> This means that insurers are actually incentivized to overpay for care to maximize the size of their 20% slice.I'm confused. If that's the case, then why would they deny coverage? Wouldn't that be an easy way to overpay?
Heck, they could simply allow everything through and use rising costs as a justification to increase premiums.
This nefarious scheme of course requires insurers to have no competition. After all, if your competitors don't overpay, then they can lower rates and steal your customers.
The truth of the matter is that hospitals and doctors try to maximize their profits through excessive billing and care little about cost efficiency. They don't try this at the same rate with medicare/medicaid both because the government does not generally negotiate - reimbursement schedules are largely fixed and because defrauding the government is a criminal rather than civil offense.
There are some easy fixes here and there. We could, for instance, ban price discrimination by healthcare providers. Every payer would then pay the lowest accepted rate - which is usually medicaid or medicare's. This won't prevent billing for medically unnecessary or inefficient services, but it would eliminate the negotiation problem.
The problem is political. If you save a trillion dollars a year in healthcare costs, the GDP gets lowered by roughly the same amount. Healthcare providers would, of course, fight to prevent any reduction in reimbursements from happening - which they've been extremely effective at historically.