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Comment by amluto | Hacker News Reader

And this is a bad law.

What do you think happens when a company has limited margins? Hint: almost all companies try to make a profit (which is fine). If the margins are unrestricted, the company can cut costs to increase profit, which is a good thing. If the margins are limited, the company must raise revenue to increase profit. For an insurance company (or a utility, and California has exactly the same broken rule for private utilities), this means raising rates or premiums.

It gets worse. If an insurer raises rates, they are required to spend 80% of that money! They are required to be inefficient! If the insurer reduces their outflows by 5% by doing a good job, they lose 5% of their profits by law. So they are basically required to do a bad job.

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I don't think it's a _bad law_* as much as it's an _incomplete law_. I don't know what the complete version looks like, but it would include both customer cost controls and reward innovation-based efficiency gains. Alternatively, some places have taken the approach that these are mutually exclusive and just generally removed profit from the picture entirely by socializing it.

* Health care costs were growing out of control before these laws, which seem to have slowed that trend short-term but not long-term as the industry pivoted.

IMO the most effective consumer cost control is competition. An actual, non-corrupt, free market where customers are not locked in and there are more than just a handful of providers generally results in low prices.

We do not have this in healthcare. Providers form cartels - at least in Northern California, this is so bad that the state AG is investigating (not very effectually) [0]. Customers generally can't even tell what a provider charges, so there is no price competition. There aren't many insurers, and they compete on so many incomprehensible dimensions that customers can't usefully choose. (And the most useful thing customers can look at is the network, but see the above issue with provider cartels.) Pharmacy benefits are highly corrupt and incomprehensible.

[0] We have Sutter Health, UCSF, Stanford, and Kaiser. There is very little in the way of independent providers left. Sutter Health in particular has aggressively merged with any available competition.

Wouldn't a free market eventually lead to all these insurance companies combining into 1-2 even more mega insurance companies until there is no competition again? At least if all their profits are capped there is no reason to merge.

Let me quote myself:

> An actual, non-corrupt, free market where customers are not locked in and there are more than just a handful of providers

I’m not suggesting an unregulated market. I’m suggesting a market in which antitrust laws are aggressively enforced.

We do have this in a way with healthcare.gov, since the marketplace allows consumers to view multiple insurers rather than those tied to their jobs. However these plans are still pricey, I put in some dummy data with a higher than average income (60k) and got plans at 280 per month at the bottom of the barrel. Seems to me like it's a good step in the right direction but the marketplace doesn't have an actual market driving force to reduce prices even with the 11 million plans selected for 2023. Having worked in healthcare billing processing software, this lines up, insurance companies really don't give a shit about reducing prices to compete since consumers at the point of billing are always a captive audience (if you don't have it and you have an emergency, you're fucked)

>they are required to spend 80% of that money

I know someone that worked for BCBS and they had the nicest parking garage and a park on top of the building. Always renovations being done. I believe they even bought buildings nearby in the dense part of the city. I also think this person talked about getting a bonus.

They had some high tech security along with low tech security. It was pretty impressive at the time. 24/7 security, got to use their parking garage to for some sports game on a sunday.

Or a competing insurer takes their customers by offering lower premiums. There is a reason the health insurance business earns anemic profit margins, even though they can legally earn more.

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