I thought the ACA put limits on insurance company’s profit margins, by saying that they had to pay out a certain minimum from the total monies collected.
This is a perverse incentive for the insurance company to encourage the medical industry to increase costs.
Am I wrong about the ACA?
Most insurers are pretty aggressive at managing costs thru managed care techniques (described at https://en.wikipedia.org/wiki/Managed_care#Techniques).
The upstarts can try to undercut the big guys, but they still are stuck at a 20% profit margin; if they make too much, they have to refund the excess premiums.
It's quite clear that the insurers are aggressively trying to control costs when you consider that networks on exchanges are extremely narrow and denial rates are actually pretty high - IIRC nearly 1/3 of claims are initially denied for ACA plans.
These companies are also bringing the narrow network model to the small and large group markets too, where utilization review is also quite aggressive and has been for a long time.
It basically works out like textbook oligopolistic competition models where the Nash equilibrium resembles a prisoner's dilemma. For companies to increase "total market size" by allowing costs to balloon would require unusual collusion and there's no evidence of it.
Narrow networks are a big problem, having been denied access myself while trying to be in network.
Narrow networks are usually a symptom of few and picky doctors imo. But I don't really know. Economics suggests that more insurers in a market should benefit providers.
I and others have been denied enrollment because the "panel is full". Narrow networks are not always because the physician doesn't want in. Sometimes it's a deliberate insurance strategy.
Btw, in California the state medical and hospital associations are definitely more influential than insurers. And I bet that's true in MA too.
Well I don’t know it’s a terrible argument. You confirmed that there is a cost floor. This does create a perverse incentive. Whether it is or any consequence is another matter.
If the perverse incentive is pushing insurance companies to have their costs go up depends entirely on the market conditions, I.e what are typical profit margins w/out ACA and what are the cost of market entry. there could be an equilibrium where insurance companies want their costs to go up.
There is another equilibrium where the allowed profits are far above and therefore ACA limits are meaningless.
Now, you can argue that we’re in the competitive operating regime. Fine. But give me numbers And citations, not adjectives!
Not that insurance companies don't add bloat, but healthcare cost in the US is due to a lot of factors.
- Overtreatment to mitigate liability - Overtreatment of the elderly - Poor end-of-life management - Insurance bureaucracy - Siloed providers - Intervention rather than prevention - Conflict with other policies (like the farm bill)
The ACA tried to fix, um, not really any of them. But props to Michelle Obama for axing the food pyramid.
It annoying that I have to read reams of papers when I start a new job. But they play within those rules.
My hospital, on the other hand, doesn’t know what they will charge me for a service they will do yesterday.