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Comment by hengheng | Hacker News Reader

Why is there no incentive for the insurance company to be frugal? That's how it works elsewhere, and they have a lot of bargaining power.

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Incentives are there, they are just not going in the right direction. First, the buyer does not care that much since it is all tax-deductible.

And there are other dynamics in play. Here is a nasty example:

Employers care that premiums only increase by X% per year. Fine. As such, insurance will try to protect its contract with employer by going to the hospital provider, and demanding a low premium increase.

Hospital says fine but "OK - but you agree to our increase of list price by 50%.... don't worry, we give you a discount on that amount. Insurance won't pay that increase"

Insurer says "Great! In fact, let's push it to 100%? OK?"

How did we come to this? Insurer and Hospital agreeing to increase price by 100% and discount that 100% back down?

Its because of the incentives.

Insurance will use this to go back to employer and say. "We got you that x% cap on increase in premiums. Employer, by the way, you still owe us money from the 100% discount we got you from the hospital bills " Employer says OK and pays a ~3% premium on the 100% 'discount' ("claims repricing" in industry parlance).

Meanwhile, Hospital goes back to the government. "We had losses from discounts given to govt patients totaling X in discounts". Now hospitals recoup some of that money. (in industry parlance Disproportionate Share Hospital (DSH))

Meanwhile, people with no insurance have to pay these inflated list prices...with no insurance discount whatsoever. HR staff gets promoted or leaves the job, because they did a great job securing that X% cap. The new person does not know what "claims repricing" is. It remains in the contract.

Premiums go higher next year.

There is some incentive, but when you tell someone you can only make a profit of (for example) 10% of what you pay out; it warps their incentives.

They don't want to bankrupt themselves, but they can raise rates and keep more money when they pay more.

This assumes they don't have any competition looking to take their market share (which reduces their intake).

It can be the case that the market isn't very competitive, but it isn't the case that the companies can just arbitrarily raise rates.

Once a year the company can shop around, but you as an insured have no say. Your HR picks, and they may or may not be competent. They may optimize prices for family, or for single people, or any number of weird things.

Large insurers can stand up to smaller practices by threatening to exclude them out of network in favor of cheaper providers.

What seems to be happening lately is a consolidation wave on every level of medical business in order to counter-act that. Most of the smaller private practices in my area have been bought up by large healthcare organizations named after various medieval saints.

They don't actually have a lot of leverage. A hospital has a near monopoly on it's region/patients, but insurers have to compete with a dozen others to be accepted by the hospital. If the hospital wants to charge their patients, insurance just has a minimal amount of bitching they can do over prices.

HMOs often have a negative public image due to their restrictive appearance. HMOs have been the target of lawsuits claiming that the restrictions of the HMO prevented necessary care.

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

Short term, yes. But when costs go up, they know that they can then later use it justify a proportional increase in premiums.

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