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Comment by rayiner | Hacker News Reader

It’s a red flag whenever someone talks about healthcare and they focus on health insurance companies and hospital administrators. It’s a sign that they’re working backwards from some ideological beef rather than looking at where the costs actually are.

Health insurance companies have profit margins around 5% or less. Hospitals are half that. A Subway franchise has a higher profit margin. That’s just not where your healthcare dollars are going.

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Hmm...sniff test sampling:

- HCA[1]: FY25 profit margin = 9.0%

- UHS[2]: FY25 profit margin = 8.6%

- THC[3]: FY25 profit margin = 6.6%

Yeah, a bit of disaggregation is likely needed here, but in these companies, labor expense as a percentage of revenue is on a declining YoY trend while revenue continues to grow.

What's the prevailing ballpark ratio of doctors to all other hospital staff again? And what details are buried in that ever so opaque and increasing "other operating expenses" line item?

[1] https://www.sec.gov/Archives/edgar/data/860730/0001193125260...

[2] https://www.sec.gov/Archives/edgar/data/352915/0001193125260...

[3] https://www.sec.gov/Archives/edgar/data/70318/00000703182600...

Here’s industry wide stats for hospitals: https://www.chartis.com/insights/hospital-margins-trend-high.... Median hospital operating margin is 1.5% in 2024. Even among the top 50 systems, the median is 2.3%. https://hospitalogy.com/articles/2025-05-29/top-50-health-sy...

The median US hospital is also a nonprofit; indeed, more than half are. I fail to see how focusing on this opaque median measure tells us anything meaningful.

Care to speculate on the trends I pointed out? I simply don't see how compensation for doctors is the problem.

If you have a fixed profit margin, the way to make more absolute money is to allow your costs to increase. Insurance companies have zero reason to negotiate prices down.

Well not quite. Health insurance is still a competitive business. Customers — both individuals and group buyers — are very price sensitive and while switching plans is a hassle they will change from Aetna to Humana or whatever if the difference is large enough. And many of the largest carriers are non-profit corporations so there's literally no "profit", although some of the employees are very well compensated.

All the highest compensated non executive level employees I know are doctors, who would be highly compensated at every business. Same for all the executives, whose pay does not seem outsize compared to executives at other similar sized organizations. If anything, health insurance companies are known to be pretty stingy with pay unless you're in high demand, e.g. doctors.

The issue is not that health insurance companies make too much money (ok, it's not the only issue)They, along with the system they put in place introduce immense amounts of friction into every medical interaction and prevent doctors from practicing good medicine.

You're giving doctors a little too much credit. While most of them have good intentions and try to act in the best interests of their patients, something like a third of the care they deliver is considered "low value" in that it's not evidence based and isn't likely to benefit patients. While some of the friction caused by health plans is just pointless waste, the utilization management processes can actually nudge doctors towards practicing better medicine.

https://www.bloomsbury.com/us/price-we-pay-9781635574128/

The insurance companies are not stopping the government from paying for everyone's healthcare. It's the other way around, governments are using insurance companies (better referred to as managed care organizations since they don't really sell insurance) to add the friction so that some people get more healthcare and some people get less.

Who gets more and who gets less depends on who has political power (that's why the old and non working get subsidized by the young and working), and in a democracy, this question ultimately comes back to the voters.

Bottom line is due to demographics and restrictions in the credentialing process (including for medicine itself, one of the costliest components of healthcare), there is nowhere near enough supply of healthcare relative to demand, AND due to the enormous damages awarded in lawsuits in the US, the cost of liability protection is sky-high and increases prices for every step of the healthcare chain.

We need way more healthcare providers, and tort reform, and publicly funded medicinal trials, and without that we will continue to limp on with this bureaucratic maze to essentially reduce demand to manageable levels.

No, the system puts in too much friction. Insurance companies are part of the problem, but so are doctors. Everyone in the chain has an incentive to delivery unnecessary services, and everyone in the chain has little incentive to be efficient.

That is no longer true. What we have historically referred to as “health insurance” companies responded to ACA margin limits by becoming sprawling behemoths whose rampant self-dealing makes such profit margin calculations meaningless.

The problem is that health insurance companies squander immense amounts of money on adjudicating claims. Huge amounts of GDP are spent on fights between insurers and providers over what is covered.

You can deduce that cannot be true using the medical loss ratios, which is money flowing out to healthcare providers. At roughly 85% or so, that means 15% is left for the entirety of the rest of the business, including adjudication.

https://www.kff.org/private-insurance/medical-loss-ratio-reb...

https://www.oliverwyman.com/our-expertise/insights/2023/mar/...

That is not to say the adjudication process is done well. In fact, it is hugely wasteful, either intentionally or unintentionally, and the problem is that the government does not audit the insurance companies often enough, nor does it levy penalties sufficient to incentivize proper and efficient adjudication.

The government should be doing constant random checks on claims to see if they were processed and adjudicated in a timely and efficient manner with a sufficiently low error rate on behalf of the adjudicators, and the government is basically doing none of that.

Show us the data. You want to make the claim, bring the evidence.

shimman claimed

>hundreds of billions in profit that health insurance companies extract

yet no request for evidence?

Here's data for medical loss ratios:

https://www.kff.org/private-insurance/medical-loss-ratio-reb...

https://www.oliverwyman.com/our-expertise/insights/2023/mar/...

Here are the sub 5% profit margins for the publicly listed insurers. On the same website, clicking on the "Revenue & Profit" tab will show you that all of the health insurers, combined, earn less than $50B of profit per year, and most of that is probably not even insurance related since a large portion comes from UNH's enormous healthcare provider business.

https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-g...

https://www.macrotrends.net/stocks/charts/CVS/cvs-health/pro...

https://www.macrotrends.net/stocks/charts/CI/cigna-group/pro...

https://www.macrotrends.net/stocks/charts/ELV/elevance-healt...

https://www.macrotrends.net/stocks/charts/HUM/humana/profit-...

https://www.macrotrends.net/stocks/charts/CNC/centene/profit...

https://www.macrotrends.net/stocks/charts/MOH/molina-healthc...

The above obviously does not include the many millions of Americans covered by non profit insurers, such as Kaiser Permanence, Providence, Cambia, and the various Blue Cross plans.

Here are the 5 year returns for the above businesses compared to SP500:

https://i.imgur.com/S8bNSM2.png

Suffice to say, you would not want to be a shareholder of a health insurer.

I presume that hundreds of billions in profit refers to money extracted over multiple years, not per year, there’s no other way it makes sense.

>and most of that is probably not even insurance related since a large portion comes from UNH's enormous healthcare provider business

Isn’t that part of the problem? There are interdependent layers in the health care industry each designed to extract as much wealth as possible.

In the case of UNH, how much money flows as an expense on the insurance side into income on the provider side? Isn’t the relative profitability between these two sides an accounting trick?

It seems strange to me that you’re saying doctor salaries are too high, yet the majority of profits come from their provider business, which is where doctor salaries would be tracked as an expense, right?

“Less than $50b/yr profit” as if that’s a small amount.

I agree that retail investors would not want to be shareholders of insurance companies, but that’s mostly because I think retail investors are just chum in the water for institutional investors and prop trading firms to feast on.

If it’s so stupid to be a health insurance shareholder, then where does that leave their senior leadership and major shareholders? They’re morons for not immediately divesting and moving into fast food, right?

> It seems strange to me that you’re saying doctor salaries are too high

I am not. If anything, I think doctors are underpaid. I would not want to spend my 20s and early 30s in that grind, there are easier ways to earn that much money.

> In the case of UNH, how much money flows as an expense on the insurance side into income on the provider side? Isn’t the relative profitability between these two sides an accounting trick?

UNH’s overall profit margins being much less than pure provider groups shows this cannot be a large effect.

>“Less than $50b/yr profit” as if that’s a small amount.

Nominal profit is a meaningless figure when analyzing the pricing power and/or viability of a business. Profit margin is the only figure to look at here, and there are 6 other publicly listed insurers to benchmark to. Additionally, UNH competes with many large non profit organizations, selling essentially fungible services.

> If it’s so stupid to be a health insurance shareholder, then where does that leave their senior leadership and major shareholders? They’re morons for not immediately divesting and moving into fast food, right?

Depends which fast food. Most are probably even shittier businesses, but if it’s McDonalds which has a decent real estate business, then it might be worth moving. However, the execs would earn far more if they were at similar places in other organizations with higher profit margins, like tech/pharma/finance/oil.

Obviously, if you can’t get a job at Alphabet/Eli Lilly/JPM/etc, then you stay with insurance and earn whatever you can there.

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