If insurers’ customers were not price sensitive, then they would have higher profit margins than 5%.
Building contractors are an example of an industry that runs on razor thin profit margins in % turnover terms, because all they’re doing is passing on the cost of labour and materials from their suppliers and subcontractors onto their clients and just making their profit adding value in a thin management layer. Which sounds a lot more analogous to insurers than industries that earn 5% profit on their turnover.
If they could price it higher, then why would they choose to only earn low single digit profit margins?
You have 7 huge publicly traded companies competing with each other, and unless there is proof of collusion, it is probably safe to conclude that they are running their businesses as well as they could be.
If you think otherwise, then you have discovered an arbitrage opportunity, which would be worth quite a bit so you should be able to pitch it to someone who wants to invest.
See pharmacy forums as an example for all the pharmacists complaining about how independent pharmacies are so tough to operate due to ever smaller payments from insurance companies for the past 10 years.
Nope. Not if they can inject enough noise into the comparison process to hide the differences. There's a reason they threw so much money at getting bronze/silver/gold standards killed. They knew it was critical to avoid being squeezed.
> pharmacists complaining
Pharmacists are a tiny part of the bloat picture and it's always easier to put the screws to smaller players. Come back when drugs and hospital stays stop costing twice as much as the rest of the developed world, or stop growing 10% y/y (on top of regular inflation) and then I'll believe that insurance companies are doing their negotiating job.
I am not aware of these standards being killed. I select a Gold HSA plan every year.
https://www.healthcare.gov/choose-a-plan/plans-categories/
> Come back when drugs and hospital stays stop costing twice as much as the rest of the developed world, and then I'll believe that insurance companies are doing their negotiating job.
> Come back when drugs and hospital stays stop costing twice as much as the rest of the developed world, and then I'll believe that insurance companies are doing their negotiating job.
How are they supposed to negotiate if there is only 1 hospital in an area or a drug company owns the patent to a drug so they are the only seller? The insurance company is mandated to cover emergency care at the hospital and pay whatever price for the medicine if it has sufficient efficacy data, per the laws.
When there are generic drugs available, insurance does pay less for those drugs.
My point about performance -- 2x, 10%y/y -- stands.
What would you do if you were the insurer and there was one hospital in an area or 1 patented medicine and the government forced you to cover it?
The point is that we should be doing what they are doing. When you're in a hole, stop digging.
> WWYD
I would get rid of private insurers and have the NHS negotiate prices.
It's a discussion about private insurers systematically sucking at their notional purpose. Which they absolutely do. They need to be replaced.
"They're doing as well as could be expected" might be an exoneration of a company, but it's an indictment of the system.
If insurers want to make more money, they can either make medical bills more expensive, or reduce their own operating costs. Reducing the cost of medical bills does not increase the amount of money they make, unless it means they are capturing market share from a competitor.
The problem is that it's nearly-impossible to capture market share. Which insurer do I have? The one that work provides. Did I have any choice in it? No. Did I choose my workplace based on the insurer bundled with it? No. Will my workplace ever switch their insurer provider of choice? Almost certainly 'no'.
How do you capture market share, when all of your customers, and all of your competitors' customers are captives?
[1] Whether or not it was written well is another question.
> Will my workplace ever switch their insurer provider of choice? Almost certainly 'no'.
Why not? I am an employer and we evaluate the cost of health insurance every year. It is a huge expense, so why would we not shop around?
Because switching to a different provider can be a huge pain in the ass to your employees, whose multi-year treatments/doctors/etc may suddenly become out of network?
And it's probably not worth doing unless the cost delta is truly staggering?
They totally do that if they save money. They won’t do it to help you but for their own bottom line they will do it.
https://www.healthcare.gov/glossary/medical-loss-ratio-mlr
It says 80%/85% of premiums have to go back out as payments for claims.
> Since they have no incentive to increase their margin through negotiation,
I do not see why this would be true. The less an insurance company pays for healthcare, the lower the premiums or can offer and win more business.
Low profit margins/multiple sellers indicates a highly competitive field, which means the businesses must be doing something stay in business.
Competition != Productive Competition
Why are profit margins only 5%? Could be many reasons, including collusion. Insurance companies have teams of lawyers whose job it is to navigate existing regulation, lobby for new ones and to push for ones that hurt competition.
Given how shady and complex the entire industry is, we don’t really have a reason to believe that 5% is an accurate number.
I cover this in the second half of that sentence.