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Comment by prostoalex | Hacker News Reader

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prostoalex·

How much of that egregiousness has been fixed by ACA’s cap on insurance company’s profits, in your opinion?

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Wouldn't a profit cap encourage profligate spending on things like corporate helicopters?

Only if that's deductible.

I assume you mean in a sarcastic way. If not:

Of course it is. That’s what our man in congress is for.

No. The ACA's profit cap (the "80/20 rule") requires that at least 80% of premiums taken in must be spent on actual medical care costs.

The ACA requires the somewhat perversely called Medical Loss Ratio (MLR) to be at least 80% (and 85% for large group plans). The MLR is the percentage of revenues from insurance premiums that are being used on actual healthcare benefits (and thus can't go towards profits, hence the name). Corporate helicopters don't increase the MLR and reduce profits.

This is a perverse incentive. If I'm running an insurance company and my goal is to maximize absolute profit, how do I do that when my profit margin is capped by law in this manner?

Well, I certainly don't have an incentive to reduce healthcare costs; quite the opposite. 20% of a larger cost leaves me with more profit, and most of my customers won't drop my service. It's required by law and subsidized in a lot of cases.

This is why there are marketplaces where you have to compete against other insurers. And companies in particular will evaluate their group plans critically.

The cap on profits encourages higher spending on medical procedures, since the more you spend the more you can make, so it works to keep prices high.

Funny. The biggest input for the law was from large companies like the insurance companies, large hospital systems, and other cronies. And it shows.

How does it show?

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