Comment by bhupy | Hacker News Reader

Comment by bhupy | Hacker News Reader

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Yep, for full disclosure, I work in healthcare pricing and payments and adjust claims myself.

While discount programs focus on the uninsured, this is the first time I’m seeing the discount being framed in such a way that it effectively incentivizes paying out of pocket. It’s an important incentive if your goal is to decouple routine drugs from the third-party-payer model of insurance.

Health insurance in the US is actually 3 different services bundled into one: (1) risk sharing for catastrophic care, (2) access to low prices (called "fee schedules"), and (3) tax advantaged pre-payment for non-catastrophic care. 40-80% discount on drug prices essentially competes with insurance company fee schedules, i.e. service (2). By offering what amounts to insurance rates without charging insurance premiums, Amazon is essentially decoupling the fee schedules from risk sharing. That's a really underrated side effect of this product offering, and can have long run impacts on the industry (IMO for the better).

I would add a 4th service for health insurance in the US to be a way for healthy, young people to pay for the care of sicker, old people due. AKA, a tax, due to the following stipulations of the ACA.

1) Age Rating Factors

https://www.cms.gov/CCIIO/Programs-and-Initiatives/Health-In...

2) Out of pocket maximums for in network care

3) Elimination of pre-existing conditions, i.e. accepting all lives no matter how costly

4) The recently eliminated mandate to purchase health insurance.

The above conditions mean that premiums from healthy people that don't use healthcare is used to pay for the healthcare for sick people. It gets a little complicated with the ability for employers to silo their employees' lives from the rest of the population, but in general, US health insurance premiums are basically a tax on the healthy to pay for the healthcare for the sick.

That’s captured by (1) risk sharing. Pooled risk sharing is great for things like fire departments where out of 1000 homes, one might catch fire every few months. It’s also great for societies where out of 1000 people, a small handful suffer from chronic illnesses or tragic accidents and the remaining are healthy. The problem is that it’s just a hammer, and not everything in healthcare is a nail.

Taxes are basically risk sharing across the whole population. But I wanted to specify that it's not risk sharing like your auto insurance is, or home insurance, or term life insurance. Those are infrequent, random events for the most part.

Whereas, healthcare is a guaranteed expense, so the premiums are just prepaying for the coming expenses. But today, you're not paying for your healthcare expenses, but for the older, sicker person's healthcare, just like FICA taxes are paying for healthcare for those 65 years and older.

It's incorrect to say that premiums are only prepaying for coming expenses, but not risk sharing. They cover both. That's the whole point, health insurance today is a bundle of all of those things.

While FICA taxes (partially) pay for senior citizens' healthcare, your health insurance premiums both pay for your annual physical (especially on Platinum PPO plans) as well as care for sicker people that are not eligible for Medicare/Medicaid. I assure you that there are plenty of sick people that are under the age of 65, and actuaries price them in when computing premiums for private health insurance.

And as a minor point of order, even Medicare isn't "free" for seniors — the FICA taxes only cover Part A benefits, and seniors still need to pay monthly premiums to Medicare to cover Part B benefits. And even those benefits aren't 100% covered — Medicare only covers 80% of outpatient care.

I agree that it’s risk sharing, but my point is that it’s more akin to a tax and it’s useful to view them as a tax because it’s specifically structured via the maximum age rating factors and max out of pocket to give older and sicker people a proportionally higher benefit than younger and healthier people.

While my auto insurance premiums will probably go up if the insurance company experiences losses much higher than expected, the insurance company will raise premiums on the people causing accidents more than myself (and maybe even drop them if they deem them uninsurable). If health insurance claims come in higher, the younger people will pay proportionally more even though they’re mostly going to just be getting a physical and flu shot.

You will get old

I know. I wasn’t complaining about it being a tax. I wish it was implemented properly by dumping everyone on healthcare.gov and removing employers from the equation. And reinstating penalty for not buying health insurance.

Or implementing taxpayer funded healthcare.

Well, Obama has publicly said he believed in single-payer healthcare, if in a sly way, in an interview. However, he recognised the practical approach is small steps towards that goal.

I mean, not necessarily

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