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Comment by BugsJustFindMe | Hacker News Reader

I do not like UnitedHealth, I do not like our existing crop of health insurance executives, and I might even be viscerally glad at some level that the UnitedHealth CEO was killed in a world where justice clearly takes a back seat to greed, but I wish the headline didn't say "overcharged", because there's no established amount of markup that is the correct amount of markup other than what people end up paying. Is that shitty? Yes. Does it violate a social contract? I think so. But tell me how much the right amount to charge is first. Is that cost? Cost+percentage? They've chosen their percentage. What's the correct one instead?

The article body presents the story in a more meaningful way, "UnitedHealth Group is charging patients a markup for key life-saving drugs that could easily exceed their cost by a factor of ten or more".

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All I'm going to say is that Optum Specialty Pharmacy is the sole source that UHC will accept for a lot of special drugs. For example UHC offers insurance for IVF including a separate cap for medications, but if you use their insurance you have to order through their subsidiary Optum Specialty Pharmacy and the prices triple or quadruple over MSRP if you buy from OSP using insurance versus if you pay cash. They also won't tell you this until you're in the middle of a cycle and an order gets held up because you're out of insurance, but since they billed insurance you're on the hook for the remaining several-thousand dollars because if you stop the drugs you're just out the money and the medication and have to wait another month.

I don't know if I can give them the benefit of the doubt on the cancer drugs because of this.

I don't want you to give them the benefit of the doubt. I certainly don't think they deserve it. I do think, however, that a conversation about "overcharging" goes nowhere until people talk about exactly where charging ends and overcharging begins.

I'd be fine with a 20-50% markup on MSRP to cover billing and administration costs but when the insurer owns the pharmacy they can "negotiate" whatever rate they want and you have to pay it. I don't see it directly in the article, but I suspect they do the same thing with cancer drugs as with IVF drugs and require you to go through their pharmacy for insurance coverage. Insurance plans often have lifetime maximums, and when they set their own prices and collect money from themselves for the medication they sell you they can basically dictate how much actual coverage you get versus someone paying cash. And because you chose "bill insurance" when you ordered the medication, you're now on the hook for whatever additional cost there was versus the cash price. And also they won't tell you what the cost is until after the medication has already shipped.

So it's at least plausible that they're abusing their position as the company that owns the pharmacy and the insurance plan to charge you a lot of money and provide very little coverage and also to gouge you at the very end of your coverage, because that's exactly what they did to my partner and I.

Yeah, we need to be careful with using something like MSRP because of what that S means. I would rather we find a different baseline more fundamental to the cost of production than something that essentially amounts to "the price is the price". But I'm right there with you, and I think it's a good start.

IMO a functioning government would have trust busted an insurer with such strong collusion with a pharmacy.

Anything above what Medicaid pays for drugs/procedures (and maybe a few % over to account for health insurance salaries) is overcharging.

Is that clear enough for you?

The trouble with this cascades as follows:

1) I don't know what Medicaid pays.

2) I don't know that what Medicaid pays is a just price until we define what a just price is on its own merits. Maybe Medicaid pays more than they should.

3) What Medicaid pays could change at any time for any reason unless what Medicaid pays is based itself on some metrics that define otherwise, in which case let's just look at those metrics directly, yes?

4) If Medicaid decides to pay more, is that the new line?

1. Unlike private insurance, this is publicly available.

2. If anything, it's a bit stingy. The negotiating power of government (and the predictability of it) helps keep reimbursements down here.

3. I mean, that's how they're set. They analyze how long and how much a particular procedure should take/cost.

4. Sure.

  The negotiating power

And the more predictable process. Private insurers (especially UHC) are notorious for changing up the minutiae of the claims process in order to increase the proportion of claims they deny. There's a cost associated with having to maintain a huge staff just to hassle with for-profit insurance companies.

UHC double-dips because they own Optum even though Optum is "independent". It's fucking disgusting. How they were allowed to buy Optum and didn't have every regulator in the country on the case is beyond me.

I $truggle to think how $omething like thi$ wa$ allowed to happen.

Bastards.

My wife had to quit seeing her doctor of many years a couple of years ago because as Optum has been devouring practices in our area, they stuck her with a surprise bill almost a decade ago and then fired her as a patient without providing even a statement. Now that they own her doctor she can no longer go to that practice even though she was a paying patient for many years.

> fired her as a patient

This is the most absurd set of words I've read in a while.

You have that a little mixed up. Both UnitedHealthcare (UHC) and Optum are subsidiaries of UnitedHealth Group (UHG). UHC never bought Optum. Some parts of Optum were spun out of UHC's IT department so that they could commercialize software they had developed for internal use and sell it to other customers (including some of UHC's competitors in the commercial payer space). Other parts of Optum were acquired or created internally. What is now OptumRx (the PBM) was originally PacifiCare Health Systems. UHG acquired that business way back in 2005 before the Optum brand even existed.

I agree that more reform and enforcement is needed in the healthcare industry but let's at least get the facts and history right.

> subsidiary Optum Specialty Pharmacy and the prices triple or quadruple over MSRP if you buy from OSP using insurance versus if you pay cash.

As an European, this is mind boggling.

I take issue with the claim that in order to say something is too expensive that you must be able to precisely propose an alternative price.

I have no idea what the correct margin for essential cancer drugs is. I don’t think it should be a 10x markup. Intuitively, it seems that there’s something wrong with price gouging dying cancer patients. If you have an argument why my intuition is wrong, please share it.

> I have no idea what the correct margin for essential cancer drugs is.

So let's talk about it and think about it and form an idea. There's no universally right or wrong answer, but you should at least be able to decide what answer is right to you.

> I don’t think it should be a 10x markup.

What about 1x markup?

> Intuitively, it seems that there’s something wrong with price gouging

There is, but you're relying on the word "gouging", and without identifying what price you think is gouging vs reasonable profit, stopping at the point where you express that "too much is too much" doesn't get us any closer to having actionable goals.

So, important question: What problem are we trying to solve here? Is there any benefit to the overall populace for us in HN to debate what we feel is "overcharged"?

----

But to go along with your exercise, I take a look at current market dynamics and compare it from there. Apparently, the typical wholesale markup is 20-40%, and stores will typically markup another 20-50% on top of that. So we're talking roughly a 125% markup on the higher ends from the factory into the consumer's hands as a very rough average (VERY rough, markups vary a lot per product and industry).

That's with two chains of markup, so clearly 1000% feels absurd from one part of such a chain. Outside of factors like drinks (which are easy to scale and can have markups well into the hundreds), it's pretty hard to find any part of the chain as not "overcharged" once we go past 100% markups in any given place.

on the most generous side, Costco famously has markups limited to 14% (albeit they rely on bulk purchases to mitigate that). and subsidized vehicles used to generally be a 10-15% markup price. So I'd say 15% is about the bare bottom of what to expect markups without some kind of twist. e.g. printers selling at a loss, making up for it with high markups for ink (another product that's easy to scale and marked up into the hundreds). or previously, a video game console in order to sell games (software, whose markup is hard to really determine since it's infinitely scalable and costs are more to make up for R&D).

> Is there any benefit

I perceive that one of the reasons that people who want change in the devastatingly perverted system are repeatedly plowed over, cheated, and ignored when it comes to making actual policy is that as a group those with the most reason to be upset are easily swindled into engaging only vague moans about some miniscule ignorable example being bad but not being ready to articulate what should be done instead as a set of categorical rules. And it happens over and over again until the voting public are bred into helplessness, and the way out is to talk about things in actionable ways instead of in vague handwavy ways. And the path to collective dialogue shift has to start somewhere, so it can start with us. Was it painful?

>And the path to collective dialogue shift has to start somewhere, so it can start with us.

I suppose so. But I have no insight of these concepts outside of the 30 minutes I spent studying various markup strategies. And I have no interest in trying to personally influence policy (especially in something I studied for 30 minutes ". I don't know how many qualified people in this community can influence such stuff (or any that will read HN specifically) , so I simply question the tactic's effectiveness.

Every journey, etc.

> I take issue with the claim that in order to say something is too expensive that you must be able to precisely propose an alternative price.

If you want to be quantitative of course you do. How hard is it? Margin of error is allowed. If you want to be qualitative, vague and wishy washy, that has its place too, but at some point someone is going to ask for a quantitative assertion, otherwise you get nowhere.

To use a software development analogy, the average person is a user of health care, not a health care project manager or designer.

Just as the user of an App doesn't need to provide an alternative design when they say "this App sucks", the average user of healthcare likewise has no obligation to redesign the healthcare system when they say "this healthcare system sucks."

Really apples and oranges comparison. But even so, if a certain App user is motivated to have the hostile App developer make a change that doesn't server their interest, they'll need to do better than cry "this app sucks".

It's even worse than you're saying actually, because health care has no price transparency, very little consumer choice, no negotiating power on the part of the user and even the services provided are extremely opaque.

To be honest, I'm quite surprised you're siding with the provider here. Are you personally satisfied with healthcare pricing in the United States? Do you not share my intuition that in general, healthcare is too expensive and inefficient?

Health care now has significant price transparency, although there are still some major gaps and it can be challenging to shop for the best option. Many consumers are still unaware of the tools available.

https://www.cms.gov/priorities/key-initiatives/healthplan-pr...

https://www.cms.gov/priorities/key-initiatives/hospital-pric...

Good luck trying to make sense of it.

https://www.dolthub.com/blog/2023-03-23-illusion-of-transpar...

> Humana published their MRFs across 11,000,000 different files, then rate-limited how fast you could download them

HN discussion: https://news.ycombinator.com/item?id=35347647

Your missing the point. No one expects consumers to download the MRFs. Humana plan members can just log in to their web portal to search for the treatment they need and see prices across all the local network providers.

> Humana plan members can just log in to their web portal to search for the treatment they need and see prices across all the local network providers.

Maybe. The article also asserts their data, where available, is often also wrong. See the section titled "Cross checking with hospital data".

yes. But the more likely action is that they download another app and delete yours. Most apps are "free", so the competition is fierce to keep that market happy. The dev is always beholden to the volatile audience.

It is apples and oranges, though. Because 1) apps are hardly a critical need for the populace and 2) software margins are even more difficult to find that "line" to than physical resources.

I'm sure that medicine needs some higher than average markup in order to make up for R&D, ingredients, and various regulations to get it approved for human patients. But very unlikely 1000%. And only 1000% because of questionable vertical integration that lets UHC charge UHC however much it wants to itself.

"overcharge" is a qualitative source. If you're not working in the economics, I don't see much worth in finding the exact line between such a qualitative word. The market has some intuitiveness and know that charging 30$ for an item that costs $3 to make is highway robbery. Doesn't matter when or if we start to agree that $5, $6, or even $10 is reasonable (and yes, these are all pretty high markups to begin with compared to typical markups for stores).

We don't need to find the touchdown line when we're already outside of the stadium and the parking lot anyway.

They've chosen 90% margin (cost + 1000%).

Semicon tool builders (my industry) have margins around 50% (cost + 100%). This is considered high margin manufacturing work.

To match United Health's margins we'd need to raise prices by 5x.

I agree, but we can't talk about "over" without talking about where the line is.

I agree as well, just drawing some lines!

Fundamentally, you have a pretty good point here, since the system we have has two halves that are fundamentally at odds:

One part "free market -- maximize your profits as much as you can and get rewarded by a skyrocketing share price!"

And one part, unspoken except in the PR BS put out by the insurance companies, "Try to improve the health of patients and have them not die!"

The only way the two can coexist at all is if someone draws some lines like you are suggesting. I know that there are some (probably easily manipulated) laws stating that X% of premiums have to be "spent on care" and if they get too high overall margins on your group, they have to give your employer a rebate. Of course, who knows whether you'll see that money.

If we just say "maximize your profits" (and indeed, shareholders 'should' sue them if they don't) then it's obvious that morally bankrupt scum that runs all these insurers would 100% extort people for 1000% profits on lifesaving drugs. It's the most logical course of action! People will pay infinity dollars to save their own lives/their loved ones, so let's soak them!

If it's not obvious, I believe that overall the "free market" part of this system is a failed experiment that should be abolished immediately, and not just because I want all of these companies' sickening, greedy executives to go straight to hell (where Brian Thompson is burning today).

It ceased to be a free market when we enshrined employer-provided plans into the law. If it were more like auto insurance where I can fire my insurance company and receive a pro-rated refund or renegotiate coverage in the middle of the year then it would be more free. But my employer negotiates for me on my behalf, and their needs are often at odds with my needs. And the whole "open enrollment" period thing creates a situation where the insurance company gets to be absolutely terrible for an entire year and there's no recourse. And especially there's no recourse if my employer is generally satisfied, because my alternative is to take a massive pay cut to get good coverage.

I never understood why health care had to be so tightly coupled to employment. All it does is tie people down, obfuscate costs, and give insurance companies more leverage over everyone, companies and employees alike.

This is an example of what economists call path dependence. In principle there's no good reason for access to health care to be coupled to employment and we wouldn't design the system that way if we were starting from scratch. Originally it started during WW2 when the federal government imposed wage controls to hold down inflation, so employers took advantage of a legal loophole to offer free employee benefits such as health insurance in order to attract workers. At that time healthcare was pretty cheap because it couldn't really do much. That system stayed after the war ended largely due to inertia. It probably benefits large employers because it gives them a cost advantage over smaller competitors but overall it's a terrible burden on the country.

A better approach would be to mandate that everyone purchase individual or family policies directly from insurers on open exchanges using pre-tax dollars, with subsidies for low-income consumers.

Why mandate it at all?

It's essentially the free rider problem. If we want to make affordable healthcare available to everyone then we have to force everyone to pay into the system to spread the risk around and get the healthy to subsidize the sick. It kind of has to work that way regardless of whether we have a single public payer funded by taxes or multiple private payers funded by insurance premiums; in the end the money has to come from everyone.

Very long history I suggest you look into, because it's very interesting, but the oversimplified explaination:

after WW2, there was very obviously inflation. It was crazy in the EU and Japan, but the US still experienced some too. To fight this, the government made a then-common tactic of wage controls: basically cap off the maximum amount an employer can compensate workers, in order to fight the inflation spiral.

But there was an imporant exemption. This was only on wages and not any benefits given to employees in order to try and quell the inevitably angry employees. So when companies couldn't attract talent with more money, they offered more benefits. including employer sponsored healthcare. Perfect since these contributions were free from income tax.

And the modeled spiraled from there. a tax code passed in 1954 to let these contributions be business expenses, Medicaid came in the 60's, etc. It was great back then, but it was getting more expensive to navigate and companies started compromising to manage it. up to our favorite healthcare starting its vertical integration 20 years ago to come into what we know them for today.

You can talk about jetliners cruising over towns without discussing the height of a town's buildings. No one here seems to be in disagreement that the line is lower, which is all we need to know to describe the markup as over.

Sure we can.

Some loaves of bread are worth a dollar. Some are worth ten dollars. The exact line is hard to pin down... but a $1,000 loaf of bread is probably excessive.

This is semantic nitting and wastes time when for all practical intents and purposes humans understand the assertion being made and find it agreeable.

The article is about UnitedHealth's PBM, which negotiates rates and then earns revenue from drug manufacturers through rebates. Remember that insurance is part of Big Finance and involves a lot of clever instruments to shuffle around money, risk, and accountability. PBM's are one of those instruments. Our intuitive Econ 101 models of the industry don't always go far enough into the weeds when we're just reacting to headlines. This is one of those occasions.

https://content.naic.org/insurance-topics/pharmacy-benefit-m...

For those who want to really understand the impact that PMBs play on the overall US healthcare system I highly recommend reading the "The Price We Pay: What Broke American Health Care--and How to Fix It" by Marty Makary, MD. The system of legalized kickbacks that they use isn't widely recognized but it will have to be reformed if we ever want to bring down prescription drug spending.

https://www.bloomsbury.com/us/price-we-pay-9781635575910/

https://en.wikipedia.org/wiki/Price_gouging

This is exactly it. They are charging that price because that price will be paid, and this maximizes their overall profit. In other similar situations this would spur competition, which would ultimately drive down prices to a reasonable level. But in the healthcare industry competition is often prohibited or made very difficult by law. You can cite the patent system as an example of this, but another horrible one is the "certificate of need" laws, which should infuriate you.

> which should infuriate you

Oh it does!

> there's no established amount of markup that is the correct amount of markup other than what people end up paying.

Of course it's all subjective, but I cannot think of a single other industry that can get away with a 1000% markup on anything and expect to get away with it. In proper capitalism, that just means any competitor worth a dime can massively cut you with a 300% markup that is insane but a steal in comparison. Then it just stabilizes to some point between where competitors need more saavy to compete and more than some minimum markup to function.

I'd say overcharge is correct given the monopolistic structure of healthcare. You don't have too many choices to begin with and it's very hard to switch.

There are many models used in different jurisdictions. Typically it's a government body for negotiation, assessment and sometimes price caps.

Health insurance profit margins are regulated, so UHC earning higher margins does seem like overcharging.

Perhaps we need antitrust action in healthcare.

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