Comment by czhu12
2 months ago
One thing that I’ve been trying to understand about this discourse:
Is the sum of the increase in costs some people are now paying greater than the subsidies that previously existed?
In other words: was there always a massive bill to be paid here, but it was just previously socialized and hidden in the form of taxes/ public debt? Or does the act of subsidizing it actually decrease the total?
Yes to both. High costs were previously partly hidden by subsidies for some consumers purchasing individual or family policies on state ACA exchanges, and now many of them will be forced to pay something closer to the true market price. But just like with college tuition, when the government throws money at a problem that ends up causing costs to explode without permanently improving affordability.
> true market price
There can be no market clearing price, because healthcare demand is unlimited.
In some countries supply is rationed by using different means such as waiting lists, budgets for funding, or even corruption (I witnessed this in Cuba).
> because healthcare demand is unlimited.
How's that? Beyond some level of care I suspect demand drops of a cliff. No one goes to the doctor for the fun of it.
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There's a third piece too, which is that insurers are ramping price much faster than inflation. Our (unsubsidized) premiums increased 20% year-over-year, after also increasing faster than the rate of inflation the last few years.
Since premiums never decrease, one can pretty easily plot out that in the next ~decade we will see family premiums larger than the median salary. The economics of all this are going to get very weird in the near future.
That's all true, but insurers are ramping up premiums faster than inflation largely because providers have raised their prices, and utilization has greatly increased due to an aging sicker population. The ACA minimum medical loss ratio means that health plans profits aren't increasing much.
Percentage wise profits might not increase, but 10% profits on a $2000 plan make an insurance company (and execs) more than 10% profits on a $200 plan. It's in their interests and income stream for costs to constantly go up so they can get their 10% take. Efficiencies and price savings would actually hurt them (can't have plan rates go back down and only get their 10% off of $200).
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But isn't it insurers actually set how much a service is going to cost you and then make "a discount" on that figure?
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Insurer premiums are capped and rise with costs. To the extent they're rising faster than inflation, that is only possible because their costs are rising faster than inflation. Costs are rising in large part for demographic reasons -- boomers are getting older.
Year-over-year increase in GDP in the U.S. right now is almost exclusively “production” output from the healthcare industry, whose profits are stratospheric and rising. So there’s two useful datapoints here: first, the bill must be paid, or U.S. GDP growth year-over-year falters, not because healthcare costs this much; and second, household debt continues to increase year-over-year to permit continued wage stagnation. Whether insurers end up lowering their profits (and thus prices) as the subsidy expires centers around whether banks extend further debt as a household wages subsidy. As of right now, that seems to be continuing, even though some of that debt market is in the midst of a small crash, so insurers (who have no regulatory limits on profit levels) are unlikely to lower their profit targets as subsidies end.
So long as the political will of U.S. leadership supports that continued profit, and either government and/or banks subsidize worker wages to cover the increased profits, then we’ll continue seeing growth in costs on paper before subsidies. This growth in profits/prices could not be sustained on wages alone, given the continuing decline of inflation-adjusted worker earnings; and so to answer your question, yes: the act of subsidizing is what’s enabling the prices being charged; but, no: the costs of providing healthcare to any one person of a given age are not increasing due to subsidies; just the profits.
Commercial health insurers have relatively low profit margins. This is forced by the ACA minimum medical loss ratio. In theory Congress could increase that ratio slightly but it wouldn't do much to improve affordability for consumers.
That restriction is mysteriously absent from the actual published data showing their revenue growth rate spiking sharply when ACA was passed. There’s lots of sources for that data, but I liked this chart for its simplicity:
https://images.jacobinmag.com/wp-content/uploads/2024/12/111...
It presents nice easy datapoints: Cigna raised its profits by $40B/yr, an increase of 400% of its pre-subsidy profits, in just a decade — and one can safely assume that now that they’re accustomed to the new profit levels, there is no way they’ll voluntarily give them up. Whatever was intended with the medical loss ratio, Congress fucked up by not including a simple dollars-per-subscriber cap on net revenue.
The subsidies are going down, but the base price of the plans are going way up. The plan I'm on increased from $800/month to $1150/month next year, and that is a modest increase compared to most others I've heard about. I'm switching to a maybe cheaper plan - if I use less healthcare, but if I use too much it will be more expensive due to much higher deductibles.
Insurers haven't really explained why the base prices of plans are going up so much. Perhaps GLP-1 drugs but that doesn't seem like enough (those drugs often aren't covered by ACA plans anyway due to their brand-name status). It could be a delayed effect from all the inflation a couple years ago - health care contracts are negotiated on the order of years, and a bunch could have just been renegotiated to reflect current market prices.
Yes, sort of.
ACA insurers are required to pay out N% of their premiums. This means that a really important way of keeping premiums down is to make sure that people who use less medical care are in the insured pool. But if somebody is looking at a $20,000 annual bill in premiums and is generally healthy they might look elsewhere than the ACA markets or just simply go uninsured. That person leaving the insured pool means that everybody else's premiums go up.
The ACA had two strategies to keep these people in the pool: the individual mandate and the subsidies trying to keep prices lower. The mandate was removed years ago. And while we still have subsidies below 400% FPL, the ones for people above 400% FPL are gone. A self-employed person making $75,000 annually who previously could afford insurance might now be looking at alternatives.