I've suddenly started seeing this take all over the place and I have no idea where it comes from because it doesn't make sense. That the insurance companies profit margins are restricted means rather little because executive pay isn't capped: if they earn too much money, they can simply pay bonuses to raise their expenses. Or cut shareholders a check. Or. Or. Or. Tangentially, this is why "non-profit" doesn't mean what people think it means.

And despite what caps exist (can you point me to resources on this topic?), the industry is enjoying record profits right now. That's not to say hospitals aren't as well, but I'm puzzled that so many people seem to want to point the fingers at doctors. Doctors and nurses actually provide the care. If there's anyone I'm less worried about making a little more, it's the people actually doing the work. The administrators and the corporations that set and negotiate prices with the insurance companies though... I'm with you there.

Lastly, the incentives of insurance companies do not align with the patients unless you ignore most of how the industry works. Insurance companies make money when they're able to deny you coverage or require you to pay more out of pocket (in vs out of network). That doesn't align with patients at all.

There should not be a profit incentive in health insurance.

> I've suddenly started seeing this take all over the place and I have no idea where it comes from because it doesn't make sense. That the insurance companies profit margins are restricted means rather little because executive pay isn't capped: if they earn too much money, they can simply pay bonuses to raise their expenses. Or cut shareholders a check. Or. Or. Or. Tangentially, this is why "non-profit" doesn't mean what people think it means.

This is not correct, as I understand it. Under the ACA (Obamacare), health plan providers had to ensure that at least 80% of premiums were paid out for patient services. That leaves 20% for overheard, including profit and compensation.

The "trick" here is that service providers (doctors, hospitals, MRI facilities, labs, etc.) are not limited in this way (except by "usual and customary" terms where applicable), and there are LOTS of layers of providers. So in the end you can get many multiples of actual costs by simply washing the underlying treatment or service through 5 or so layers of providers.

> This is not correct, as I understand it. Under the ACA (Obamacare), health plan providers had to ensure that at least 80% of premiums were paid out for patient services. That leaves 20% for overheard, including profit and compensation.

Doesn't this imply that it's in the interest of health plan providers for patient services in general to be as expensive as possible? That means premiums will have to be correspondingly high, and the 20% available for profit and compensation will be larger.

Right, they have less incentive to negotiate for lower rates, because higher rates mean higher premiums, and higher premiums mean higher executive compensation.

Yup. The ACA failed to address the core problem that the hospitals are charging exorbitant prices.

Trying to make health insurance affordable is a fool's errand as long as hospitals can charge whatever the hell they want.

That's been one of the biggest complaints about Obamacare, yes. Other than the "I shouldn't have to pay for my neighbor's wellbeing" complaint

How is an 20% cap worse than no cap? Obviously if this scam works it would also work with less regulation.

> If they pay bonuses to themselves, then their premiums will be higher than other insurance companies so they would lose customers, the same that stops any other business from doing the same.

This might stand up in a highly competitive market, but even there you have network effects, and asymmetric power/information issues, that keep it from ever being completely true. In a market like health insurance where large fractions of people get their coverage from their employers who make choices for their employees, it's not really credible to say that high premiums will drive an insurance company out of the market. Moreover, the data bears out that premiums, profits, and executive compensation are all increasing while the overall cost of our healthcare as a nation spirals out of control.

> And since taxpayer funded healthcare is off the table in the US, we have to work with what we can.

If you expect elected officials to fix it by writing them letters and angry comments on the internet, well, yes. But campaigning and petitioning are not the only routes to accomplishing political goals. The teachers' union/wildcat strikes across states with unified Republican control of the government that successfully forced wage and funding increases, despite timid unions that wanted to push for less, should be an indication of what actually works. We don't have to accept the system as it is.

> The biggest problem with health insurance right now is everyone is not forced to use healthcare.gov so the risk pools don't have the correct distribution of healthy and unhealthy people.

That's a problem in that will cause premiums to spiral faster and eventually shutter those insurance pools. But that's a slow death. The largest problem in health insurance right now are the actual, living people being forced across the country to either suffer or die from solvable medical problems, people who are rationing medication because they cannot afford to buy more, people who are being forced into bankruptcy by a broken system. When lives are already being destroyed today, a patch that prevents the rate of lives from being destroyed from increasing quite so quickly is nice, but it quite clearly misses the forest for the trees.

That’s why three party systems, such as this, is a headache. Everyone involved has vastly different goals, and incentives.

Insurance companies are mandated to strict profit margins, yes. But they aren’t mandated to align with what the other parties say a patient needs. This creates a situation where insurance companies can discriminantly choose which services, and level of care to agree to pay for.

I see it happening right now: Long story short, to put it into everyday terminology, our family and the mechanic is urging for a new engine. Insurance is saying “all you need is air in your tires. That’s all we’ll approve.”

US voters don't want taxpayer funded healthcare, like other developed countries. US voters also aren't able to negotiate with medical providers directly, due to lack of knowledge and ability to negotiate while dying. The health insurance setup with capped profit margins seems like a decent option, considering no others have worked. There are a few problems, like allowing employers to offer it and tax exempt premium payments. If everyone was dumped on healthcare.gov, a healthy market for health insurance might emerge.

I don't think this follows. Insurance profit margins are restricted, but they're a percentage of overall payments to hospitals. If the total charge goes up, their total profit also increases.

Insurance companies are required to pay out 80%/85% of the collected premiums on medical care. Which means the remaining 20%/15% has to cover all the insurance company costs and any profit they can manage. If premiums are raised then their portion also will increase as a percentage. But if the medical costs increase without a corresponding premium increase, the insurance company won't see any profits.

"But if the medical costs increase without a corresponding premium increase, the insurance company won't see any profits."

That almost never happens.

Ideally, this is solved by a different health insurance company offering lower premiums, same as vehicle insurance. Obviously, there are some nuances in the health insurance market that make this difficult, but other than taxpayer funded healthcare, no one has come up with a better option.

> Health insurance companies' profit margins are restricted by law, whereas Robert Wood Johnson and its executives and doctors profit margins are not restricted. If anyone is on the patient's side from a cost perspective, it's insurance, and the ones benefiting from higher pricing and unnecessary procedures are the providers.

Untrue, because health insurers profits are limited by law, sure, but to a specified fraction of the costs they pay; if their payouts are too small, they have to refund the excess profits to the people paying premiums.

How does that make it untrue? Health insurance companies are supposed to compete with each other based on their premium prices, and the insurance companies with lower premiums (and hence lower costs) will win more customers.

> Health insurance companies are supposed to compete with each other based on their premium prices

It's not a market with particularly robust competition, due to small number of players, and barriers to entry, both natural (two-sided network effects, practical capital requirements) and regulatory.

That's because the government allowed tax exempt employer funded health insurance to stick around. If everyone was forced onto healthcare.gov then it could be possible. Employers would have one less thing to deal with that has nothing to do with their product and taxpayers wouldn't have to worry about being tied to their employers, and can more accurately compare differences in pay and whatnot.

A free market also requires knowledgeable purchasers to make informed decisions. In the case of health insurance, it's so complicated that it makes sense to simplify it to protect consumers and offer easy to compare options (bronze/silver/gold). I guess it doesn't have to be government run, but it's already built and does a pretty good job.

> Except the insurance market doesn't work like that. You get a job, that job determines your insurance.

That's not really the source of the lack of competition, as employers are motivated to minimize rates for what they ger, whether they are seeking to fulfill a government minimum-coverage mandate or provide a competitive benefit to attract/retain staff.

(It is a source of some other problems, just not the one at issue.)

Instead of insurance companies competing for millions of individual customers, they are vying for maybe thousands of business customers. Except that the insurance companies don't seem to care at all about giving small businesses a good deal, so subtract them from the pool of potential customers that insurance companies care about. Really big businesses don't buy insurance, they just self insure, so insurance companies aren't competing for those customers either.

Employer provided insurance absolutely reduces competitive forces (among other problems it causes, as you point out).

RWJ is a non-profit.

What's your point? Nothing says a nonprofit can't overcharge. If the hospital wants a few doctors and a new MRI, it's looking at many megadollars. Nothing says a nonprofit hospital would bill less aggressively than a for-profit one.