[nobody9999]

>My understanding is that insurance companies have fixed profit margins by law

Right. And (IIUC) those profits are set at 10% of revenue, not revenue - costs.

That creates perverse incentives to increase premiums above all else.

[vel0city]

That's not accurate. The Medical Loss Ratio (MLR) created by the ACA is 80% of revenue collected must be spent paying benefits. So, 20% of revenue goes towards all operational expenses and profits. If they go over that ratio, they need to refund to policy holders.

[s1artibartfast]

So maximize medical costs and minimize opex for best returns.

At least opex is in the calculation, California utilities don't even have that. It goes a long way to explaining why I pay 50c/kwh in sf (CA private) vs 15c in Sacramento (municipal) or Nevada (private without cost+)

[nobody9999]

I stand corrected. Thank you.

I think my larger point, that jacking up premiums increases revenue, thus increasing the opex/profit pool (regardless of the percentages) is a perverse incentive to jack up premiums as much as possible

As in a 3-5 year (which is about what I've seen with ACA premiums) doubling of premiums, thus doubling the potential profit pool without increasing opex in any way. In fact, the use of third parties to provide "pre-approval" for an increasing number of drugs, tests and procedures reduces opex, leaving more of that 20% for profits.

In fact, my insurer has consistently raised premiums while squeezing providers who are now charging separate fees (meaning additional co-pays for me) for stuff that was once included in a single fee (one example is charging an "outpatient facilities fee" in addition to the copay for seeing a doctor. Increasing my costs, while the insurance company can just shrug and say, "that's not covered, suck it up!"

Meanwhile, doctors (especially GPs) are over-scheduled (my GP is scheduled to see every patient in 20 minutes or less), allowing the practices to charge for seeing more patients -- increasing their profits -- at the expense of patient health.

And heaven forfend having multiple related issues which require more than one specialty -- you're just shunted from specialist to specialist without much (if any) communication and a shrug if something unrelated to the specialist's area comes up.

The point is that the whole industry is fraught with perverse incentives that drive up costs, reduce the quality of care and a laser focus on the wrong stuff (i.e., services provided vs. holistic health outcomes).

It's disgusting and harms people. You'd think that by now we'd have decent healthcare. But the perverse incentives pushing toward financialization of, well, pretty much everything medically related, are actually impacting the average lifespans of Americans.

And more's the pity.

[vel0city]

While I agree there's still some perverse incentives and I'm largely a pro-universal healthcare (or at least public option) kind of person, they can't just jack up premiums and thus increase their profits. They'd have to also increase benefit payouts if they're near the cap. And FWIW, its generally a good thing for them to reduce opex, so long as quality doesn't suffer (although it often does go hand in hand in practice).

One could point out though, it kind of incentivizes them to no longer negotiate prices as hard. This makes benefits more expensive, growing the total size of their 20%.

But on the other hand, pointing out the idea of holistic health outcomes, increasing benefit payouts to those kind of processes is something incentivized by this rule. Adding a lot of these more "fringe" holistic health benefits, like telehealth nutritionists gym membership subsidies and what not, also grows the benefit payout side and then lets them take more total profit. But there's no free lunch here, those benefits are largely coming from the premiums being collected.

Also, a lot of these insurers don't even end up getting any of that 20% some years. The first few years after the ACA pretty much every insurance company had some big losses. It has been a while since I looked at the industry, but they're not always making massive money margin-wise.

Don't take my comment as me endorsing the current system. Its dumb and broken and I hate it.

[nobody9999]

>they can't just jack up premiums and thus increase their profits. They'd have to also increase benefit payouts if they're near the cap.

Maybe I'm missing something here, but other things being equal, just increasing premiums allows for a larger opex/profit pool.

20% of $100 is $20 and 20% of $200 is $40. Yes, they'd still need to spend (using my made-up numbers) $160 instead of $80 on care/benefits, but the profit pool still increases -- a perverse incentive to raise premiums.

>One could point out though, it kind of incentivizes them to no longer negotiate prices as hard. This makes benefits more expensive, growing the total size of their 20%.

Absolutely. That points up the perverse incentive to raise premiums and highlights the lack of incentive to reduce costs.

>But on the other hand, pointing out the idea of holistic health outcomes, increasing benefit payouts to those kind of processes is something incentivized by this rule. Adding a lot of these more "fringe" holistic health benefits, like telehealth nutritionists gym membership subsidies and what not, also grows the benefit payout side and then lets them take more total profit. But there's no free lunch here, those benefits are largely coming from the premiums being collected.

I guess I should have been more specific when using the word "holistic." I meant it in the sense of treating the whole person (with a focus on the outcome of such treatment) rather than just specific symptoms. I wasn't talking (or even thinking) about nutritionists and gym memberships and stuff like that. Those aren't bad ideas, but are geared toward healthy people.

Those with specific conditions (e.g., vascular disease, cancer, hepatitis, HIV, etc.) manifest with other issues that, while they are exacerbated by a specific condition, aren't successfully treated by addressing that condition(s). Addressing ancillary issues (which may be at least as, if not more, debilitating than the condition one may be treated for by any particular specialist) along with the "primary" issue in a holistic (rather than specific treatment for specific issues while ignoring other issues -- which is one of the perverse incentives of paying by the procedure rather than the outcome) fashion.

I won't get into details here, but recent events in my own life have pointed up how fractured medical care is and how difficult it is to navigate (especially when your GP is allotted 15-20 minutes with you every six months or so) side-effects of various treatments/procedures/drugs that have specialists shrugging their shoulders and saying, "that's not my specialty. I did my job. If you're not recovering/getting healthy, that's not my problem. Go see someone else."

There are no incentives for medical practices to provide comprehensive management of health issues because the only person who is (theoretically) paid to do so, isn't given the time or the resources to do so. Everyone else just wants to do their specialist thing and walk away.

That's the wrong way to do medicine.

My apologies if I wasn't clear about that in my previous comment.

>Also, a lot of these insurers don't even end up getting any of that 20% some years. The first few years after the ACA pretty much every insurance company had some big losses. It has been a while since I looked at the industry, but they're not always making massive money margin-wise.

That's absolutely correct. In fact, most insurers (at least in my area, a large, dense, urban area) have left the ACA market and those that are left struggle to maintain their viability -- mostly by screwing over their customers.

So yeah. I mostly agree with you. But that doesn't help me or the million of others who pay exorbitant premiums for mediocre medical care.

I'm pretty angry about it, but short of moving somewhere with universal health care, I'm not sure how to address that.

[vel0city]

> Yes, they'd still need to spend (using my made-up numbers) $160 instead of $80 on care/benefits, but the profit pool still increases -- a perverse incentive to raise premiums.

So they're still not just increasing profit by jacking up premiums, they have to actually find another $80 of benefits to pay out. If subscribers don't have those costs, they can't just increase premiums. If they raise prices to $200 but only end up with $90 of benefits to spend they have to cut a refund.

[nobody9999]

>So they're still not just increasing profit by jacking up premiums, they have to actually find another $80 of benefits to pay out. If subscribers don't have those costs, they can't just increase premiums. If they raise prices to $200 but only end up with $90 of benefits to spend they have to cut a refund.

While that's true, such a situation isn't very common[0].

Only a small percentage of people receive rebates, and those that do don't necessarily get much in the way of a rebate

It's anecdata, but my premiums have nearly doubled in the past four years, with no additions to coverage (in fact, my insurer informed me that while my premiums were going up by 15% in 2024, I would receive less coverage than in 2023. The only reason I maintained my coverage with them is because I have an ongoing issue and I'd prefer not to be forced to change providers until the issue has been fully addressed.

So yes, just raising premiums doesn't guarantee more profit, but it certainly enables it and, at least in my case (which, again is just anecdata) means higher premiums and less coverage. Something doesn't seem right here.

And that something is how we've implemented healthcare in the US.

[0] https://www.healthinsurance.org/obamacare/billions-in-aca-re...