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Comment by lotsofpulp | Hacker News Reader

My information is from 10-K filings with SEC, and my statement is referring to net profit margins, which are what they are. Unless there is massive fraud going on, managed care organizations are not earning massive profits. If their PBM divisions are, then they are simply subsidizing the insurance division, but it would make no difference to people. The total expense for premium plus out of pocket expenses would not change, it would just shift from one to the other.

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> Unless there is massive fraud going on

That is exactly what is happening, and it's legal. It's very easy to hide profits and move them around.

One big element is that a lot of large companies and non-profits run their insurance programs as self-insured. They pay the direct costs of the medical care of their insureds, and keep the annual premiums the entire employee-base pays. The "insurance companies" are paid a percentage of the total revenue/claims as an administration fee, so they have incentives to push the overall amounts paid up, not down. Self-insuring eliminates the profit overhead of the insurance companies, but screws the incentives.

There are quite a few big insurers (better known as managed care organizations) competing for business, so the incentives are there to limit expenses so they don’t have the most expensive premiums.

Some insurers (looking at you United Health Care) have wholly owned PBMs. Thus, the PBM is an asset in its insurance trust. Any profit the PBM makes will appear as in increase in asset valuation for their insurance trust, or balance sheet in some cases.

However, insurance margins remain unaffected as the money did, in some sense, go out the door and is no longer in control by the insurer directly. It's not fraud. It's just anti-competivie self-dealing. So, no, it's not profits per se, but rather increased valuation via clever financial engineering.

All the big managed care organizations (better word than insurer) have their own PBM. I would need to read more about how an MCO accounts for assets set aside for insurance, but I would be surprised if insurance regulators are allowing it, considering how strict insurance regulators are.

A quick search shows me that on page 73 of Cigna’s 10-K, it clearly does not have its Express Scripts division accounted for in the “Investment Assets” section, based on how low those numbers are.

It just does not pass the smell test to me. The simpler answer, based on all the numbers, is that managed care organizations are squeezing other entities in the healthcare chain, but due to competitive pressure and upper profit margin limits due to ACA, they are not raking in big bucks.

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