Comment by runako
2 months ago
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).
That ignores competitive pressures. Commercial health plans aggressively negotiate rates with their network providers in order to get market share with cost sensitive customers. If your claim was accurate then insurers would just take whatever rates that providers set but the reality is that doesn't happen. Health plans routinely drop more expensive providers from their networks.
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I'm surprised so many people miss this. The insurers have an incentive for medical costs to go up, so that their (capped) share results in higher profits.
But isn't it insurers actually set how much a service is going to cost you and then make "a discount" on that figure?
Yes and no.
What happens in practice is that a provider charges $200 for "distributing Advil" and $50 for two pills. Then the insurance company, whose legally allowed profit is proportional to payouts, "negotiates" the price down to $150 total and claims to the person "we saved you $100". Then their accountant says "we paid out $150, so we get a profit margin of $40" (instead of the $0.50 they would get with a real at-cost charge).
But the price is made up nonsense and 100x actual cost for 15 seconds handing a 1¢ pill over. Which is why asking for an itemized receipt and saying you can't afford that suddenly drops the bill to $1.50.
When providers don't "play ball" with the price fixing the way insurance company wants, they go off network.
Medicaid and Medicare set service rates by fiat, which is why many providers don't accept patients on those plans. Commercial health plans have to negotiate service rates with their network providers. There's no discount as such: if you receive service from a network provider then they have to charge the negotiated rate.
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.