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Comment by diego_moita | Hacker News Reader

I'm surprised on the comments here that go: "I had to pay $$$$ for a medication when I could buy that same medication somewhere else for a fraction of it. Therefore Big Pharma gouges America".

That is not evidence that "Big Pharma gouges America". It is evidence that Americans pay a lot more than other countries. Only that. The conclusion doesn't necessarily follow from the premises.

Want to understand why? Read the article's last paragraph:

> The bulk of the rents is captured instead by providers of health-care services such as hospitals and the system’s true money-makers: insurers, pharmacy-benefit managers and other middlemen taking advantage of its opacity.

As always, no one reads anything.

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Insurers make even less money than Pharma companies do. To a first approximation essentially all health care spending goes to companies that deliver health services directly.

> Insurers make even less money than Pharma companies do.

In the whole or in relative terms? Source, even if personal or anecdotal?

I am willing to consider your point because, to be fair, the article doesn't show any data that indicts the insurers. They just blame them at the end without any evidence.

> all health care spending goes to companies that deliver health services directly.

Well, that wouldn't explain why medication alone is more expensive in America, right?

But accepting your argument: is it because of greed and oligopolies, incompetence or excess of regulation?

Hah, I wouldn't need "personal" or "anecdotal" evidence for this; it's right there in black and white in the NHE data; literally in the first row of the sheet. I posted about this across the thread.

No, he's right. Insurance profits are legally capped, and this keeps them from representing an outsized fraction of spending even in cases when they might partially be the driver behind it. They have to spend N% of their income on actual health care benefits. They're not absurdly high, you could look them up, but I don't think it's possible to exceed something like 10% profit.

This means the only way for insurance companies to increase profits is to increase the price of healthcare, and they have zero incentive to try and lower the amount of money they pay out for healthcare which might otherwise have been split between profits and lower premiums.

My guess is that if you found NHE data from before the ACA cap insurance would remain a small component of overall health spending (the ACA was very important and I am in no way downplaying it).

Mostly I'm saying: you don't have to axiomatically derive why this is. Medicare collects and synthesizes this data.

How would you derive it from medicare? Isn't medicare supposed to be non-profit? They should occupy 0% of health care spending once you remove the pass-through transfer payments that go back into medical care, minus some administration overhead.

The CMS collects these statistics in the same way that the BLS collects labor statistics. It has nothing specifically to do with the part of CMS that directly administers Medicare. The point is that we have very high quality data on this stuff.

I’d like to see a deeper analysis here though. Insurers don’t make that much money on a percentage profit basis, but profit’s derived after expenses. Hypothetically, their sheer existence could be a huge burden to everyone involved, their costs to employ legions of make-work employees processing/rejecting/questioning claims could result in low profits even if the work isn’t necessary, they could take advantage of transfer pricing to hide profits in their wholly owned but separately reported PBMs…

I'm not even looking at profit; you don't have to, because insurance is such a small component of US health spending. This is the value of having the NHE data in front of you in discussions like this; we don't even have to debate how much of US health insurance is administered by nonprofit firms, or whether for-profit firms are gouging, because the whole thing is too small a component to matter.

Not sure you're understanding. The insurance companies can't gouge by jacking up profits because that's illegal. They can't ever become a big component of healthcare spending nominally, but they can be the actor that causes a big component of health care costs to baloon.

The way insurance companies might gouge is by jacking up healthcare prices, since they act as a government-captured oligopoly block and thus don't have normal free market forces. That is how they could increase nominal profits without increasing % profits.

They could jack up health care prices massively while only being measured as a small % of the total. Whether this is actually the case or not, I'm not sure, but the incentives demand that they do it if they can. It should be impossible to pull off such a cartel in any unregulated market, but due to the way healthcare works it seems more likely it could be true.

The overwhelming majority of the money they'd be diverting by doing that would be going to health providers, not to payers and underwriters. Therefore, the hypo you're offering isn't interesting to me. I'd still be starting by looking at the institutions that actually end up with the money.

>The overwhelming majority of the money they'd be diverting by doing that would be going to health providers, not to payers and underwriters.

Yes exactly. Imagine for a moment you have a market where every payer has to pay every healthcare provider, and a free market of health care providers. It would be impossible to create a cartel of buyers raising the price.

Then imagine, say you have universal healthcare insurance. The insurance provider is capped at say, 1% profit. Since they have a monopoly, they can walk up to the healthcare providers and say "hey, please jack your costs 3x" so we can get 3x the profit. And then you can turn around and do a study and say, well insurance profits haven't changed -- and then wrongly conclude the insurance companies aren't to blame for the inflated prices, as they are only capturing 1% of the health care industry despite being responsible for 200% price increase.

I believe the nature of health insurance industry probably leaves them somewhere in a gray area in-between these two extremes, especially when you consider the insurance companies also often own under an umbrella company health care providers.

Seems like motivated reasoning. I'm looking at a single-page spreadsheet that tells a very different story, and I'm going to stick with that rather than the hypo.

Based on what you've told me so far I'm not understanding how you can be sure of that. After the ACA caps was passed (limiting % profit) nominal health care spending went up significantly.

Medicare doesn't really do administration in the way that you think. There are something like 10-12 regions within the US, and for each region, Medicare contracts with a private health insurer to manage insurance administration within that region. Medicare just moves the money around to cover the admin contracts and to backstop the claims.

And this is before you get to Medicare Advantage, which is where Medicare just pays for private insurance premiums for people who think vanilla Medicare sucks.

OK, but if that's the case the medicare data should show the spending went significantly up after the ACA caps, which doesn't prove the thesis but is necessary condition for it.

https://paragoninstitute.org/wp-content/uploads/2024/03/9DG_...

https://truthout.org/app/uploads/2024/12/insurers-profits-bi...

Yea in fact the ACA law caps insurers to a maximum of 15% profit. Anything extra must be rebated back to the customers.

The debatable part is the rebate is back to the employer who is allowed to simply pocket the money, though one could argue its returning the amount the employer is covering, often more than the employee. :shrug:

Believe or not, I get yearly notices from UHC about rebates for the prior year.

Whatever the reasons are, I don't need first principles to make this claim, because Medicare presents this particular data quite clearly.

> Yea in fact the ACA law caps insurers to a maximum of 15% profit.

These are plan-by-plan, not on the company overall, and notably this doesn't apply to:

1) Self-funded plans. Name-brand insurance companies manage these, but big companies fund them and take on the risk (with re-insurance and all that good stuff in the mix, of course). A large proportion of the US population is on these kinds of plans, and that limit does not apply to them.

2) New plans in their first (IIRC) two years. I've not looked into whether insurance companies are playing games with this such that a larger set of their plans are "new" ones than would be if this rule didn't exist, but if it's at all possible for them to do that, I guarantee they are.

>> The bulk of the rents is captured instead by providers of health-care services such as hospitals and the system’s true money-makers: insurers, pharmacy-benefit managers and other middlemen taking advantage of its opacity.

> As always, no one reads anything.

The implication of the article was the "bulk of the rents" applies to healthcare costs in total, not just to drug costs. I.e. drug costs are not a huge part of the healthcare costs.

That by itself doesn't guarantee an understanding of why specific medication costs are sometimes 10x or whatever of other 1st world countries.

(but I didn't read the article; just the rest of the comments)

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