Comment by aaavl2821 | Hacker News Reader

Comment by aaavl2821 | Hacker News Reader

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Many not for profit providers in the US are actually quite profitable, and insurance companies, even for profit ones, have regulations regarding their profit taking (they must pay out like 85% of premiums they receive to cover medical expenses). So while not having a profit mandate can certainly help Amazon / brk/ JPM, scale and negotiating leverage are probably bigger drivers

Interesting point re increasing costs for other companies, seems like it could certainly happen and maybe even lead to an arms race of employer consolidation. This phenomenon has happened in the hospital-insurance area, where a big hospital will buy up smaller providers and negotiate higher rates from insurers. The insurers then either have to consolidate and grow themselves or decrease rates to smaller providers, thus incentivizing smaller providers to join the big ones.

This is a vicious cycle and I believe one of the main reasons for higher cost healthcare in the US. that said, healthcare is very local, so not sure if this new effort will impact local payer provider dynamics as much as it will increase more national scale issues like PBM and purchasing

The cycle you mentioned is certainly a vicious one.

But you missed another: their cap on profit is percentage based. This disincentivizes the insurer from truly attempting to contain costs, because while the percentage of income they can take as profit is capped, the absolute value is not. This leads to underinvestment in attempting to contain costs except to the level that they can retain as overhead and a cycle of ever increasing premiums ensue.

It's also a reason for insurers to vertically integrate and getting their hands in the PBM business and offering telemedicine services and whatnot. Doing so allows the insurance arm to "pay out" to non-insurance subsidiaries, where they can both count that as a medical cost from the insurance arm yet still capturing profit from the non-insurance arm. In which case, it's beneficial to have inefficient contracts that give the non-insurance subsidiary a lot of leeway to run efficiently and generate solid profits.

That's interesting, hadn't heard that before. The combination of Amazon et als buying power could potentially drive out some of that inefficiency as they negotiate lower premiums and payers lower prices by cutting some of the "fluff"

It's not an argument I've seen before, but also not one I've had refuted when I put it out there.

There are plenty of ways to align the incentives of insurance companies with those of the insured. But a static max ratio between medical expenses and overhead is not one of them. Because then there is literally no upside to reigning in medical expenses, as every effect of doing so is negative to the insurer.

So instead of trying to make their medical spending more effective, they focus on

1) Making their operations as lean as possible (so they can squeeze as much profit out of that allowable overhead percentage as possible), and

2) Vertically integrate so they're on the other side of that medical spending where that cap doesn't apply any more.

I guess the main countervailing force against this would be pricing pressure from employers looking for better deals. I don't really know what the power balance looks like in those negotiations, but employers banding together would certainly tip the scales

It is my underatanding however that a lot of providers have payers under their thumb. A great example of this is the UCLA vs blue shield (or blue cross?) of CA a few years back. Another commenter here mentioned UPMC, another example of a mammoth local provider dictating what payers do. Sutter health in the Bay Area is a similar Goliath, and the publicly traded hospital systems (community health, HCA, etc) have made a business model out of exploiting local hospital monopolies to extract money from payers.

Payers definitely don't like this, and if they start getting squeezed on the other side from employers, it could really squeeze some payers

This cycle is one of big concern to me. In Pennsylvania, UPMC keeps growing its monopoly and getting into territory disputes with Highmark Health. In this case, both companies offer insurance and health care. At one point, UPMC decided to stop accepting Highmark health insurance, which is what the state government used as their health provider. State employees became effectively barred from using the near-monopoly healthcare provider for the Western half of the state. This has been going on for years, each year with variations of "consent decrees" where the two providers make concessions what facilities in underserved areas they will see other's clients in.

I've been watching this play out in my state for years, but never quite realized the full impact of this until a recent Guardian article mentioned UPMC by name as why single-payer/medicare-for-all could fail.

>Who would blink first if the government threatened to exclude UPMC from its healthcare plan, which under a “Medicare for All” system, would be the only one available? Without access to the UPMC system, the region would face an instant healthcare crisis.

As someone that watched a state government blink first and change insurance providers, this really drove the point home.

https://www.theguardian.com/commentisfree/2017/oct/28/big-me...

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