This guy is way out of his depth.
[1] https://www.rand.org/pubs/external_publications/EP71133.html
It's literally Noah Smith, what did you expect?
And, of course, things like spurious denials drive up costs for them and for the providers. More direct costs, more costs at the provider they have to cover...
From the insurance company perspective, it's a win-win!
Spurious denials? Or improperly filed claims?
It's easy to find documentation of this. For example:
https://pmc.ncbi.nlm.nih.gov/articles/PMC10391242/
https://phrma.org/blog/70-denied-how-insurance-denials-are-d...
https://www.forbes.com/sites/joshuacohen/2026/05/04/independ...
Anecdote is not the singular of data, but when my late wife was dying of cancer, the oncologist was attempting to follow standard care procedures. Preauthorizations were denied even after physician consultation with the insurance company.
My research showed me that the insurance companies contract with other companies (who they may or may not own) to handle the dirty work. It was only after learning the magic incantations to directly contact the "third-party" company that I was able to get traction.
"We do not believe this treatment is warranted."
"Well, her doctor believes it, so she's going to get the treatment. The only question is whether you pay now, or after I file a small claims case."
It was miraculously authorized at that point. It's the same fucking thing with car insurance. The poor people who can't fight really get screwed.
Medical fraud is like retail stock shrinkage or fraudulent credit card charges -- no one on the customer side is aware of it, because it's handled on the other side and baked into pricing.
But there are substantial amounts of both straight fraud and too aggressively up-coding / over-billing.
The meta problem is that the because of the nature of the industry (legitimate volume dwarfs fraud), it's more financially impactful to pull levers that impact legitimate volume (read: prior auth requirements).
The anti-fraud systems are also pretty robust. As you'd imagine, insurers have been dealing with this for more than a few decades by now.
"Over a six-year period between 2019 and 2025, almost half of a large set of denied health insurance claims in New York state were reversed when the cases reached independent review organizations, comprised of clinicians unaffiliated with insurers"
But that doesn't get into the reasons why the claims were denied in the first place. It doesn't tell us anything about bona fide spurious denials vs. improperly filed claims (mistakes in the paperwork), clerical errors, or clients placed under investigation for claiming too early (after applying) or too often (making a lot of spurious claims), or care providers who do the same.
Insurance companies are concerned with adverse selection and moral hazard. A client who files a lot of claims shortly after getting insurance raises the suspicion that they were not honest about their health prior to applying. Similarly, a client who claims every drug a pharmacy carries raises other suspicions.
Of course, most clients aren't like that, but a not-insignificant minority are, and a small number of clients can file a very large number of claims.
The first link in that article does. It starts off by noting that this the third level review, so there were ample chances for the insurance company itself to fix things, and also says that "The report also showed that 47.1% of denials on the basis of medical necessity, 44% of denials based on care determined to be experimental or investigational, and 42.9% of formulary denials were overturned."
It's a pipe dream to assume that, by the time the appeals got to that point, it could be chalked up to administrative error.
> Insurance companies are concerned with adverse selection and moral hazard. A client who files a lot of claims shortly after getting insurance raises the suspicion that they were not honest about their health prior to applying. Similarly, a client who claims every drug a pharmacy carries raises other suspicions.
Yes, every Canadian gets 5 abortions a year, even the men. But seriously, the moral hazard goes the other way. It is so fucking difficult to get doctor appointments that the insurance companies should be doing everything in their power to help keep people healthy, rather than worrying about the 0.1% of the population that suffers from Munchausen syndrome.
This often proceeds over multiple rounds. And then either the company eventually pays, or the consumer has to pay and try to get reimbursed later.
You asked this question 30 minutes after even a casual reading of my other comment, and a little thinking about it, would have fully answered it.
I would like to assume good faith, but your other comments indicate a high probability that you are an insurance company shill.
And in response to your other question about collusion, no there doesn't have to be collusion. Insurance companies putting onerous bogus requirements on providers will automatically drive up the costs.
You can consider my mistake to be in conceptualizing the cost of "medical services" too narrowly, as just the medicine, and not the providers' surrounding administration. To that end I take your point. In theory, at least. Do you know how much this has? In particular, you refer to the back-and forth negotiation of claims--on what do you base this claim?
Be offended all you want. It's a free country, but, to be perfectly frank, you are still making it difficult to believe you are writing in good faith, as I will show.
> You can consider my mistake to be in conceptualizing the cost of "medical services" too narrowly, as just the medicine, and not the providers' surrounding administration.
Which is fine, except that my very first comment that you responded to explicitly explained "More direct costs, more costs at the provider they have to cover..."
So I already explained that which you said you missed, before your first comment questioning it.
> Do you know how much this has? In particular, you refer to the back-and forth negotiation of claims--on what do you base this claim?
When I wrote "You asked this question 30 minutes after even a casual reading of my other comment, and a little thinking about it, would have fully answered it." I was serious.
You still asking this question, instead of looking at that comment, indicates that at best you are completely unserious. For your edification, here is a link to that comment:
https://news.ycombinator.com/item?id=48480873
When you wrote your first comment in reply to mine, there were already two comments there -- that one and its very short parent.
He does that a lot, tbf
"Perversely, with the MLR requirement capping profit margins and administrative costs, insurers are discouraged from containing health plans’ premium increases. Economists have noted that the MLR requirement effectively turns health insurers into “cost-plus” businesses: If insurers’ predicted premiums are less than the actual medical care spending on claims, it can lead to higher MLRs and less profits, within MLR restrictions. Professor Scott Harrington warned early on that MLR requirements could reduce insurers’ motivation to control premium increases. Prior research has found that the MLR requirement is associated with stronger financial performance for insurers, since they can raise premiums to cover higher claims and still comply with the MLR threshold."
Why? Obvious if you know about the perverse incentive tqi mentions
$25k today or $15k/yr for 20 years?
Gastric bypass surgery happens once. Many bypass patients require lifelong prescription nutritional supplements and all require lifelong lab monitoring.
Ulcer risks increase severalfold.
High risk of hernias, osteoporosis and complications thereof.
It's not just surgery and no immediate cost. But then again, any of those issues are options for denial, so...
I had an ACA "marketplace" plan back for my family back in 2017 when I was self-employed. My premiums were >$15K / year for a >$10K deductible and no tax credits (because of my income).
1. On average, how healthy is your group of ACA plan holders? If the group has a bunch of chronic conditions, they get more subsidy money to offset the increased care costs. Going to the PCP allows them to have official medical evidence of those conditions.
2. The government gives these plans quality ratings to help people compare them to each other. These ratings are partially based on how often patients get their annual screenings and patient satisfaction. A gift card for a PCP visit accomplishes both aims.
There are also more practical concerns. Preventative care is cheaper than an acute incident for the company. You'd rather catch an arrhythmia at a PCP appointment than pay for the cost of a heart attack.
On your specific example, my understanding is that the odds are very low that a random PCP visit will detect an arrhythmia.
Of course, if you mentioned to doc that you're having fainty spells or heart palpitations, then maybe hen'll give you a holter monitor-- but then you've now increased your risk by waiting for the PCP visit instead of doing it when you first notice the symptoms.
Law binds individual fictions, but not compound ones. Until we start making financial engineering basically illegal, these types of "happy, profit juicing conjunctions" will be the norm.