[readthenotes1]

Not at all. It only explains why a pharmaceutical company has an overseas office.

Your parents medication cost more than a car payment because there's no motivation in the US system to reduce prices for most drugs. Quite the opposite for insurers who provide ACA--they're actually incentivized to increase the cost of care so that the 20% they are allowed to spend on marketing, executive compensation, etc can grow as well.

[zamadatix]

I can't tell if this is trying to say the ACA should have set it to 0% so there is no incentive, if there is supposed to be something special about 20% which makes executives greedy but at 100% they'd have no interest in trying to make a bigger bonus, or if I'm missing something else completely. I feel like it has to be the latter, I just can't figure out what.

[frogulis]

My read is: it's saying that if your executive compensation (etc.) is capped to a portion of the cost of care, and if your execs want to be paid more (etc.), then the required change is for the cost of care to increase.

Nothing special about the 20% proportion, just that it's proportional to a number which results in perverse incentives.

[zamadatix]

Actually, thinking through it again fresh, I think it does all hinge on what the percentage is - but some other variables come into play (it's not a single percentage fits all) and then it quickly turns to madness because of the complexity of the system.

If the percentage is higher than the unconstrained optimal margin then the cap has no effect. There's no new pressure introduced yet.

If the percentage is lower than the unconstrained optimal margin then the only incentive is to increase the cost to raise the cap until right at the point demand decreases enough that any more cost would actually result in less total revenue. Because medical care is often very inelastic, that'd could quickly be a lot of cost inflation even for just a few percentage point constraint off the optimal margin. This is the part you're highlighting, and that makes sense.

The main counteracting force to this would be that a single insurer does not (theoretically, at least) set the cost of care directly on their own, they (theoretically, at least) compete with each other to negotiate the best care rates to have the most consumers go through them. There are several things which practically get in the way of that though, like how often you can actually change insurance plans or how competitive the open insurance market is (if you even have multiple options, some states only have a single marketplace option) vs just sticking with whatever your work offers.

Between all of that it is where comes back to the common refrains of "and that's why we need to go to a single payer system without profit as the main goal" and "and that's why we need to get rid of the ACA and let the market handle optimal profit naturally". Everybody can't seem to agree which way to go, just that they don't like the current way. Ironically, these approaches effectively map to the 0% cap (single payer, no profit focus) or the 100% (no ACA cap, free insurance market) interpretation options I originally listed.

I'm sure there about a billion other nuances not covered or thought about in this... but at least the comment parses now!

[rolisz]

I think it's implying that it gives an incentive to make things more expensive, because then they can make more money. If that profit cap didn't exist, they could make more money in other ways, such as lowering costs but keeping prices the same (or lowering them less).

[Auracle]

Exactly.

I firmly believe that was a poison pill put in the bill to try and eventually push insurance prices so high that Americans would acquiesce to single payer.

The alternatives are the bill’s authors were so stupid they didn’t see the negatives to that action, they thought it would play well to voters and the rest be damned, or the some big medical players got it put in - which would be risky, considering option A.

But yeah, with that in place they have no incentive to pay out less - they simply can’t have it raise higher than their competitors too quickly.

I feel like Republicans would have made a bill just to get rid of that one portion but the voters would hate it so much they can’t because people’s grasp on economics is too simple.

[aDyslecticCrow]

We should make insurance companies not allowed to negotiate special pricing for drugs and hospital expenses, and make everyone pay the same regardless if it goes through insurance, which insurer, or out-of-pocket.

Then the cost intensive flips. Insurer wants cheap healthcare and drugs so that they won't have to pay as much. This was part of what the original "affordable care act" tried to do, but was ultimately removed from the version that was passed.

It's also how insurance works by default almost everywhere except in the US.