gives the impression of.

At least in the case of the company I'm at the details of the policies we write, and what feeds into the pricing, is worked out in conjunction with the reinsurer. They then agree to buy any risk we take based on that model. It is definitely a case of the reinsurer buying that risk from us though, the best way to think of it is that if a reinsurer believes the model is correct they also believe that on average they'll end up making a profit on the risks they buy, and indeed that if we didn't sell the risk to them that we would make that profit directly.

You're correct. They sell a product.

The biggest problem I have with insurance is the inherent disproportionate power relationship between the company and their customer.

Essentially, the moment a customer becomes more trouble than they are worth, they are dropped. This is true with other types of industries, but if your health insurance drops you when you get cancer, you can't get more health insurance, and you die.

Same with house insurance, car insurance, ect...

And it causes death or financial disaster all too often.

Some would argue that "this doesn't happen" or "it's illegal".

1) It happens ALL THE TIME.

2) It's illegal, but if you don't have the means or education to fight it. You are pretty much done.

It's the fundamental nature of insurance companies to milk healthy customers while dropping unhealthy customers. It's just too tempting and they are too protected by our legal system for them to not do it.

I know this is pessimistic, but as long as you realize this fundamental imbalance in the relationship with you and your insurance companies, you can mitigate it to a certain extent.

But, really, the only way to completely mitigate it is to be so rich that you don't even need insurance.

Or to be socially-connected to organizations that the health insurance company doesn't want to piss off. My family wasn't rich at all growing up, but we never had a problem with health insurance, because my mother worked for the government. The one organization that insurers will never piss off is the federal or state government, because then they will lose the right to do business in that state.

I do think that this increasing preference for the rule of power over the rule of law is pretty disturbing, and makes a mockery out of the claim that we live in a democracy. Sure we do...if you have leverage over the companies that would violate your rights. But that's the very definition of corruption, when you need to rely on inside information, relationships, or other proprietary tools to get people to do what you want, rather than your rights as a citizen.

> Or to be socially-connected to organizations that the health insurance company doesn't want to piss off.

This is definitely true, and it seems like social media and sites like this or Reddit have the potential to bring this power to many more people. Companies behaving badly stokes online lynch mobs like nothing else, just look any recent stories of Uber on HN or United on Reddit.

The challenge is that these mobs are essentially random, and the public's attention span is short. So if your company does something evil, there's basically a 1% chance that you will face a company-ending event, and a 99% chance that it will never come to light. And even if your company doesn't do something evil, there's still maybe a 0.25% chance that you will face a company-ending event, because online lynch mobs don't really care about facts. So it doesn't act very well as an incentive.

Just look at the recent Monsanto news, where they knew that Roundup causes cancer, sold it anyway, and paid off the EPA to bury the investigation. There've been news stories, but no major social media outrage. Probably we've just been conditioned to expect no better of Monsanto.

The advantage of a real legal system that's accessible to all is that there're procedures for finding out the truth of any accusation, and then if it is true, there's enforcement teeth behind it. (Or used to be, at least; I think many companies are now using the bankruptcy/reorg shield to avoid court judgments.) Mobs are a poor substitute for that.

Some more info about the Monsanto thing, which I hadn't heard about; I believe this is what the parent is mentioning:

https://mobile.nytimes.com/2017/03/14/business/monsanto-roun...

The other challenge here is that it's hard to vote with your feet in insurance because you might have employer provided insurance that gives a specific company a monopoly, have fewer options for other reasons, or face turning a condition acquired while insured into a pre-existing condition (might be relevant under Trump's attempt at reform).

Insurance company executives pull the political marionette strings via campaign finance (in the U.S.). I would surmise the worry of "pissing someone off" dynamic is exactly the reverse.

Possibly at the federal level. At the Massachusetts state level, the teacher's union (which my mother was part of) pulled the marionette strings; basically all local politicians were in the pocket of the MTA.

Don't forget the police union.

yes, insurance companies are very corrupt. I would say they are inherently corrupt given their place and power in our system.

I don't have a solution other than don't get sick or have a car accident.

I do! End health insurance companies as we know them. Institute universal coverage, mandated by law. It doesn't have to be single payer or free at point of care, but it has to be universal coverage.

It's not a trivial problem, but it's also largely a solved one. The US just hasn't implemented any of the models that work elsewhere.

That addresses healthcare, but health insurance is just one slice of the insurance market.

I'm not aware of a general solution that covers all cases, but in auto insurance we found that the model of replacing underwriters with crowdfunded groups works.

I'll take advantage of us having the top commentthread to pose a question to the HN audience:

Would you rather live in a society where everyone has a right to medical care regardless of their social standing or financial wherewithal, but some people will die because of bureaucratic incompetence or because the person who could've saved them has no incentive to? Or would you rather live in a society where medicine can work miracles, even the most debilitating ailments can be cured, but only if you happen to be rich?

The former is (to a first approximation) what you get with European-style single payer. The latter seems to be where American health care is headed. There's no situation where everybody can be saved, simply because we're all going to die in the end anyway, but the distribution of who dies and from what can be changed by different policies.

"Would you rather live in a society where everyone has a right to medical care regardless of their social standing or financial wherewithal, but some people will die because of bureaucratic incompetence or because the person who could've saved them has no incentive to? Or would you rather live in a society where medicine can work miracles, even the most debilitating ailments can be cured, but only if you happen to be rich?"

Is this honestly a question?

There are way more non-rich people who need health insurance than there are people who may die because of "bureaucratic incompetence" or lack of incentive(what? do people really need money to not let someone die?).

The way you phased it the former is obviously(to me at least) better than the latter one.

It also sounds like you think medical research advances only in countries with the latter style of health insurance. Do you really think medical advances happen only in America?

>'Would you rather live in a society where everyone has a right to medical care regardless of their social standing or financial wherewithal, but some people will die because of bureaucratic incompetence or because the person who could've saved them has no incentive to?'

That is delusional. As a doctor in a single payer country, I can categorically say that the quality of living of myself and my colleagues is excellent. In fact, for those not from privileged backgrounds (many, as we have relatively affordable tertiary education) not having a quarter to a half a million of debt" graduation actually means we are better off.

So there's that, then there's the fact that I aggregate, the level of care in Australia, or the uk, or Japan, or Germany, is actually substantially better than that I the US.

Inform yourself sir.

I support a single-payer approach, largely simply because the biggest risk pool spreads the risk most evenly, but I think we have to be very careful with the word "right". I agree that basic medical care can be considered a right, in the sense that a wealthy society, which we are, is morally obliged to provide it to its least fortunate. But there has to be a limit to what counts as "basic"; if we don't impose one, we're going to wind up with even worse cost inflation than we have now.

The rich will have better health care even in a single-payer system, and I'm fine with that.

The thing I really don't want is the pre-ACA system, where only people with good jobs can get access to health care.

BTW I saw a great Yonatan Zunger blog post on this a while back... ah, here it is: https://healthcareinamerica.us/how-to-ask-good-questions-abo...

> The former is (to a first approximation) what you get with European-style single payer

Aside from the fact that most European countries - even those with government-mandated healthcare - do not have single-payer insurance, this is a false dichotomy that ignores the global market dynamics.

Just as Medicare in the US could not operate in its current form without the existence of the private market to implicitly subsidize the public system, European countries would have a very different healthcare story in the absence of the US market.

Nobody likes to admit it, but there's a reason that the US is the source of over half of all direct biomedical and pharmaceutical research worldwide, including research conducted by European pharmaceutical companies. These companies use sales on the US market as the source of funds for the research that all countries benefit from, and in the absence of the US market, either those costs would be borne by Europe, or that research would simply not happen[0]. They also pull funding from the US market via other, less direct means.

Yes, the US system has massive problems, and yes, it could and should be cheaper. But you can't analyze these as binary options in isolation, because they're not binary[1], and they're not operating in isolation either.

[0] If you want to make the argument that Europe could come up with a system that pays for this research in the absence of the US market, fine, but then you have to explain both why that would not simply recreate the same expenses, and explain the fact that, so far, that system has not been created even by the European pharmaceutical and biomedical companies.

[1] The UK has four main payers; the Netherlands doesn't even have single-payer at all, and so forth.

Neither. Why not dream bigger than that?

We have unprecedented means to distribute information for "free" (or at least cheaply enough that even homeless people can access insane amounts of information, unlike in the past when a lot of stuff was only accessible to the elite) and diet and lifestyle are cited over and over and over as contributing to deadly conditions. There is lots of room here to do good things for everyone, quite cheaply.

Though I am for the U.S. transitioning to universal basic health coverage for its citizens. The current situation is terribly broken.

The US isn't heading toward "miracle treatments for the rich", it's heading towards "over testing, over diagnosis, and over treatment for the rich", all of which are linked to harm.

And single payer systems mostly don't prevent private treatment - you don't need it because the single payer is good quality and the only benefit you get from private treatment is access to ineffective experimental very expensive treatments and nicer hospital rooms.

Put another way: "Oh no! I'm rich and so can pay for whatever infinite quality, resource wasting healthcare and so I'm scared I might have to endure poor people's healthcare".

Rest easy - you can still buy your way to better care.

Fwiw there is an "Intellectual Care Advantage" in that someone who is articulate and educated (aka well off) has a much better chance of getting good care, through their ability to navigate system, communicate with healthcare professionals, do their own research, be the squeaky wheel. But in my experience that advantage exists equally in both the US private system and in the European socialized system.

The solution is AI. Self-driving cars and AI healthcare has the potential to make the insurance industries associated with both. I only recently learnt about the horrific healthcare in the US, and am doubling down on developing AI for healthcare. If I replace one doctor's job with an AI, I've probably saved 10s of lives.

I think you're confusing "health insurance" which has a strong social redistribution component, with pure insurance, which is a business transaction to pay off on the chance something happens.

Pure insurance is when a consumer buys a Playstation for $300, and then pays $5 for an extended warranty, or when a company insures their office building against a fire. I don't think your arguments apply to that. In such a case, is there unacceptable social harm if a insurance company determines I'm really bad at taking care of my Playstation, and refuses to insure me? Is a company that badly off if they need to write down the cost of a building if it gets burned down?

Is all insurance a social right? I feel that health insurance has the strongest claim to this, because it's not a pure business transaction and it's about who we're letting die in society.

I think fair and transparent business contracts are a consumer right.

Insurance is statistical in nature, and contracts should be required to explicitly outline the scope of coverage. If I’m paying $5/m for coverage of manufacturing issues with my Playstation, I expect any manufacturing issues to be covered. I would also expect an extremely unlucky customer to receive multiple device replacements without any change of premium - because the contract and price should reflect the expected failure rate of the device (plus overhead + profit).

In that example, it should be illegal to boot an honest customer after the first failure… the only reason to do so would be because the insurance company set an artificially low rate that doesn’t reflect the ammortized rate of manufacturing issues. In other words: the business is breaching contract by charging me for a different service than I’m getting.

Although, given the clear scope of coverage, proof of malfeasance is justification to both refuse payout and ban the customer.

However, if I’m paying $5/m for unlimited coverage, I expect unlimited coverage. That rate is expected to cover idiots that keep their Playstation on a fireplace, and perfect people that never move the device from a cool location away from vibrations and interference. Again - if I get kicked after the first failure, that’s failse advertising. Of course there are people that will microwave their device for fun and demand a replacement - the rate should include those people, or the contract should not offer unlimited coverage.

Businesses are free to not offer unprofitable coverage, but consumers have an economic right to demand that businesses honor contracts. I’d argue that consumers also have a right to accurate advertising - if the “unlimited coverage” plan has fine text that says “manufacturing issues only”, well, that’s not really above-board.

Totally agree; the problem of insurance is one of contract law. Most people denied claims are denied legitimately based on the contract they signed. However, there is the perception that claims are denied unfairly because there is a disconnect between what you thought you signed with what you actually signed.

I saw this every day when I was a catastrophe claims adjuster with Farmers Insurance during Hurricane Ike that demolished a good part of the Texas/Louisiana coast. I actually had a customer threaten to shoot me because I couldn’t write a check for a water damaged wood floor despite writing a big check to replace the roof. The actual source of the water damage wasn’t the roof, it was the floodwater. So while the walls from the roof downward were covered because that damage was from the seepage from the damaged roof, the floor damage was entirely from the flood. (It was a two story house so the water from the roof seeped through the walls from the attic and leached downward into the drywall, while the floor downstairs was covered in a pool of water from the floor.

The point is the homeowner thought he was covered despite there being an extremely clear flood exclusion for that particular policy. I could have been really strict and only covered the walls down to the flood line, but since the walls were a total loss either way, I had the flexibility to cover the walls all the way to the floor.

I saw this misunderstanding again and again when it came to roofs. A 20 year roof that is 10 years old is only covered at a fraction of replacement cost because it only had 10 years of value remaining. Those were uncomfortable situations for me however, the homeowner, when buying them policy could have bought a replacement cost add-on, but they wanted to save money so they got burned when they needed the coverage.

Insurance agents are a HUGE part of the problem – is claims adjusters had to be the “bad guy” and break the news that their policy didn’t cover what they thought it did. I was the one getting harrassee when all I was doing was following the contract. I did my best to lean on the side of the homeowner, but all of my payouts had to be supported by detailed measurements, photographs and Xactimate estimates.

A nasty business that was. I barely lasted a year before I burned out.

> Of course there are people that will microwave their device for fun and demand a replacement

This is known as insurance fraud.

> Is a company that badly off if they need to write down the cost of a building if it gets burned down?

That means a company has to always keep cash in reserve against the off-chance of its building burning down just because insurance can't be trusted. That's money that can't go into expanding the business and creating additional jobs. Imagine the overhead of this parked money across thousands of businesses. Not to mention a lot of startups or young businesses can't have that sort of cash position, which means it becomes another barrier to starting businesses. It would be a major impediment to the economy.

Even worse, if you have to account for that possibility, why buy insurance in the first place?

All insurance companies have the temptation to disqualify claims to improve profits. The nature of the problem is that when you buy insurance, you are disconnected in time from the point where you might need to make a claim against that policy. And it is only when you make the claim that you find out how nice or terrible that company is at actually delivering the product you've been buying.

There is a better way than just purchasing a policy and hoping. E.g. in CA, you can inform yourself about various home insurance companies before you buy. By looking at the data the CA Dept of Insurance publishes, you can see the ratio of claim complaints to policies.

In some lines of insurance like healthcare via employee benefits, you aren't the person deciding on the insurance company - and that definitely leads to problems...

The biggest reason for the social redistribution component is the pesky issue of age. Old people seem to consume a lot more health services. People when born also do but are taught to consume less. Somehow they forget when they get older...

The problem would not exist to this extent if there were lifelong contracts. Even in places where they are common the premiums are not reflecting the cost of the age cohort but have some actuary life insurance component to them. Eventually one has to pay in what one is statistically likely to consume and that is easier when younger. So even in a totally capitalistic system while earning one pays for ones future old age risk. The US system is an outlier as the old age risk is socialized.

The easiest way to see that health insurance is not pure insurance is to notice that if your auto insurance behaved like health your gas, oil and windshield wiper replacements would be reimbursed also.

> the moment a customer becomes more trouble than they are worth, they are dropped.

Insurance is a business. I don't think any business would want customers that are more trouble than they are worth.

> they are too protected by our legal system for them to not do it.

Solving the risk issue with patients who will never be able to afford their healthcare is not an insurance problem. These people are uninsurable. There's a known cost to pharmaceuticals associated with being a hemophiliac. There's a known cost to the outpatient care associated with kidney disease. There's no "risk" associated with those costs.

We need to re-frame the discussion around socialized healthcare, not health insurance. Health insurance, apart from high-deductible, low-cost plans, doesn't exist. The US already has socialized healthcare, the problem is that it is a split private/public model.

> Insurance is a business. I don't think any business would want customers that are more trouble than they are worth.

But insurance is precisely the business of taking money from everyone that's exposed to a potential loss (namely the expected value of that loss, plus some more to cover administration cost and profit), and then distributing it to those actually suffering the loss.

If the insurance then turns around and kicks those affected out, it is reneging not only on the spirit of the contract, but on its entire raison d'être.

Agreed, though, on your later point that in the health domain, certain risks, once they've occurred, are so massive that traditional (private market) insurance structures might not be really suited to them, which is why nearly the entire developed world has some sort of public health insurance, fortunately.

> If the insurance then turns around and kicks those affected out, it is reneging not only on the spirit of the contract, but on its entire raison d'être.

It's not reneging, assuming they make you whole on the loss.

If I wreck my car, and I have insurance, I will be reimbursed for my loss. There's no expectation at that point that I will necessarily keep my coverage, or keep it at the same premium, now that I have demonstrated that I am a higher risk.

For health insurance, it's a bit different because some diseases can't be cured, and it's harder to put a dollar amount on the "loss" incurred. For example, if I develop diabetes, that may be something that has to be managed for the rest of my life, and has various other side effects such as circulatory problems. But, we have data; there are lifetime averages for this sort of thing, and they can be computed into the actuarial risk profile. As long as you acquire the insurance before you incur the loss, the model works.

> nearly the entire developed world has some sort of public health insurance

We should not call it insurance when that's not what it is, though. If you have a disease (preexisting) the insurance model doesn't work, any more than it would work to sell homeowners insurance to people whose houses are currently on fire. The risk of loss to the insurer goes from "actuarial probability" to "100%"

Yep, but as long as they're for-profit and the people making decisions there are allowed to prioritize increasing shareholder value above minimizing human suffering, I don't think it'll change.

> which is why nearly the entire developed world has some sort of public health insurance, fortunately.

"That 'nearly' is a real killer" - Somebody from the "nearly"

Re: health – that's because what you really want is a single-payer health care system funded through taxes, not commercial health insurance, but your country's ideology does not allow for that.

I think you are making some big assumptions about what Socrates wants. There are other possibilities. I live in Australia where there is a dual system, I'm from Canada which has public health care.

Limiting your thoughts to make assumptions about the original poster is limiting your potential to see opportunities.

I am not making assumptions. I'm providing my own opinion that the problems he mentions are best addressed by funding healthcare with taxes instead of having an insurance system.

> is the inherent disproportionate power relationship between the company and their customer.

And the principle of "utmost good faith", which insurance companies abuse to remove cover after a claim, unfairly disadvantages many people.

https://en.wikipedia.org/wiki/Insurance_law#Utmost_good_fait...

https://en.wikipedia.org/wiki/Uberrima_fides

Given that insurers so far have been unsuccessful in legislating requirement for a customer to hand over any DNA test they have performed, it seems quite sensible solution that customer gets dropped, as otherwise they could exercise information asymmetry to their benefit, and great peril of insurance provider.

Of course this is sarcastic, but argument about information asymmetry, created by DNA testing, that supposedly threatens the existence of insurance business is quite real.

> "Essentially, the moment a customer becomes more trouble than they are worth, they are dropped [by the insurance company]."

In healthcare there are many different models, but one popular one is the concept of an ASO. This is the case where a healthcare insurance company (think Anthem) will provide administrative services only (ASO) and not (ultimately) be financially responsible for paying claims. The group responsible, in this ASO relationship, is generally an employer.

This is actually fairly common and in it the insurance company has no incentive to drop a "customer" (member), even if/when they legally could.

There is a lot of "bad" in the health insurance industry, but there is also a lot of "good" - people working from the inside who are trying to make things better for members/individuals. Things like improving quality of care, managing coordinated care models, identifying medical risk (eg. opioid abuse), etc.

I think first people need to better educate themselves on how the industry currently works, where the problems are (there are many), and where the more positive efforts are being made in the industry. Bottom-line - don't write it off, but get better informed and try to contribute.

What you are proposing,"get better informed and contribute", doesn't many any sense.

"get better informed" about what? How insurance companies take advantage of poor people? Even if I know all the laws and regulations and details of my policy, if I don't have the money (hire a lawyer) to fight it, then I am screwed.

And this has happened to me. I was in the right, but my insurance company ruled against me, I complained and they basically told me to hire a lawyer if I didn't like it.

And "contribute"? what is that? Contribute money?

You still don't have a solution for the problem, insurance companies having asymmetric power (via information and money and legal influence) in the customer relationship.

They collude with other insurance companies to create complicated policies that you can't negotiate or understand, but are forced to have legally.

It's billion dollar powerful and well connected corporations vs. one person. Not exactly a fair fight.

My point being that you can contribute by demanding your state or federal government officials write or support laws that change how health insurance companies are allow to operate - or - by joining the industry and fixing it from the inside.

Your argument is an emotional one, and that is fine, but it does not help to _realistically_ approach this problem.

Before you go thinking about how this applies to healthcare... health insurance in the U.S. is different from other types of insurance and personally I think we'd all be better off it were not even called "insurance."

Health insurance is a mix of pre-paying for predictable and certain expenses with tax-free dollars, a transfer/entitlement system to ensure that more people can afford insurance (by design, your premium does not match your expected risk--either you are pooled with others at your employer, or your exchange account is subject to rating band requirements which means, for example, that in many states old people can only be charged 3X more than young people even though old people are likely to be much more than 3x more expensive to insure), and actual insurance. I'm not sure what percentage of your premium reflects the cost of actually insuring you against uncertain future health events, but it's far from 100%.

This is an interesting article, and some of it applies to healthcare in the U.S., but much of it does not.

"health insurance in the U.S. is different from other types of insurance and personally I think we'd all be better off it were not even called "insurance.""

Agreed. If regular, predictable events are covered, it is not insurance. Regular, predictable events are not insurable. Be cause math.

Wellness checkups and scheduled preventative care and yearly mammograms/prostate are all fantastic things ... but they're not insurable. If someone is selling "insurance" for those things, you can be certain that you're paying 100% of the cost somewhere.

>If regular, predictable events are covered, it is not insurance. Regular, predictable events are not insurable.

The problem in the U.S. is that we have this bizarre system where hospitals charge exorbitant prices and then insurers haggle them down to something halfway sane. So when you're paying for "insurance" you're (ideally) getting both catastrophic coverage (i.e. actual insurance) as well as access to a cartel that negotiates prices down from impossible heights on your behalf -- even for routine care.

Since most people who regularly access medical care do so through these cartels, care providers have no incentive to make care more affordable than what they can get away with -- and insurers have no incentive to allow the price to drop either, since people being able to afford care outside the cartels would ultimately undercut their profits.

This system is fundamentally unworkable. There's really no way to detangle the perverse incentives here in a way that will bring prices down to a level comparable with single payer healthcare.

The ultimate reason behind hospitals attempting to charge exorbitant prices is due to Medicare and Medicaid paying under cost for services. Hospitals need to make that difference up somewhere. Surprisingly, if you remove the profit hospitals make on ancillary services like the gift shop, parking fees and investment income, they are losing money.

Isn't the overly-litigious nature of the U.S.A also why costs are so high?

The malpractice insurance that docs and hospitals need to carry in order to defend themselves should they be sued is passed onto consumers in the form of higher medical costs.

Or at least that's how someone once explained it to me. Is that not also a contributing factor?

That can't be true. They are not required to accept Medicare or Medicaid. If it was a losing offer they just wouldn't accept it.

The ultimate reason behind hospitals attempting to charge exorbitant prices is that you have no choice but to pay.

Hospitals charge high prices because they can. They are often local monopolies, and behave accordingly. And with an utter lack of price transparency, which makes the idea that patients could shop around a joke.

There is a simple reason for the "cartel": it's called moral hazard.

You have the monopsony that comes from collective buying power on the one hand. (An argument for SINGLE PAYER insurance.)

On the other you have the usual moral hazard which says, if the customer ain't paying, try to charge as much as possible.

So it's this game of bigger and bigger armies. Same as when countries can't make a peace deal where neighborhoods and individuals long ago could have. A single person can torpedo a deal. It's all or nothing.

It's also why some British bureaucrats in the NHS face the choice of dropping coverage for a drug because the company just won't play ball and charge a low enough price. When are you willing to walk away when you represent a lot of people??

There's some nuance here: It might be that a rational insurance provider encourages their clients to do regular checkups for conditions that can be caught early and treated at a much lower cost.

Now, the parent comment still is correct that that cost would have to be covered by premiums, but the premiums should still be equal or lower than they were if they didn't provide the checkups.

In effect, in such cases the insurer could market the regular checkup as a benefit, but rationally if they could they'd rather make the checkups a policy obligation to preserve their margins. This is what aligned incentives looks like :)

There's some nuance here: It might be that a rational insurance provider encourages their clients to do regular checkups for conditions that can be caught early and treated at a much lower cost.

I'm a member of Kaiser HMO, and they do just that -- they regularly notify me of screening tests I should be doing and they offer several ways to contact my doctor without actually seeing my doctor.

If I'm not sure I need to go in to see him for that lump on my toe, I can call a triage nurse for advice, set up a phone call appointment with my doctor, or do a video chat with him.

For my last annual checkup, my doctor emailed me, asked me to go in for some bloodwork, then a few days later, I went to visit the doctor and we talked over the results while he conducted the physical.

I know some people don't like Kaiser, but I've had only good experiences with the system, and I love their electronic records system - I can view test results online, and if I'm referred to another doctor, the other doctor has instant access to my records.

I'm not sure I agree. If my insurance is on the hook for prostate cancer treatment, then they may expect a prostate exam to save them money, in which case they would have an incentive to pay for it.

Precisely why healthcare insurance is different.

Preventative health saves more resources than reactive health (i.e. catching cancer early as opposed to when it display symptoms). One of the big problems of healthcare insurance in the U.S. is treating it like car insurance - a numbers game of reactions to accidents.

Some insurance policies cover 100% of annual checkups but it still trains people to avoid going to the hospital.

It's not that different, though. Preventative measures show up in many insurance contexts (although I guess usually as a premium discount, not as being paid for by the insurer): fire alarms, and training for motorcyclists and pilots, come to mind.

Wouldn't insurance companies want people to get preventative care over reactive care, to lower their own operating costs? I know that Cigna is a big proponent of this, but I can't think of any others that do the same.

> Agreed. If regular, predictable events are covered, it is not insurance. Regular, predictable events are not insurable

Ignoring the US specific stuff, there's a reason that my private health insurance basically covers a regular medical screening - and it's not because the cost is in the premium. It's because that preventative strategy allowed them to reduce the size of claims from people who otherwise would find problems later and those would be more expensive.

Imagine, if you will, a car insurer who can't turn around and refuse to pay out on claims where the car hadn't been serviced in 5 years. The tyres are bald, the break pads worn, etc. Now imagine that they offer a yearly basic road-worthiness check for free each year. They'll sell more policies (because it's free stuff, and they care) and have fewer claims caused by poorly maintained cars.

The costs are being paid, clearly, but they come in part from changes in the claim profile that you would be paying for otherwise.

> If someone is selling "insurance" for those things, you can be certain that you're paying 100% of the cost somewhere.

Nope; probably more like 150%. Except I hear that in America, those insurers can get a deal for you for the routine stuff compared to someone un-"insured". Pretty f'ed up.

Payors are healthcare wholesalers. They can buy health services from physicians and facilities at about a third to a tenth of the cost you can because: 1) It's not life or death for them; and 2) They can buy in bulk

If your insurance covers pre-existing conditions, it's not insurance anymore.

The problem is that every condition becomes a "pre-existing condition" when you change insurer. And because insurance is tied to jobs, people are forced to change insurers frequently (whenever they change jobs, or whenever their employer changes providers).

So you're on insurance A with no pre-existing conditions and get cancer. Next year your employer switches to insurance B. Now you have a "pre-existing condition" - is it fair to suddenly refuse to treat you? If that's the case, what's the point of having "insurance" at all?

If this were an "insurance" market, when you get diagnosed with a problem (cancer, say), the old insurance A would have to pay for the cancer treatment, and keep paying even if you leave the insurer.

Any "new" conditions would be covered by your new insurer B (or not covered, if you didn't get new insurance), and insurer B would have the right to refuse to pay for pre-existing conditions because those would be covered by your old insurance A.

But that isn't to say that if we had "insurance" life would be altogether better. Insurers would increase the premiums of people who beat cancer, because cancer has a habit of coming back. Quite likely anybody who beat cancer would be unable to afford insurance in the future.

Pre-existing conditions includes disorders that makes you more susceptible to diseases while not guaranteeing you'll get them. That's still insurance.

Not necessarily. In my view, all insurance is a creature of regulation. Insurance needs regulatory oversight to manage substantial moral hazards and arbitrages, otherwise nobody would buy it. The enabling regulations for health insurance could include provisions for managing the care of people who have pre-existing conditions.

That's not true. Look at insurance clubs in third world countries (funeral insurance clubs in South Africa for example). It's completely unregulated, but people band together to help amortize the cost/risk of rare financially devastating events.

That's fair, but I suspect that the insurance industry as we know it would be reduced to a microscopic fraction of itself without enabling regulations. Likewise for business in general without liability limitation and other corporate regulations.

If you're talking about the pre-existing condition of broken leg, I agree with you. You should not be able to sign up for insurance after breaking your leg and get all the relevant care paid for.

If you're talking about the pre-existing condition of fat and family history of heart disease, then I disagree.

It wasn't meant as a political statement. Instead I was commenting on how the terminology doesn't make sense.

A single payer system would remove a lot of the perverse incentives we have with our current model that prioritizes profits over care.

Don't forget collective bargaining against hospitals. [1]

[1] https://en.wikipedia.org/wiki/Chargemaster

Isn't it still insurance though, as in insurance against tremendous healthcare costs without it? Maybe I'm misunderstanding, but I thought the definition of insurance was just protection from loss

Here's a great blog post on insurance and healthcare: https://healthcareinamerica.us/how-to-ask-good-questions-abo...

I think insurance is not an accurate word for the health care industry. I, like you, think of that word as coverage for risk, and in fact that is how the industry started in sixteenth century Netherlands (mentioned in that blog post).

But the business of insurance is about defining and measuring risk, and putting people into pools so that you can charge the riskier people more.

I don't think that maps well to health care, especially when you consider how good DNA testing will be in a matter of years. "Yup, your kid is in a high-risk pool for leukemia. You get to pay $50,000 a year for family insurance instead of the normal $19,000." [The first number is made up.]

Also, if you run an insurance business and someone with a pre-existing condition knocks on your door, their "market" rates will be their cost of treatment as their risk has become a certainty.

If you don't think charging people based on your best knowledge of the risk is fair, then it is a government program, a forced redistribution of risk across a larger pool; not insurance.

I see what you're saying, thanks.

Also, as far as I know health insurance companies can't charge different rates based on genetic testing. How would this be different, than, say, laws preventing car insurance companies from charging different premiums based on race?

I've always wondered about US health insurance -- why can't the physician give me quotes about my personal obligation for various treatment options? It's frustrating that as soon as it's time to come up with a bill, poof there it is but prior to the bill being generated all I get is shrugs?

Is it because the insurance coverage algorithms are too complicated? Because the different entities involved in a single treatment plan is too complicated to navigate? Because physicians feel that cost is orthogonal to medicine and they prefer not to be involved/prefer to recommend the ideal treatment based on a predicted outcome? All of the above?

It feels like if there were a particular hospital group / physician group that had this feature, they would attract a lot of attention. Just imagine, "Your initial differential diagnosis will not exceed $150 and we'll discuss treatment options or more conclusive diagnostic tests afterwards."

All I've heard so far are physicians who don't accept insurance but instead have a straightforward "menu" for common items, which is interesting but not what I think most people want.

Nobody can tell you because nobody knows. And nobody can know.

Here is a simple example that my sister (a nurse) gave me yesterday. Suppose that you go in for an operation at the hospital, spend a week recovering, and develop diarrhea on day 2 while you are there. That diarrhea is a "hospital acquired infection" and insurance won't pay a dime for your operation. Therefore until you've been through the hospital, nobody knows whether you'll get paid.

Oh right, and the possibility of this happening is a reason for the hospital to kick you out of the hospital as quickly as possible. Average patient outcomes may be better if you stay a week, but their odds of getting paid are better if you're kicked out within 48 hours.

This is just the tip of the iceberg. She went on about how broken health care is for an hour...

> Nobody can tell you because nobody knows. And nobody can know.

That's definitely not the case, because they have to know in order to bill you. To get us back on the same page, let's rescope and consider only elective procedures and primary care.

Your example is extraordinary and could be specifically excluded. Even if I got a treatment plan with equivocating language about "risk of procedures / changes / infections / etc" and all that noise at least I could make an informed decision about which treatment plan I think is appropriate.

The guff I was sold when we were shoved to high deductible plans a ~decade or so ago was that we could make decisions about our healthcare. They come up with BS estimates or treatment calculators that are from the insurer and not the provider.

The problem is there is a bunch of hidden complexity in medical coding and billing. There's 5 Evaluation & Maintenance (E&M) codes that may apply to an office visit, another 5 for ER visits, 4 for tele-medicine consults - which one is used depends on multiple factors that you can only know after the fact, and which one is applicable to the visit determines the expense. This doesn't factor in other procedures such as labs, and whether such charges are required to be bundled into the E&M fee by a specific payer or not - plus differing allowables from each payer. Add in the fact that nearly nobody bothers doing pre-authorizations except surgery centers and other outpatient services that payers require prior authorization for anyway and the whole situation turns into a giant clusterfuck.

Is it POSSIBLE to do all of this and give you a proper quote before a visit? Sure, but it requires some fairly complex software to do so and manual input of tons of different data specific to your insurance contract that almost nobody wants to do it (ironically, the billing company I work for DOES this - but since we aren't involved in patient care it's only utilized to ensure we get paid properly by insurance companies).

>Sure, but it requires some fairly complex software to do so and manual input of tons of different data specific to your insurance contract that almost nobody wants to do it

Can someone quantify the value added by having this complexity baked into the system? Is there any advantage besides the "confusopoly" aspect?

https://en.wikipedia.org/wiki/Confusopoly

Who is the main benefactor (in $$$) behind the drive for complication of medical billing? Doctors? Medical Office Receptionists? Insurance companies? Other third parties that doctors hire to handle paperwork?

What are the benefits supposed to be over whatever we were using in 1975? If you were founding a clinic on Mars for the first colony, would anyone duplicate our current system of medical billing?

However, most hospitals don't enforce any requirements of "codes" or there are bunch of inter-changeable codes.

If you get a bill from hospital, you can call billing department, ask them if they can try a different code to bill insurance company. And it is possible new code will lower your out of pocket cost. On few occasions I did this, I end up owing nothing out of pocket.

Even with a line item precoded estimate, it would require some negotiation between what the doctor/lab thinks it costs versus what the insurance thinks.

Doctors/Labs are often surprised after the fact by what the insurance company allows, thinks is miscoded, will pay, etc.

I think what's happening is that your doctor will attempt to get as much money from the insurance company as he/she can.

My wife has experience of the doctor's office asking insurance company for $X, and the insurance company comes back and say "no, max $Y". So then the final "cost" all of a sudden becomes $Y. Pay attention to the claims that your doctors send to insurance company and you might be able to see that.

So instead of telling you, yes, whatever procedure is definitely just going to cost $Y. They can't tell you how much things are. It depends on maneuvers with other players in the industry.

This is very different than say in Canada. If I want to get a teeth filling in Canada, my dentist straight up tells me how much before the procedure. If I want to price shop that, I can. In the US, nobody is willing to say how much, because "it depends".

It's not because intrinsically there can't be price transparency. It's because of all the messed up incentives that the industry has that causes US health care to be as such.

Actually, dental care is like that in the US - your dentist can tell you the price, and you can price shop it. If you happen to have dental insurance, they may not know how much of that bill will be covered, but you can absolutely get costs from them.

Other healthcare on the other hand is often a mess, although it is getting better. I've found recently (an MRI in this instance) that I was able to get costs beforehand, and even compare prices. I think the prevalence of HDHP (high deductible health plans) has steered people towards expecting to pay out-of-pocket for care, which has led to a positive change in this area.

To be fair to doctors offices, this is in part because some insurance plans (Medicare's the biggest offender, but then again Medicare's the biggest everything) pay doctors below cost for certain procedures. Doctors cope with this by systematically overcharging other patients' insurance companies when they're reasonably sure the patient has already hit their copay for the procedure.

Essentially, health insurance for the poor isn't formally subsidized well enough to make it actually workable, but doctors have professional ethics that disincentivize them from refusing care. So the system has evolved a clumsy, ad-hoc mechanism for wealthy patients to cross-subsidize poorer ones.

American health insurance sucks.

That's actually a response to the insurance company performing a type of information arbitrage with multiple other parties.

You could have health insurance with transparency, but there is too much profit potential in forcing information asymmetry between all of the parties involved in the system.

Every time that you think...doctors...hospitals...nurses...are up to something, most of the time it can be tracked back to insurance companies and the sway that they hold over congress with their money. I'm not saying that there aren't doctors, nurses, hospitals trying to gouge people. I'm just saying that insurance companies are worse. (With some very rare and egregious exceptions.)

The bill shows they asked for $X, but the doctor already has a negotiated agreement with the insurance company that says they will accept $Y for the service.

Additionally, if you inform the office you are paying the bill yourself (without insurance) they usually give you a discounted price somewhere between $X and $Y.

In other words, almost nobody is paying the list price of $X. It's not really a meaningful number.

(And, as others have pointed out, the weak US dental insurance market means that actually dentists are pretty up-front about pricing in my experience.)

Dental insurance in the US is a bad example, because they generally pay for (in a year) 2 routine cleanings, silver fillings, and a percent of anything else, up to some ridiculously small maximum of $2k or something. You very much can get price quotes for dentistry.

I agree, to me the second biggest industry acceptance that is counter intuitive is that insurers need to make money off of the float. Why can't an insurer come along who charges a fee for the service of ACTUALLY BEING ACCESSIBLE TO THE CUSTOMER. Intead of fax me this paper and wait two months. I am paying the insurer on the basis that they want to draw out any claim I have.

"All I've heard so far are physicians who don't accept insurance but instead have a straightforward "menu" for common items, which is interesting but not what I think most people want." - I think people want this but they are scared of going off of insurance in the event they need to see someone who doesn't offer this (chance occurance, expensive disease).

We are actually setting up an insurer in the UK which is doing exactly that by changing the business model to taking fees on settled insurance claims instead of betting on an underwriting/investment profit.

Have a look.

insureathing.com

For routine things, your responsibility is a flat amount, usually printed on your insurance card. So you know, for example, if you go to your general physician, you pay this much. Go to a specialist, pay this much. Go to emergency room, pay this much.

For more complex things, it's usually:

1. Not possible to know in advance everything that will need to be done. Many medical procedures are not things that just go identically every single time, and complications can occur during the procedure. Having to call it off, re-quote, re-schedule, etc. is not optimal.

2. The doctor likely doesn't actually know how the procedure will be billed. Medical billing is done using standardized codes to describe procedures, and the doctor will have someone who knows how to do that, but that person may not even work in the same building as the doctor. And the sets of allowed codes and how to use them can change quarterly, and that's without getting into the arms race of doctors trying to "up-code" (rather than the most obvious code for a procedure, find a way to bill it as multiple procedures or as a plausible but higher-paying code, since doctors and insurance companies are locked in an eternal battle of doctors trying to make as much money as they'd like and insurance companies trying to pay as little money as they'd like).

On your first point, even if they know exactly what will be done, they can't answer. I can't look for it at the moment, but there was a Vox video maybe last year about a man who wanted to find out the cost to deliver his and his wife's baby. He called a bunch of hospitals in the area, gave them his insurance information, and he asked them the cost assuming everything goes to plan, just the cost of delivery. I don't remember exactly how long it took, but he got a number after hours on the phone. Then the bill came, and it was still a different number. The whole thing couldn't be more opaque.

A lot of good answers here. A few straightforward ones:

- Because healthcare providers negotiate different rates with providers, so the "list price" differs by your provider and plan.

- Because your personal cost is unknown to the doctor, as it would depend on factors between you and your insurance company (like deductible met), coverage types, etc.

Now, these are both solvable problems. And I agree with the sentiment of other posters here that it's predatory that medicine is one of the few fields where you simply don't know how much something will cost until you get the invoice.

> - Because your personal cost is unknown to the doctor, as it would depend on factors between you and your insurance company (like deductible met), coverage types, etc.

This one CAN be known to the doctor, the full details of your coverage, current deductible met, copay amounts, etc are an X12 270 transaction away. Almost nobody does this though, unless you are planning on billing an expensive claim (outpatient surgery, post-acute care, etc) where non-payment can mean a significant monetary loss the time and money doing these checks isn't worth it for the provider. This is further exacerbated by most (all?) clearinghouse's charging to run these transactions, and a really slow adoption of CORE Phase II connectivity standards by payers (which would bypass the clearinghouses completely and allow providers to directly submit eligibility requests to payers over a standard interface).

Because it's sort of like hotels. There's a "rack rate" which is a high price that nobody pays, and a price floor is whatever Medicare pays. (With Hotels, GSA is the "normal" price floor, and cheaper rates are usually wholesale) If you price cheaper than Medicare, you get sued for fraud unless you charge that low cost to Medicare.

Everyone else has a bewildering discount scheme. The doctor literally has no idea what you pay.

In other cases you have HMOs, where primary care doctors get a monthly nut to take care of you and don't get a fee for service in most cases.

> Because it's sort of like hotels.

Great example. Ever checkout without an idea of what your hotel bill is going to be?

> The doctor literally has no idea what you pay.

But if it matters to me, then it should matter to my physician. Most of them will come up with a reasonable response if I tell them "doc, I checked at the pharmacist but I couldn't afford those drugs you prescribed, what else can we do?" Most of them empathize with their patients and come up with an alternate treatment plan if one exists.

I don't think it's good enough to say "well gee discounts and providers and algorithms -- math is hard let's surprise you" because somehow they can figure it out at bill-generation time. At the very least, hospitals/physician's offices could produce a "given your insurance + the nature of your chief complaint, this visit will cost $x, these common diagnostics cost $y/z/w."

Health insurance is a very different business than P&C and one that I've spent a lot less time researching. Each customer interaction at least 3 participating actors (patient, provider, payer), each of which have different incentives, rules, and understanding of those rules.

I think there are great companies being built in the space (take a look at what Clover Health is doing https://www.cloverhealth.com/en/), but it's not an area I'm focusing on.

It's funny that I can take my car to a mechanic and get a free and pretty accurate diagnosis. But you go to a hospital, and you need pay for the diagnosis and it may not be accurate.

Even for a checkup, after the procedures are done, the office can't tell me the bill.

...yet we we call mechanics "wrench monkey" in a demeaning manor.

BTW, this is probably why services like Minute Clinic are getting popular...go in, get something done, pay a flat/low fee.

Well the diagnoses for your vehicle come from a 200 page Haynes manual, your body doesn't exactly have a Haynes manual for your make/model/year.

You might consider looking into Direct Primary Care. It is growing in popularity in the US. Here is a quick and dirty overview:

http://micheleincalifornia.blogspot.com/2017/01/direct-prima...

Mostly due to all of the variables that go into pricing a claim. And that logic on lives in the insurer's claim processing system.

Pieces that can impact the price. Your insurer and what product you have. These will affect who is considered in-network and the fee schedule to use. Different insures will have different arrangements. Depending on the product if you have a narrow network product they may or may not be in-network. It could also depend on the location. A provider can be in-network in one location but not in another.

Also the procedure that is actually performed may be slightly different from what was planned due to unforeseen circumstances.

This is assuming the provider is aware of what the actual costs are. In many cases they don't even know the ballpark price since that is not the portion that they deal with.

Of course. We know it can be done since it happens with alacrity at bill time. Why not do it in advance? It could could save the insurers money as well as the patient if the patient chooses the less expensive option.

You might be interested in something like the Surgery Center of Oklahoma which has an upfront pricing page for their surgery procedures: https://surgerycenterok.com/pricing/

Even though the ycombinator blog post is discussing innovation etc with regard to insurance, I like the idea of innovation on the side of service providers. And it is somewhat sad that a list of prices is innovative.

Having it all in a list like that leads to some interesting comparisons.

I have Kaiser insurance which is an HMO with straightforward pricing for most things. One fixed copay for doctor visit, one for specialist visit, one for outpatient care, etc. The problem is you are stuck using only Kaiser facilities and doctors.

There are benefits to continuity of facilities, though.

Anecdotally, my wife went to her regular doctor for a nominal fee at her yearly checkup. They drew blood, then asked her what hospital she wanted a follow-up diagnostic procedure to be scheduled at. She gave the one closest to us. She showed up, did the procedure, then almost a month later, we get 2 bills. One is for the blood ($1800) which, surprise, didn't go to an in-network lab despite all of our previous years' work being covered. The other bill was for the procedure ($800 if I remember correctly). If you go to the insurance website, enter her plan, enter the hospital and the procedure, it will tell you it costs something like $40. The whole system is broken, but at least these issues wouldn't have happened in a system like Kaiser.

Also anecdotally, my sister is on Kaiser in Colorado, and she has a chronic disease along with her pregnancy. They are taking very good care of her, and nothing seems to be dropped despite her having 3 physicians whom she sees regularly. I have almost no faith that if my wife gets pregnant, we'd have the same continuity in our current setup.

Even ignoring insurance, it can be impossible to get an accurate cash price depending upon the physician. And if they can't figure out the cash price, there is no way in hell they will figure out the insured price.

We recently went to a physician who works in an area that regularly isn't covered by insurance. For all procedures, the cash pricing was upfront and understandable.

In comparison, we tried to deal with another physician for a different procedure we knew our insurance didn't cover. Literally days worth of time was spent on the phone to try to figure it out and the day of the procedure we were told the prices were wrong and didn't account for some stuff.

Insurance companies have been into information processing in a big way since paper and pencil days. The first company to buy a commercial computer was Metropolitan Life.

In commercial insurance, there's a question of how intrusive the insurance company should be. My favorite insurance company, The Hartford Steam Boiler Insurance Company, established in 1866, was finally bought out by Munich Re a few years ago. Hartford Steam Boiler insures boilers and equipment in industrial plants. Most of their employees are inspectors. If you want to buy a policy from them, they come out and inspect the equipment. They give you a list of what you have to fix. Then they come back to inspect after everything is fixed. Then they sell you a policy. They also inspect again, randomly and unannounced. Cut corners on maintenance, and HSB cancels your policy. The premiums are low, because boilers inspected by Hartford Steam Boiler don't blow up.

Most companies hate that, even though the premiums are lower.

It's actually creepy how invasive they are and this is often where the customer-hostile relationship comes from.

"Install this overly invasive tracking device to let us make sure you are an ok risk and we'll give you this immaterial discount that is really a price hike for everyone in disguise."

I got an electric toothbrush from my dental insurance provider that has WiFi to transmit data on my brushing habits back to them. I can guarantee this thing will never have network access.

what you're getting at might explain why The Hartford Steam Boiler has one of the best cyber security insurance products (save maybe Chubb)...

We're working on the modern commercial insurance brokerage at Abe (https://www.hiabe.com/).

Aaron's right that too much of the industry runs on pen and paper. It's confusing for the buyer and a massive headache for brokers.

Most of what we're building is behind the scenes to make the brokerage way more efficient. If you're an insurance expert with ideas to leverage tech or engineer interested in man+machine symbiosis, I'd love to chat (gordon [at] hiabe.com)!

Best of luck to you - I'm pulling for every startup trying to make a dent in this space. Give me a shout if you're ever so inclined.

FYI, your landing page breaks on Safari with uBlock.

Whoops, will fix that. Thanks!

After having spent the last 3 years in insurance with Allay trying to take on employer health insurance costs by making it easier for smaller groups to become self insured, I have found that the regulations are cumbersome but not huge blockers. The regulations are there to protect people and for the most part do that job correctly.

The hard part about this industry is that there is no single incumbent to disrupt, but thousand of very small businesses who have personal relationships with their clients. Also whereever you jump into the process, you have to deal with companies who do not value technology as much as the HN crowd would. These companies still print out PDFs and have automated very little of their business. No matter how fast you make your software, you are the behest of the companies below and above you in the chain.

If anybody wants to nerd out on the insurance industry, my contact is in my profile.

> The hard part about this industry is that there is no single incumbent to disrupt, but thousand of very small businesses who have personal relationships with their clients. Also whereever you jump into the process, you have to deal with companies who do not value technology as much as the HN crowd would. These companies still print out PDFs and have automated very little of their business. No matter how fast you make your software, you are the behest of the companies below and above you in the chain.

Quoted for truth, as we used to say in forums long ago. This represents a non-trivial issue in delivering solutions.

Healthcare needs to be funded through a non-profit community trust whose first priority is to secure the highest overall health for the population. Insurance is motivated by profit which will always seek to squeeze more money from the system as its first priority.

Some context:

Americans pay 2.5x more than the average first-world single-payer system.

2.5x...

This funds demonstrably and starkly worse outcomes on the metrics we should collectively care about: life expectancy. Incidence of chronic disease. Infant morality.

The reason we pay much more for much less is simple: for-profit health care optimizes for profits, not outcomes. That is exactly what it has done; exactly what it will do.

The public sector already does single-payer in this country with an order of magnitude less overhead cost than the private sector.

When I discuss these facts with conservatives and libertarians, I usually discover that most of this is decreed "fine," because we disagree about whether or not health care is a right.

For that reason, I've stopped suggesting that it is, and focused on another stark fact:

Failure to provide basic health care to all, through straightforward means, merely means that it is provided through partially hidden means (like ER rooms) at vastly greater cost, not least because emergency care cannot perform preventive and chronic care, which in many cases would provide better outcomes for two orders of magnitude less cost.

Morality is a matter of instinct and choice. The costs of the existing broken system are however obvious, and render any defense IMO irrational.

The reason we pay much more for much less is simple: for-profit health care optimizes for profits, not outcomes.

Over 50% of healthcare in the US is paid for by the gov't and those costs are still higher than other systems that are single payer and non-profit.

Doesn't quite align with your theory though.

50% (or whatever...) _subsidy_ is not a proxy for sole management and administration.

Funding _source_ notwithstanding, bills are paid to for-profit providers with limited exception (the VA being the main one).

Price caps are calculated as a function of the largely unrestrained market gouging of the oligopoly.

If you think that's a biased or histrionic description, consider this:

https://www.wallstreetdaily.com/charts/0715_HealthcareInsura...

Stunning growth in profits under Obamacare...

The fantastically under-reported reason that the GOP is struggling to find traction or indeed direction viz. undoing Obamacare, is that Obamacare as delivered represented a mostly fulfilled GOP wish list.

As a progressive, I would say: concessions to essentially print money were extracted at gun point from Dems willing to sacrifice much to pass a bill achieving specific key planks (namely the removal of 'preexisting conditions' and a strong step towards universal coverage).

The GOP walked with a bill they largely wrote. There is little left to want, other than yet more consolidation of wealth... and the roll-back of extremely popular benefits.

Watching this break into the open provides very cold comfort.

The healthcare services paid for by the government is (i) provided by profit-motivated companies with all the private sector incentives to overdiagnose and (ii) typically performed at lower rates than those paid by private insurers, and much lower rates than those paid by individuals without the relevant insurance cover.

But even at Medicaid rates, the cost of healthcare in the US is higher than other countries.

Are you suggesting that the gov't is swayed by the demands of for-profit companies?

It's an excellent article and spot on. Insurance has remained fundamentally unchanged for centuries. In order to really change it, a complete re-architecture is needed. Insurance should be fully digital, hassle free, transparent and fair.

It's hard to really change it when you're not a fully licensed and regulated carrier. An MGA can create a beautiful UI on top of an old insurance product, but eventually, consumers will meet face to face with this old insurance product (for example in claims), and it's going to be the same old experience again.

As many of you stated here, there's an inherent conflict between the insurance company and the insured. Until that changes, the experience will stay the same.

In Lemonade, we are changing that. Will love to get your feedback. Here's how it works - https://www.youtube.com/watch?v=6U08uhV8c6Y&t=9s

Disclaimer: I'm head of product at Lemonade (lemonade.com)

Surprised not to see mention of the fundamental modern tech problem with regard to insurance.

As soon as you have big enough data, and artificially intelligent enough algorithms, the insurance becomes too predictive.

The whole point of insurance is to pay people when rare, bad events happen to them. If an insurer can predict well enough who will be the victims, it can refuse them insurance, and hence remove the entire purpose and benefit of the insurance.

This is the flip side to moral hazard. What does it even mean to offer commercial insurance, if it is only offered to the people who least need it?

This is least bad, for example, with a car predicting you're a bad driver as you can improve behaviour. It is really problematic with data such as gene sequencing, which you can't do anything about.

Only way out I can see is compulsory insurance, levied as a tax. Or maybe non-profit or Government AIs, trained to find a sweet spot between moral hazard and its opposite?

Only way out I can see is compulsory insurance, levied as a tax.

I cannot help but notice that you basically reinvented welfare state.

Only if it's applied as a blanket policy that insures everything and everyone has to pay it. In a more limited way, you can look at British Columbia's Autoplan insurance. It's a crown corporation that provides insurance to everyone in BC. Everyone is required by law to carry insurance on their vehicle, and they have to buy it from ICBC. It's not the cheapest in the world, as they have no competitors, but they are legally required to keep costs fairly low. So everyone in BC can get car insurance and it ends up costing something like $50-150 per month per car. No one gets denied, no one goes without coverage, and they have a big enough customer base to cover their costs.

I've done a lot of systems design and development in the insurance industry, and it's a vast space with opportunities not just for insurers.

The most recent thing I worked on was a pricing and activation engine that sat behind a web site that acted as a broker for a number of insurers. That isn't new, but it was new for this market - life insurance. As such my employer was a single provider on a panel of providers.

The web site that provided the panel brought a number of innovations - one of them being an underwriting SaaS. Panel participants are able to enter their underwriting crown jewels into a 3rd party web site, secure in the knowledge that their IP wasn't going to be leaked or shared with others on the panel.

There were many more efficiencies that the model enabled, which were never realised (well, not by the time I left) because the SaaS provider couldn't reach financial agreements with some of the providers.

Greed was (is?) something that risked torpedoing the most innovative thing I've seen in life insurance, ever.

All that to say I agree that this market is brimming with opportunity. The market is so incredibly broad, and deep, and so complex... Regulation is definitely a thing, but hardly an impediment. I have, for example, spent many years in this industry, but never worked for (or with) reinsurers. I have a long-standing suspicion though, that that market is so convoluted that the front-line insurer can conceivable be it's own reinsurer, after having passed through like, 15 other reinsurers...

While much of what Aaron wrote is spot on, one thing missing is the importance of distribution. This a challenge for any startup, but is more pronounced in a regulated industry like insurance with largely homogenized products and with serious restrictions on how you can legally distribute your product (see Zenefits).

If you consider how most people and small businesses buy insurance, they typically make purchasing decisions one a year at most. As such, you need to get in front of them at the exact moment they want to purchase. GEICO and Progressive have done this really well, but have effectively bid up the cost of online advertising to make it prohibitively expensive. This is also why agents are such a powerful force in the industry (and because they effectively provide carriers with an initial underwriting screen which they don't need to file publicly).

It's important to get the product right, and there are many flaws with most P&C insurance today (chief among them that the forms haven't really changed in the past few decades), but I'd encourage any entrepreneurs to make sure they have an answer on distribution before spending time on product.

Disclosure: I've spent a lot of time looking at this as founder of a P&C insurance startup a few years ago.

I work in marketing for a specialty P&C MGA and can attest to distribution challenges, at least compared to other industries, but Zenefits could have (and currently does) operate legally, they just chose not to.

Zenefits was allowing unlicensed agents sell insurance and for those in the company that were licensed, they found a browser hack that allowed them to not sit through the training required by the state (I'm assuming California) to be licensed. In the first case, you should know better but there can be gray areas. In the second case, it's 100% clear they knew they shouldn't be doing it, which makes the first case more likely to have been done knowingly and purposefully.

Yes, having to license people is a pain and presents onboarding and scaling issues, but they could have survived if they didn't "need" to grow at such an insane pace.

Agree 100%. I suspect a lot of this came back to their investors demanding exponential growth.

Nice writeup. Certainly scratches the surface a bit (and I think that was the intent). I've spent the bulk of my career in the industry, both in P&C and A&H, and there is a ton of opportunity. You correctly conclude that it's not because we're idiots, even though some days I'm kind of an idiot.

Again, tons of opportunity, with some barriers that aren't unique to the industry but maybe unique to what the tech community might encounter (and this is by no means an exhaustive list) -

1. Capital requirements: You need a dumptruck full of money to do much in this industry, at least if your intent is to write or reinsure business, but even to a lesser degree if you're working in ancillary services.

2. Regulatory environment: Assuming US operations, 50 states with 50 different sets of regs need to be okay with what you're doing. In addition, federal law comes into play in certain spaces (GLB, HIPAA, etc).

3. Distribution: The current model compensates every layer of the distribution model very well. It's not as easy as you might imagine to disrupt when entrenched interests are all making a ton of money AND are interdependent upon their neighbors in the value chain to continue to do that. You can't just hack a piece off because that bothers their neighbor, who in other circumstances might otherwise be a competitor, but has a shared interest. The relationships get complex.

None of this is fatal, but you must navigate it and play by many of the rules, particularly with #2. As Zenefits learned very publicly, the insurance industry and its regulators weren't going to let someone do what Uber did to the taxi industry - which was essentially to operate in the grey/black and just ignore the calls to stop. Insurance is a subset of financial services, and financial services is a powerful industry. For any startup, my advice is to build compliance and regulatory relations in from day 1. It's the least exciting thing you'll ever do, but is extremely important. Anyhow, I'm rambling. By no means do I want to discourage anyone from trying, I'm just trying to highlight some of the big things that are "different" in our space.

I'm particularly interested in the data piece because that's what I've done and built a career on in this industry, but it never struck me as sexy enough for YC. Appreciate the article.

> For most of the insurance world, the hardest and most important thing to find is effective distribution and customer acquisition.

This is absolutely true. If you look at how regional, family-owned P&C carriers got their start, you'll find they started as brokers. These brokers found a profitable niche (call it motorcycles in California, or non-standard auto in Texas) that they wanted to own, moved on to become MGAs, and then admitted carriers offering multiple lines of business.

If you can find a way to own the customer as a distributor, you own the life-blood of the entire business downstream. As a result, P&C insurance companies are huge spenders on marketing (GEICO, spends $1.7B/year). It would be game-changing if this cash was used to provide utility to their customers above and beyond the insurance transaction.

I'm of the opinion that insurance premiums could be the new ad dollars - used to create products that promote lock-in, and much more consumer-centric insurance companies.

> If you can find a way to own the customer as a distributor, you own the life-blood of the entire business downstream.

Very interesting thought. Like how I buy clothes from Nike, then advertise them. I had some thoughts on this a while back if you're interested:

https://docs.google.com/presentation/d/1XvXVlzZULoRSfmCsPEKf...

You also might want to check out guidewire. They're the company that's basically taking over the software side of P&C for carriers.

https://www.guidewire.com/

If you're going to innovate on the software side in P&C you would need to figure out what they're not doing or could not do that would allow you to get ahead of them.

doesn't mean their isn't business model innovation or some kind of niche or not being a carrier.

My issue with insurance companies is that they're conflicted by design.

As typically publicly traded companies, they have a fiduciary responsibility to their shareholders to maximize profits. And the only way to maximize profits is to deny coverage.

The purpose and value of insurance is amortizing risk. There are very few things that I think should be controlled by the federal government, but a single payer health care system is one of the few that actually makes sense from an incentives perspective.

In the words of Charlie Munger who's spent more time thinking about insurance than almost anyone: "Show me the incentive and I will show you the outcome."

Why does the US pay the highest prices for mediocre health care? Perverse incentives.

Very good point. Conflict of interest is the real flaw in the insurance business model. What other industry makes more money when their customers slip up?!

Insurers try to protect their margin by finding ways to reject claims.

I am actually working on a company changing that by making money when settling claims instead of losing it.

http://insureathing.com/insurance/wanted-an-insurance-partne...

Let me see if I understand correctly.

When there's a claim, you send all members a bill for their share of the claim plus your fee. If there are no claims, you don't get paid. You're incentivized to pay out so you get your fees. But not too often or premiums will sky-rocket and you'll lose customers. Is that right?

What happens if there is a spike in claims and everyone leaves at once?

That's exactly what it is.

You benefit on the upside but if there are outliers and the premium would skyrocket we cap your premium at market rate through an agreement with a reinsurer. It's a standard financial tool insurers are using as well.

> Insurers try to protect their margin by finding ways to reject claims.

The ACA limited that incentive (though perhaps in a way with other problems) since insurance premiums are limited based on expenditures for care (the 80/20 rule) and surpluses must be refunded (the potential adverse impact being that insurers that increase costs can potentially keep more profits.)

Unless you start with covering something completely new, I think it makes sense to start as analytics provider for insurance. Becoming a carrier is expensive, and MGA can only sell existing policies already created by a carrier. If you sell existing policy you are at severe data disadvantage comparing to existing insurance companies, even with superior tech.

Shameless plug: At https://tensorflight.com we are working on P&C insurance and we focus on analytics for commercial properties mentioned in the article. Please get in touch at ( kozikow [at] tensorflight.com ) if you are interested in the subject.

This is not really related to your post, but you mentioned MGAs, which reminded me of something -

If you are getting into this business and are looking to write in most/all 50 states, one of the more cost-effective ways to acquire the licensing and company structure is to purchase a struggling/defunct carrier or MGA (depending on what your needs are). I didn't say cheap, but it's often cheaper than structuring and licensing yourself from nothing.

A NYC insurance startup is doing the slog of rolling out one state at a time:

https://www.lemonade.com/lemonade_goes_nationwide

Lemonade probably should ramp up slowly until they have more experience data to look at (my opinion only of course), so it's probably not too disadvantageous.

Plus, if you're going the route of getting licenses via acquisition, you need the money to make that investment. It can be cost effective to go that way, but not cheap, so if you're not trying to blow all of your cash at once and can benefit from a slow roll to 50 states, the traditional route will be fine.

The article spends many paragraphs on the complexities of the B2B and B2C players in insurance, their distribution channels, and how they get paid. It spends one sentence on noting how the pricing of risk is based on actuarial models, and then moves on. The pricing of risk is absolutely key to the entire industry, and it is stone age! It's all done in spreadsheets.

> The article spends many paragraphs on the complexities of the B2B and B2C players in insurance, their distribution channels, and how they get paid.

The article is primarily focused on commercial lines - primarily P&C, but there are similarities in A&H. The distribution stack is complex and is a natural starting point to start looking at opportunities. The general tech community probably isn't going to look at risk pricing and the ancillary services associated with that - there's a whole discipline built around it and I don't know how many in YC's catchment would be FSA/ASAs or excited by that particular aspect. Plus, for traditional products in P&C and the Disability side of A&H, the industry is pretty good at pricing the risk. Nobody's squeezing growth from their underwriting ratio, they're doing it through products and distribution.

Anyhow, not trying to give you a hard time, just another angle.

> It's all done in spreadsheets.

No it isn't!

Not everywhere. At a previous employer, I sold ML tools to State Farm. They were very heavy users of SAS and R.

What if a thousand people get together and put $100 each in the blockchain in order to cover emergencies for the unlucky 10% that may need aid in times of distress?

A society can't function if more than 10% of the population is in distress and that's exactly the purpose of insurance, the many helping the few, not the other way around.

But since insurance moves a lot of money (just like banking) and there is propensity to fraud and corruption, then it is highly regulated making it hard for newcomers to disrupt the market.

Start from the beginning again using technology, allow tech insurers to take from 100 and serve 10, that's it. Who to serve? That's the easy part, those in need.

>A society can't function if more than 10% of the population is in distress and that's exactly the purpose of insurance, the many helping the few, not the other way around.

Who says you're going to get a random sampling of the population? Those more prone to needing insurance money are going to be more likely to sign up and thus drive that 10% much much higher.

Isn't that what a Healthcare Co-op is? Put your money into a pool and either you collectively decide or let the org decide who gets a check written out to help cover someone's costs that month. Your're saying put the money into a block chain though to make it transparent?

I'm a fan of that model coupled with Direct Primary Care which is a monthly subscription to unlimited access to your doctor.

The idea being that you use insurance or a co-op to cover major disasters like a big car accident. But you use Direct Primary Care like covering an oil or brake change.

I think you're proposing to start... an insurance company.

Why did you just throw "blockchain" in there. The path to insurance companies on any blockchain is pretty far, you need something to make decisions on if the claim is valid and how much to pay out. The cost of solving those problems on the blockchain will be higher than savings (IMO)

> the purpose of insurance, the many helping the few, not the other way around

This is too idealistic of a view of insurance. Insurance, if possible, would help the none as they are all companies in the end and want to maximize their dollar for their shareholders. This is why, before the ACA, things like pre-existing conditions and other, costly things were used to decline someone coverage.

Insurance companies need to make their numbers which means they will drop anything not required.

In theory the many helping the few is done through various programs powered by tax money. I'm not convinced we'll ever get to an ideal state of everyone being covered if the only mechanism is capitalism.

Interesting idea. But wouldn't the value of the coin just drop when a disaster occurred, so those who need the money wouldn't have nearly as much as they expected?

EDIT: Realized you never said coin. I just assumed blockchain + money = coin.

No, not a coin, it would be dollars, euros or whatever local currency. The blockchain is to keep track of the books in the public eye.

The pool of money is there until its depleted for the month with a cap of 10% per user, or it would rollover for the next month so more emergencies can be covered. A healthy society can build up a huge chest for when big emergencies hit.

If you want more coverage then you acquire a second tier risk insurance which has a bigger pool and different coverages so practically the market allocates resources more wisely.

But the blockchain doesn't actually deal with either of the problems the insurance industry aims to solve (assessing the legitimacy of claims, and keeping amounts paid in premiums in line with amounts paid in claims)

If people use your system honestly, it's likely more expensive than an insurance scheme, because your maximum claim in a given time period is a low multiple of your premium. If people don't use your system honestly and claim what they want when they want (because who cares if the permanent record says they made three maximum claims in consecutive months when there's no central authority to object) it's less stable than a Ponzi scheme.

For many emergencies aren't the issue. (I have CF, am relatively healthy, and my medications costs $40k a month at retail)

The article mentions "Personal Cyber Insurance"

Many insurance companies will insure against data loss as part of your homeowner's policy (with lots of exclusions..) and I've been wondering why they don't partner with one of the online backup services (SpiderOak, Backblaze, etc) in order to preserve their customer's data to reduce the risk of a payout, or at least how much they have to pay on a claim.

I might not know too much about the topic, but imo American healthcare system has a lot of learn from the Indian healthcare system. My guess is that America should simply copy-paste India's model and it should be good to go.

For the resources that it spends on healthcare, the Indian healthcare systems offers perhaps the most efficient system in the world. There is insurance if you want, but you can choose your health providers in the free market too.

Hospitals, Doctors, Medicines, Tests, Procedures, Post-op care/services - everything can be comparison shopped. And if you have more time than money, you can show up at any one of the almost-free govt. funded hospitals to get treated by who is often a very good doctor.

The inefficiency of the American system might as well be a result of extensive litigation around healthcare, but I suspect that its simply an oligopoly defended by pocketed politicians.

I would guess that for any hospital expense above a few thousand dollars, and for someone who cant afford, it might make a lot of sense to just hop on a plane to India.

While I agree that the US could learn a lot from India's billion-payer system, the big drivers in cost differences wouldn't apply.

India's system is cheaper specifically because it doesn't have the complexity of the billing system that the US has (and, for that matter, European countries as well). But in addition, India explicitly does not recognize a wide range of drug patents that the US does. By paying more for prescription medication, the US market funds a huge amount of medical research (50% of the medical research in the entire world) which countries like India are able to access essentially for free.

Your point about the US effectively funding pharma research for the whole world is well taken (I think it's often kinda ignored by a lot of people), but the billing complexity is not inherent to healthcare—it's a result of the system, so I don't think it stands as an argument.

Also, while drug costs can be explained, there are a lot of other costs in the system that are not necessarily affected by that argument (for instance, for a surgery, how much of the cost is actually due to said drugs, and how much is due to all the other factors?)

I guess, the complexity of the billing system in the US is the outcome of an insurance driven market which has kept a status quo due to vested interests.

India also has a complicated insurance system, but it is kept in check by a parallel free-market and state funded system. There is competition not just between carriers, but also pressure on them to keep their policies simple, lest customers circumvent and pay themselves.

You are right about enforcements about drug patent, but if I am not wrong this is true only for a small set of medicines which are marked essential. My guess is that vast majority of drugs sold are generic copies of off-patent drugs.

Re the comments on Data in this piece: Yes, insurance is an industry suffering from perpetual information overload. I worked at a large insurance company for 5.25 years. I processed claims and we relied heavily on systems for looking up endless information. They would totally overhaul the system for doing that every few years. I think it occurred two or three times in the time I was there and I heard from other people that, yes, this seemed to happen every two to three years. It had all kinds of problems. What was supposed to be a new and improved, more user-friendly system meant that all the old timers who had figured out how to find everything were now lost, even with training. It also meant that some things were not compatible and not findable anymore. It was truly bad.

I have a certificate in GIS. As a claims processor, I worked with multiple databases all day long. This included such things as looking up names and addresses for providers (doctors, hospitals, etc -- the people providing medical care). I suggested we create a GIS based system to make this easier. The idea did not fly.

But if you want an area of opportunity in insurance tech, try finding solutions to some of their back end problems. Managing information overload is a serious and ongoing problem in the insurance world. I was there 5.25 years and I only know a thimbleful of information about the industry. Laws and regulations vary by state. In order to sell in all 50 states, you need to get licensed in every state individually and we had to be able to look up "state exceptions" which were laws that impacted how claims were paid in each state and on and on.

People in insurance are absolutely not stupid. It is just overwhelmingly complicated and no one can keep up with all of it. And, yes, it is very fragmented. But if you want a good business opportunity in this space, consider trying to build back end solutions to help them better manage the information in which insurance companies are simply drowning.

There's one cool thing about insurance providers, whether private or public:

They are the ones most aligned with YOUR well being.

They pay when something happens.

They get more money if things stay good or get better.

In fact, I would argue that public option / single payer insurance is MORE interested because of lack of competition (induced supply, as it were) that will destroy the profits if costs are driven down.

In other words, a public insurance program actively would try to improve public health, not to beat competitors but to lower its costs and reinvest that into MORE public health innovation.

Want to help the world? Make startups that improve public health (diet apps, exercise apps, whatever with measurable results) and have the insurance companies fund it.

Health insurance is just broken. The only way it gets better is if something forces them to view the entire country as one actuarial pool.

That is not a solution. That's like saying "Prices of McDonalds burgers are really high, the solution to that is to give a fixed $15 tax credit for every burger people buy".

A single actuarial pool is like not having a pool at all. If you want to support a single payer healthcare system, then say so, don't call it a 'single actuarial pool' because then the word 'actuarial' doesn't mean anything and at that point it stops being an 'insurance'.

Having a single pool doesn't kill the 'actuarial' part. Fixing premiums by law does. As does the fact that health insurance is more "prepaid medical care" than "insurance".

Was your problem with the term or with socialized healthcare?

The biggest thing I can say is don't underestimate underwriting. There's a reason a lot of carriers focus on specific areas. There's a hidden customer acquisition cost in that a group of new customers that has a bunch of bad business that needs to be weeded out.

If you think about it a customer knows their own risk better than anyone. So, you're betting that you can judge their risk better than them and your competitors over and above your cost to manage paperwork, regulations, money and fraud.

This is also why carriers like agents so much. Agents effectively act as a first screen for carriers that allows carriers to turn away customers in a way that they can't legally do through their policies. Ie "encouraging" agents to send business from certain neighborhoods to other carriers or agents.

This is a discriminatory practice but every carrier does it because it's a way to circumvent the public nature of their filings, and it's another hurdle that startups will need to overcome, particularly if they're doing online distribution where adverse selection is a more pronounced risk.

neural nets. I wasn't redlining, my neural net said we shouldn't go to that neighborhood.

I am surprised no one has mentioned:

https://www.lemonade.com/

They are doing three things:

1. Innovating on customer acquisition with a mobile app

2. Building out a for-benefit corporation insurance carrier one US state at a time.

3. Innovating on the business model.

The conventional, for-profit side of the business takes a flat 10% of premiums and "buy" insurance from their captive for-benefit carrier. Any money left over in the for-benefit insurance carrier is donated to the charity of your choice.

When you go to clinic for a simple injection for allergy response they charge you $1500. The whole process takes 2 hours of stay in a clinic and doctor spends about 15 minutes with you. When a healthy women goes to deliver normal baby in hospital, she typically gets charged $2000 per night while doctor spends less than 1 hour with patient and cost of material is almost nothing. Does this feels data or technology problem to anyone?

In USA, private entities who owns clinics and hospitals have recognized that they can charge virtually anything in the name of providing "gold plated" care. All the while insurers have recognized that they can charge person $1500 premiums a month without anyone noticing because premiums are directly taken of out people's paycheck by employers. Vast majority of employed people have no clue that they are actually paying for their premiums which are almost same as what they would have paid as an unemployed person. Instead people assume that they get low cost insurance because their employers has some sort of great "group deals". So neither party has any incentive to reduce cost. Its neither a data nor technology problem, its how markets are completely eliminated out of equation by creating a law that employer needs to provide insurance even though employers are simply transferring cost to end consumers.

If government creates a law that employers must not provide insurance and everyone must buy their own insurance on open market according to their preferences and budgets, I believe cost of insurance would fall dramatically in very short amount of time. This is how lot of developed countries operate and cost of equivalent quality care there is usually 10X lower precisely because of this.

Nice article & loved Kyle's article about the thorny issues surrounding customer acquisition.

I grew up around the industry because my father worked his entire career in it. I've always found it fascinating. Actuarial science is so underrated. I'm also an entrepreneur and I've previously thought about entering it to disrupt it. If there is one thing I'd add to the main article it's this:

If you look at the data vs all other industries, Insurance is the most profitable industry out there. That's not bad considering the product is manufactured out of thin air.

This is perpetually interesting because to me it kind of destroys one of the central tenets of capitalism. It's a very old industry. If anyone can conjure stuff out of thin air, you would expect there would be much more competition / lower margins in it by now. But there isn't. So the industry is really effective at erecting moats to keep innovators at bay, In my opinion, this is main "value" (cough) that the regulators play in the market. The industry gets away with so much, and it needs reform, but I'd bet against it ever happening. This situation in replicated in every country around the world. That's why it's hard to be a true entrepreneur in the industry. You need an investor with deep pockets to enter the market. You need to verify your brilliant customer acquisition strategy works. Then you need to wage war vs the incumbents.

Bonus content for actuarial nerds looking for a good chuckle: http://reactionwheel.net/2017/06/venture-follow-on-and-the-k...

My favourite article on Insurance is one by the BBC[1], which questions what makes gambling wrong but insurance right? It also points out how it's history is steeped in shipowners and traders meet in shipping agency Lloyd's of London's coffeehouse in 1863.

1. http://www.bbc.co.uk/news/business-38905963

In insurance you would rather not win the bet: https://en.wikipedia.org/wiki/Insurable_interest

Good piece. I often liken insurance to gambling.

There's a substantial difference between something like automobile, homeowners, or renter's insurance; and health care "insurance" which is arguably wrongly named.

Automobile insurance is mandated by law in all 50 states (Maine lets you self insure but you have to stipulate you can do this, in effect it's still a mandate). Homeowner's insurance isn't required by law but might be required by the mortgage company. And renter's insurance may be required by a landlord. All of these only protect you against almost random events, or at least pretty much unpredictable events.

Health care insurance is weighted by being one part warranty and two parts aging payment plan. How many people use their health insurance every single year in some form or another? Dental? Eye doctor? Cold or flu? That's not insurance. It's a payment plan for predictable services. Even pregnancy is predictable. Something like cancer, congenital disease, are not predictable. So we've conflated a bunch of things into a giant payment plan, with nearly a dozen layers of middle men, every one of whom expects a profit cut. And so in the U.S. we have the most expensive per capita health care cost in the industrialized world, and yet not everyone is covered. Basically we are so stupid, that we are willing to pay more for health care services to deny other people being covered, and to jack ourselves off proudly that this is the best health care system in the world and it's (mostly) free market. It's a big fat stupid hand job.

So I would not consider health care insurance in the same category as other insurance types. It's a sick care payment plan, and if it weren't for the government making it illegal now, you'd still see lifetime maximum caps. Get too sick? Go fuck yourself. Die, don't die, go to the ER, charge it to a credit card, declare bankruptcy, we do not care about you. We don't care. We don't give a fuck about you.

That is the American healthcare and insurance system.

I'd suggest to the mods that all threads about health insurance be removed and perhaps moved to a new post. Though an interesting discussion, Aaron's article explicitly does not address healthcare. The dynamics of healthcare are so different than P&C, it is a wildly off-topic discussion.

Attempted tl;dr version:

Insurance is a horrendous industry and someone should reform it because it sucks and could do so much better.

Insurance exists in a horrendous sales market where connections are required to multiple providers across multiple roles in a complex sales process.

Insurance is subject to highly fragmented regulatory complexity making it difficult for any company to scale to multiple markets. This not only affects you, but it affects many of the providers you build partnerships with, making each new market often require new relationships.

So my takeaway is don't do insurance unless you have something so overwhelming that you can't do it no matter what. Also expect that Idea & Working Technology gets you 1% of the way there and 99% will be building relationships, sales channels and regulatory compliance.

It seems like for health insurance at least, the problem of trying to optimize insurance premiums based on any risk factor you're legally allowed to discriminate on is a problem that just sort of goes away in a medicare-for-all style single-payer insurance system. Everyone pays taxes and receives health care services -- you just have to make sure your taxes rate is set properly to cover the costs incurred.

(I think governments are sometimes unfairly criticized for inefficiency because they incur higher costs simply by not having the option to cherry-pick their customers the way private companies usually can. There are of course cases where the criticism is justified.)

I'm surprised he didn't call out title insurance as a place for potential innovation. This insurance pays out at something like 1% of premiums collected. Historically, the customer acquisition was handled by making a large kick back to the real estate agent. The research involved (look for contractors liens and such) seems like something that could be automated using NLP.

One thing I'd add is that the potential for new technology to better identify risks also is the potential to nullify the need for insurance. It is fundamentally the uncertainty over which house will burn down that leads to the need for insurance; if anyone had a 100% accurate model, the folks who were definitely not going to have their house burn down would not need insurance.

Would be interesting to know how many of these points map over to the insurance landscape in Europe? I know next to nothing about either but, from talking with Stateside friends, have the (possibly wrong!) impression that the insurance market in Europe is less sclerotic and a little more modern/competitive/innovative.

Regulation is based on country instead of changing from state to state. The EU helped to streamline most of it for all European countries so you can float freely by passporting across regions.

Yonatan Zunger posted a really awesome piece about the origins of insurance, that complements this nicely.

https://healthcareinamerica.us/how-to-ask-good-questions-abo...

In France some new players come like https://blog.alan.eu/alan-the-first-digital-health-insurance...

What does private health insurance in France give you over what the state provides?

If you had domain-level expertise that would be relevant to providing analytics for P&C (re)insurance providers/consumers, but didn't know how the insurance market works, where would be a good place to start?

Insurance is fundamentally a 'data' problem, if you can numerically analyze human interaction. I know insurance brokers, they definitely set up their book based on what they know about their customers.

Insurance can be a catalyst for a million other things. Amazing how often the answer to "why cant we do innovation X" is: because insurance.

What are some examples of X? I've never gotten the "because insurance" response so you've raised my curiosity!

One example - startups that are looking to sign large enterprise contracts are often prevented from doing so because they don't carry a sufficient level of errors and commissions (E&O) insurance to satisfy customer requirements.

Getting that level of coverage can be difficult because the few people on the insurance side really understand how to price software/security risk, and because the size of contract isn't meaningful to the seller of the policy, though it is critical to the startup in question.

That seems straight-forward to do (although difficult finding great developers to assess this stuff):

- Development process (Agile, Scrum, Waterfall, Panic, etc.)

- Architecture

- Testing processes

- Pentesting

- Credentials of all of the developers

- Credentials of the managers

- Even the presence of physical security

There's already "cybersecurity" insurance and surely someone from that industry could join and tell you how to price security features and processes: https://www.dhs.gov/cybersecurity-insurance

I can't really speak against it not being worth it for the insurance company though. How do you build a cheap but high coverage insurance product for startups that have limited cash?

Effectively if you take any kind of risk it involves insurance. A concrete example is starting a company and quitting your job. Health insurance is currently heavily tied to employment, so the incentive is not to start a company under those circumstances.

I think he means "because liablities", and then being unable to find a counterparty willing to take a high risk for a small premium.

Small aircraft industry, fairly famously.

Many of the most popular small craft (Piper, Cessna, etc.) date from the 1940s and 1950s.

Lack of unemployment insurance makes working for risky companies risky.

Not just startups, consumer facing and b2b services as well.

"These tires are going to travel places other than roads and the sidewalls will be shredded by the terrain long before they fail from dry rot, I don't care if they're too old to have a date code, just mount the damn things."

"Our insurance policy prevents us from mounting anything over 10yo"

And that level of BS is nothing compared to overhead lifting.

> Each of the players in the structure needs to get paid.

No, they don't. They exist merely as a means for insurance companies to extract more profit out of their customers because they believe they are "overexposed" to certain risks -- despite the fact that exposure to risk is _exactly_ their business.

You may make the argument that reinsurers, ILS buyers, and fronting carriers are all essential to the insurance business because they lower overall costs by spreading risk. But if this is so, then they don't "need to get paid", they are a cost _savings_.

Which is it?

- Cyber Insurance -

Lifetime offer: 99% discount if you switch to Linux.

It's surprising to see an article about insurance without references to black swan risks.

I have come to believe that the insurance industry in the U.S. has become part of the cause of expensive medical care. I am not opposed to the idea of insurance, but here are some of the problems I see in how it works today.

I do not believe that insurance companies actually negotiate the price down. I have seen too often that the price goes up when I produce proof of insurance. While it may seem counter-intuitive, insurance companies have perverse incentives to push prices up. Even the most well-meaning insurance company will opt for certainty over potentially inexpensive. But I don't think they are well-meaning to begin with and I think that it isn't even structurally beneficial to them to reduce costs. For an example of when lower costs benefit insurers, see the price of identical healthcare purchases outside the U.S. Products manufactured inside the U.S. magically become cheaper in Belgium and Nigeria.

The insurance industry has worked with the medical industry to obfuscate the cost and price of healthcare. This is in both industries' interests. If I pay $100 for a doctor to splint a broken finger, I'm happy I had insurance to make it so cheap. I'll let my insurance company pay the other $1700 and I may never even look at the bill that shows a total cost of $1800. I won't see that they charged $25 for the popsicle stick, $25 for the tape, $5 for the pen used to fill out the medical chart, $30 for the receptionist, $75 for the nurse, $300 for the PA, $200 for the xray, $200 for the radiologist, $50 for the ibuprofen, etc. If I actually had to pay that bill, I would argue it line by line. I would absolutely refuse to pay large portions of the bill. $5 pens that they reuse for the next patient are obviously an unethical ripoff. But I don't have to pay those line items, so I don't fight it. I just have to pay a $1500 premium every month. And I'd be crazy to refuse to pay that.

We all know that insurance premiums are high because healthcare costs so much. This is because of lawsuits and freeloaders. This is how price obfuscation shifts the battle. We don't question anybody's integrity over the $5 pen because the discussion is all about lawsuits and freeloaders. If I had to pay the bill myself, I'd ask why I got billed for 4 x-rays, but only received 3. That 4th one that didn't turn out because the radiologist put the cartridge in backwards? I'm not paying for that. I'd ask why the receptionist seems to be making $500/hr. I'd ask what the lab fee was for. I'd comb my bill and question everything. $1800 is a lot of unplanned expense for me. $100? Not so much.

If I had to pay my medical bill in full then file for reimbursement, I'd fire a company with 90 day turn arounds and switch to the insurance company with 5 day turn arounds. And the next time I got stung by a bee, I'd maybe not run to the emergency room. Yes, that could lead to bad outcomes. But the current practice has its own bad outcomes.

If I had to keep fighting an insurance company for timely reimbursement and started noticing that I pay $1500x12 every year to cover 80% of my ~$6000 medical expenses, I'd start getting all kinds of ideas. I would think about putting $1000 a month into an HSA and look for a $40000 deductible policy. I'd think about pooling my HSA with 100 of my closest friends to start a healthcare co-op where I could borrow up to 1x my balance for 1 year at low interest to pay for big medical bills and then get a $60k deductible policy instead. Then, in five or six years, when I've built up $30k, I'd drop my monthly payment into my HSA to $500, and just let the balance earn interest. Then, when the unthinkable happens, I drain the account, borrow another $30k, file a claim on everything else and spend the next year paying back the $30k and lining up contingencies for any event that will happen before I can build my HSA back up. I'd start daydreaming about pooling my $12k/year with others to build and staff a very small clinic that could take xrays and treat bee stings. Just 100 founders paying the same $1000/month could generate $1.2M per year. That could secure a 15-year $3M bond to build the clinic. It could pay a long way into supplies and staffing, too. One could even imagine that members get free services (ignoring the $1000/month) while non-members could pay $1800 for a broken finger.

In other words, I'd figure out how to rely as little as possible on insurance companies. And the money I now spend to fund their paperwork and profit would stay in my account.

really dumb idea but..

What if the insurer and healthcare provider were one and the same?

Wouldn't that remove the fraud 'game' , increase transparency, and lower premiums?

or will it actually make it 2x worse for the patient?

Not dumb, it's called integrated care! Kaiser Permanente and the Mayo Clinic do just that.

Is there any startup focusing on the healthcare insurance industry?

> Insurance is fundamentally a data problem.

this is a special sentence. it reads roughly as "i am ignorant of reality" to me. :(

very american.

Two comments from me (amongst many I might make):

1. A while ago, as a somewhat pointed quip, I started pointing out that in the U.S., for health insurance we pay "whole insurance" rates (yes, that term applies to life insurance, but is an apt comparison in terms of pricing) for what is essentially "term insurance" (which, in the life insurance segment, is quite a bit less expensive, because after the term, you're uninsured).

2. I tried to do eveything "right". Carried insurance when I could, when I was younger. Carried it with the best company and policy I could get. Didn't resent that I was paying it much more than I was getting out: It's "insurance", and if I'm healthy, I've already "won". I'm glad the money can go to those who need it (patients, I was assuming).

Despite doing everything "right", my last corporate job got off-shored. At a time when the individual insurance market was going from ridiculous to impossible. I managed to hold onto some form of insurance by dint of personal connections, to watch exclusions slapped onto my individual policy (for things the doctor had said he wouldn't treat -- too minor, risk/benefit not worth it -- while I was still on the corporate group policy). To watch my premium rates triple in three years.

The ACA came along just in time to rescue me from the looming vast pool of the uninsured. Which, once you entered, you had a very hard time exiting.

I never received a subsidy from the ACA. It simply allowed me to participate.

And by the way, the biggest injury to it? It was written to make insurers whole for their losses, until they had a handle on their demographics. Well, under Congress, funding is always a separate exercise -- the budget process -- from the laws and activities that that funding in turn enables.

And the Republicans simply refused to produce the funding mandated in the ACA. The numbers I heard from and expert in the field is that insurers were getting about 17 cents on the dollar for losses the ACA law told them would be reimbursed.

In other word, it wasn't simply imperfect and in need of improvement. A starting point, per those who negotiated and accepted some pretty terrible compromises in order to get it passed and some improvement in coverage started.

It was actively sabotaged.

Ok, I find I have a third point to make right now:

3. When the ACA was proposed, I believe it was not at all a "left" initiative. It was meant to be pretty middle of the road.

Around that time, 2007-8, and for some years prior, businesses were crying bloody murder at the year over year increases in health care costs they were facing. Often well into the double digits, year after year.

And they were saying, 'We can't compete with foreign competition from societies that have universal health care, where their costs are perhaps half ours and are increasing at single digit percentage rates.'

The ACA was meant to address "conservative" business problems as much as "social" individual and community problems.

All that was sabotaged, dealt with in bad faith, for the sake of the political and power agendas of the selfish.

By the way, the ACA has produced substantial improvements on the group insurance side of things. For individuals, and for businesses, by holding cost increases down.

And insurers have made good profits on these changes and their group policy business. Money they don't include in their accounting when they turn around and describe all the losses they've faced under the ACA marketplace plans (which are classified as "individual" insurance plans, not part of the traditional group policies/business).

There really is no nice way to put it: Republicans are assholes. Back with ACA, the risk reduction pools were called insurance company bailouts. And Republicans sabotaged it by drastically defunding it. And right now? Oh, we'll just bump those subsidies right back up to stabilize the market, make us look like fucking heros! This is market stabilizing now. Dicks.

This is what's insidious about them: it's not that they're stupid. They think everyone else is stupid, and won't learn about these things, and they'll get away with it.

But when the time came to pay up for risk reduction in the Obamacare exchanges, Congress reneged and paid only 12% of what was owed to the insurers. http://www.marketwatch.com/story/im-a-former-health-insuranc...

We don't need you to be nice, but we do need to post civilly and substantively, and this doesn't cross that bar. We have to ask you again to comment within the guidelines or not at all.

Denial of Service by Obfuscation, Denial of Service after exceeding a certain amount, Denial of Service by Way-Lawyering, these is all information that needs to be compiled from anecdata into solid numbers, that anyone can instantly acess and that allow for a metric on insurance quality.

The best solution is the complete outlawing of health insurance. It'll take riots for that to happen.

> Insurance carriers set their rates based on actuarial models designed to predict the likelihood of future events.

Sure, until the government says that you are no longer allowed to set rates based on actuarial data; maybe you aren't allowed to charge people appropriately if they have some expensive "pre-existing condition", or because of certain "protected" but statistically relevant characteristics. This throws a big fat spanner into the whole expectation value thing, because you're no longer an insurance company but a weird privatized subsidy pool that isn't allowed to make expectimax decisions anymore.

Your clients aren't allowed to expectimax anymore either; if they catch on to the fact that they're actually subsidizing someone else, they're not allowed to form their own rational insurance pool (because it would violate restrictions on "discrimination", e.g. ACA section 1557) and if they choose to opt out of the irrational "insurance"/subsidy market you hit them with a hefty fine.

I encourage everyone to look up expectation values for payin/payout of medical insurance for different customer types under current regulations (start with https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/ ). TL;DR If you're a reasonably healthy man below retirement age, you're getting screwed hard. Maybe society can collectively agree that this is a good idea, but we should at least be honest and stop referring to it as "insurance". Actual insurance markets without coercion are a net positive for all participants, rather than a convoluted scheme to (effectively) transfer money from one demographic to another.

These points are relevant to health insurance, but in the second footnote of the article, he explicitly states that he is talking about property and casualty insurance.

In a pure sense, what we call health insurance isn't really pure insurance. To give a simple example, in property insurance, I pay let's say 2% of the cost of the item per year to protect something that the insurance companies deem to have a 1.5% chance of getting destroyed. That 0.5% difference is their expected margin.

But in the case of health insurance, I get that coverage for catastrophic events, but I also get discounts on healthcare for being on a plan. Insurance companies negotiate better rates with providers, which makes the market vastly more complex.

So that's why the author of this post says explicitly that he's not talking about health insurance.

Typically premiums are equal to or less than the expected payout for a given policy. Insurance companies make most of their profit off of the float (return on investments made with premiums as the principal).

Health insurance really ought to be separated from a health plan which covers entirely predictable and expected expenses.

I missed that footnote, thanks. And yes, that's my point; many people mistake "health insurance" for an insurance market because of the name.

Car and homeowner's insurance only works /because/ insurers have imperfect data /and/ because purchasing it is mandatory in most cases (eg: auto liability is mandated by the government and homeowner's policies are mandated by banks lending against the purchase of a home).

If you had perfect actuarial data it would mean you would charge predicted "losers" the entire cost of their expected claims plus your costs and profit. Conversely you'd charge the expected "winners" almost nothing because their premiums are pure profit. Insurance requires large risk pools to function as insurance. The entire point of it is that everyone in a large group pays in to cover those who suffer a loss.

For healthcare (which is not what this article is about) that means collecting premiums from younger, healthier people to cover older sicker people. Healthcare is also the only kind of insurance where everyone is guaranteed to make claims - very much the opposite of most other kinds of insurance.

The last point I'll make is that everyone gets older eventually. Higher premiums when you're younger are a form of pre-payment for the care that will absolutely be required when you age. Unless the government forces people to pay these premiums the most rational thing for any individual actor to do is cheat and skip paying premiums when young, then force the cost on others by buying in when you're old. It becomes a classic tragedy of the commons situation where only sick people buy policies, resulting in massive losses and sky-high premiums no one can afford to pay.

Your argument basically boils down to "fuck other people" + "I'll never get old, I'm going to be young and healthy forever!". I don't want to live in that world.

As a practical matter I'd also like to make it easier for people to start new businesses so I favor universal baseline healthcare coverage paid for by taxes. Shrinking hospital billing departments, insurance companies, and bill collectors would be a net win for our economy. I don't know why everyone believes scaling up drives efficiency for a startup, yet requiring every individual doctor to employ a bill collector is somehow a net win.

Car and homeowner's insurance only works /because/ insurers have imperfect data /and/ because purchasing it is mandatory in most cases

This is not true and represents a misunderstanding of the purpose of insurance. Insurance exists to protect against large downside risks.

There is, let's say, a 1% chance that my apartment burns down next year and I lose $50,000 worth of stuff. I would much rather pay $500 to insure against this loss than run the risk. I can easily afford to pay the small insurance premium whether there is a fire or not, but a fire would put a very serious strain on my finances that I am very happy to avoid.

> Car and homeowner's insurance only works /because/ insurers have imperfect data

No, this is wrong. Common misunderstanding about the value of insurance. Even with perfect data, where your cash EV from buying into the insurance pool is guaranteed slightly negative, it's still (usually) a positive utility EV. Losing $100,000 is, for most people, much more than 100 times worse than paying $1,000. So if your $100k house has exactly a 1% chance of burning down, you're happy to pay $1000+ for fire insurance.

Ah, of course, forcing young people, typically with less money, to subsidize older people, typically with more money, is very charitable to you. Are you incapable of telling the difference between "fuck other people" and "don't steal"?

People should pay in according to their expected costs. Anything else amounts to intentionally transferring money from healthy people to unhealthy people. It's true that healthcare gets more expensive as you get older, so if you want to burn $5M keeping yourself alive another 5 years in the geriatric ward, you should be the one to bear that burden, not everyone else. Guaranteed external subsidies + rapidly diminishing returns = horrendously inneficient allocation of resources.

I agree, businesses and doctors shouldn't have to deal with insurance bullshit, so I'm not sure why your proposed solution is to keep the same irrational overregulated "insurance" scheme we have now, which inherently requires a bureaucracy to A) force insurance companies and their customers to comply with imposed pricing rules and B) attempt to prevent people from taking advantage of the obvious economic discrepancies caused by (A).

> The last point I'll make is that everyone gets older eventually. Higher premiums when you're younger are a form of pre-payment for the care that will absolutely be required when you age. Unless the government forces people to pay these premiums the most rational thing for any individual actor to do is cheat and skip paying premiums when young, then force the cost on others by buying in when you're old. It becomes a classic tragedy of the commons situation where only sick people buy policies, resulting in massive losses and sky-high premiums no one can afford to pay.

This is not true. People die young, some die quickly when older, with few health costs, others linger with huge costs. I can see an appropriate insurance product that protects against the risk of those varying outcomes.

Insurance works when people have risk aversion.

Government regulations: the cause of, and solution to, all of our problems.

> TL;DR If you're a reasonably healthy man below retirement age, you're getting screwed hard.

You say "screwed", I say "contributing to society".

> Actual insurance markets without coercion are a net positive for all participants

How do you have a coercion-free market when the consequences of not buying in can include "you'll die or be bankrupt"?

I can choose not to own a boat, or a motorcycle, or a home. I can't really choose whether or not I get psoriasis or have a heart attack.

>> I can't really choose whether or not I get psoriasis or have a heart attack.

Because being overweight can lead to adult onset diabetes, I'm choosing to slim down so as to have a better chance at living.

I'd rather not "contribute to society" by having my money taken from me at every conceivable opportunity. I'd rather that everyone in society contribute more or less equally (or, at least, according to their means and nothing else), which is currently not even remotely the case.

> How do you have a coercion-free market when the consequences of not buying in can include "you'll die or be bankrupt"?

This is such a silly argument. Are any changes in your utility function "coercion"? Is the fact that you have to eat food "coercion"?

Coercion-free means that you're free to behave rationally and make decisions that optimize your utility. It doesn't mean that nothing bad will ever happen. I'm really not sure how people get from the former to the latter.

If you're worried about having a heart attack, you should be able to buy an insurance vehicle that charges you commensurately with the risk of that happening. (Unfortunately, you can't; you also have to pay for other people's quadruple-bypasses, geriatric medicine, and 8th child.)

We already contribute to society more than most.

I am seriously tired of being seen as nothing more than a bag of blood for society to suck on and then come and insult me by emplying I haven't contributed enough.

Dammit I don't mind paying a fair amount of tax to make society work, but when they also choose to insult me because I haven't contributed enough and then waste what I have contributed.

> You say "screwed", I say "contributing to society".

How is a coercively collected subsidy for the health expenses of other demographics considered a contribution to society? Is trading one's labour for capital not enough?

> I can't really choose whether or not I get psoriasis or have a heart attack.

There are plenty of places throughout the United States where the only viable means of transportation is the automobile (or a motorcycle, as you point out). The consequences of not having auto insurance is also bankruptcy. Would you characterize the auto insurance market in those locales as similarly coercive?

You believe that insurance companies should be able to charge different rates on the basis of race?

As far as I know, there is no strong relationship between race and lifetime insurance expenditures. Hypothetically though, yes, insurance companies should be allowed to make optimal decisions based on full actuarial information. Anything else, besides being sub-optimal and confounding the effectiveness of market mechanisms, would amount to the effective intentional transfer of wealth based on race, which is morally much worse than rational actuarial pricing that incidentally involves race as a predictor.

Some diseases are correlated with race. Like, sickle cell anemia.

Insurance is essential. They are like brakes in your car. You incorporate them not because you want to go slow, but because it enables you to go fast.

Any options for renting vintage furniture by owner? I'd like to pick up more nice mid-century pieces when I see them cheap at estate sales, but won't have the space for them for a while...

Disclaimer: You may not agree with this. A downvote does not change that. A comment and intellectual conversation goes much further, however.

A quote from the article: The insurance industry is built on mitigating downside risk.

Maybe they should have everyone agree to use computers with sensors which can create accurate maps of everything people have ever done, might do, or should do. Citizens will be so much better off with this new system of fairness. We'll call it insurance instead of goverment.

I don't know why you're getting downvoted, but for there being a lot of money to be made by not understanding where commercial surveillance is ultimately headed.

The threat of government surveillance pales in comparison to the means of control that "private" industry will eventually "innovate" for the goal of "reducing risk". Drinks at dinner in the middle of the week, paid for with your surveillance card -> higher auto insurance. Not enough physical activity recorded on your wrist/chest surveillance device -> higher health "insurance". Fixing something around your house instead of hiring a manufacturer approved service company -> higher homeowners insurance. Taking a job with a startup instead of sticking with your predictable job at bigco -> higher mortgage insurance.

Which could be fine if such risks were priced accurately, but the centralizers' prescriptive models of the world can never actually capture reality (eg the difference between a qualified/uncredentialed repairman and a credentialed/unqualified one). Instead, it will mainly be used for price discrimination to gouge those who'd like to deviate. As more people fall into line (eg sign up for the current ruse of adding a driving surveillance device to save on auto insurance), the ability to even opt out of the surveillance ("no signal") will vanish!

Throw in the fact that many insurances are de facto or even de jure mandatory, and we've bootstrapped a system of mandatory restrictions (ie "laws") which are not even token-responsive to the governed. And similar to all teeth of the totalitarian ratchet, such developments will be cheered on by moralizing useful idiots gleeful that the "other" will get their comeuppance - blissfully ignorant that after the initial discount period, their rates will go right back up.

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