Hospitals make ridiculous profit. Insurance companies make ridiculous profit. Neither of them care at all what the real customer gets charged.
See also Federally guaranteed student loans
"It depends."
Non-trauma hospitals in affluent areas that perform lots of elective procedures make a lot of profit.
Trauma centers in less-affluent, usually urban or rural, areas that deliver emergency care almost always run at a loss, and are subsidized by city / state / federal funds to maintain capability.
A person who had a stroke is not going to be evaluating offers from various surgeons. Nor are 99% of people going to know what healthcare they need or don’t need.
That is the service a managed care organization provided (aka insurance company).
The incentives for the current system are to continually increase cost. The only way to fix that is with a free market or price controls. Price controls cause a whole different set of problems. The best solution is a free market for the routine and elective parts of healthcare with insurance to cover the rare unexpected events. Everybody gets to manage their risk how they please and healthcare cost comes down due to market forces.
The norm in most systems (in developed states, anyway) is that the buyer doesn't care what the price is, to at least the same degree that they don't in ours. Yet they're all much cheaper than our system.
The U.S. is different because we allow corporations to lobby/bribe/buy politicians, which most other developed countries consider to be corruption.
So we have a health care system optimized for profits, not people.
I'm no expert but have been reading about this for a couple decades now, and the consistent element in every non-US system in developed countries, despite a vast variety of approaches, is indeed price controls, either explicit or de facto. I'm highly skeptical of any reform attempt in the US that doesn't have that as a central element, due to, you know, gestures at the rest of the world.
The problem, in other words, is that a truly free-market healthcare system would be politically infeasible in a major first-world nation. So instead of a public healthcare system that would provide minimal healthcare services to all citizens, they tied it to employment, effectively moving it from the consumer market to the labor market. So this arrangement, like most neoliberal policies including Obamacare, has served merely to buy more time for the ruling class. And worst of all it has worked.
https://www.investors.com/wp-content/uploads/2018/03/CPIChar...
I guess we should be thankful to Moore's law and figure out how to apply it to Childcare, College, and hospital services? I guess thats where Elon Musks's robot comes in to play. It can teach you skills to get a job, take care of your kids, and then perform your surgery. Problem solved! :)
State insurance laws have mandated the same kind of caps for decades... I believe they date back to around WWII, but I don't know for certain.
Administrative fees include profit, but also salaries, IT expenses, whatever other costs it takes to actually run an insurer.
That is to say, there is an incentive for higher overall insurance spend, because it allows for higher admin fees (including profit)
Every US state has laws that prohibit insurance companies from collecting "too much" profit from the premiums they charge their customers. In most states, the limit is given as a percentage of pure profit. So insurers set their premiums based on their expected payout costs plus operating expenses, and usually make premium adjustments on an annual basis.
(That's why most US drivers received a bunch of rebates from our auto insurers, early in the COVID pandemic. The sudden unexpected drop in accident rates drastically reduced the insurers payout costs. They were required by law to return the excess.)
The intended purpose of these laws was to protect consumers from predatory insurance companies. But in modern practice, with basically zero effective cost controls on medicine, it's created a perverse incentive: Rising healthcare costs are the easiest opportunity for health insurers to increase their absolute profits... All they have to do is sit back and let health care providers keep raising their prices.
But:
• the costs are passed only indirectly to the consumers who ultimately pay
• the market for health care is so terribly distorted
• health care demand is highly inelastic
So normal market mechanisms (like price signaling) aren't very effective at containing the rise in costs.
Further, most bigger companies self-insure, and only use the insurance company to provide services. So F100 company partners with Blue Cross Blue Shield just for billing, administration of the plan, etc. What does BCBS care how much surgery costs? They are getting Admin fees the same whether its $5,00 or $10,000. Does a F100 employer really have the time and energy to question whats going on? They just look at the cost last year, raise the price for their employees by %XY and march forward.
Even further, health insurance is incredibly regulated, on a state level. If you have a good idea to "disrupt" the industry, its such a slog to get anything done. Your best bet is to partner with an existing insurance company and go from there.
But the managed care organizations (health insurance companies) still complete with each other. UHC, Anthem, Cigna, CVS, Humana, Centene, etc. there are many.
Considering they all have low single digit profit margins per their 10-K reports, it seems evident that there is sufficient competition to incentivize low prices for managed care services.
What's interesting about this is that around 75% of hospitals in the US are actually non-profit.
Source: https://www.kff.org/other/state-indicator/hospitals-by-owner...
All this ends up meaning is that any revenue above their expenses is plowed into hiring more and more administrative staff and building new facilities.
You also leave out one important place for “extra” money to go: salaries within the hospital.
Back in 2015 the president of Boston University raked in $2.5 million https://www.bostonmagazine.com/education/2017/12/11/boston-u...
While $2.5M is obviously a lot of money, it's a drop in the bucket in terms of how much the university brought in. For universities and hospitals, it's not the high salaries of a few execs, it's the massive amounts of administrative staff.
For the larger hospital systems, several thousand admin staff making 60-70k+ adds up to waaaaay more than the fat paychecks that a dozen execs make.
It's basically a snowball effect. Execs get bonuses for bringing in more revenue, but it's a non-profit so they have to spend it somewhere, so they expand admin and build facilities, rinse repeat.