Speaking of ACA

[24601NoMore]

Health insurance company profits are not the reason health insurance is expensive. Check the 80/20 rule explanation on this page. https://www.healthcare.gov/health-care-law-protections/rate-review/

LOL..that's like saying Blue Cross Blue Shield is a "not for profit" (which they claim to be, but of course are not really)..all a HC company has to do is juggle around some internal accounting and <poof>..meet the 80/20 (or, in BCBS's case "not for profit") requirement.

I don't think there's much debate that HC companies are swimming in record profits - disclosed or otherwise.

 

[jimbee]

LOL..that's like saying Blue Cross Blue Shield is a "not for profit" (which they claim to be, but of course are not really)..all a HC company has to do is juggle around some internal accounting and <poof>..meet the 80/20 (or, in BCBS's case "not for profit") requirement.

I don't think there's much debate that HC companies are swimming in record profits - disclosed or otherwise.

If you have any actual evidence to refute my comment, I am ready to learn.

 

[24601NoMore]

If you have any actual evidence to refute my comment, I am ready to learn.

From the "Profitability of Health Insurance Providers" written by the Council of Economic Advisers in March, 2018..

Since ACA implementation on January 1, 2014, health insurance stocks outperformed the S&P 500 by 106 percent. (Me - Since stock prices are usually a direct reflection of profits and/or expected future profits - ie: price to earnings, outperforming the S&P by basically 2X since the ACA was passed is reflective of high profits and/or expected future high profits..hard to ignore the direct correlation - the stocks did not do anywhere near that well and basically tracked the S&P prior to passage of the ACA). Insurers remaining in the individual and small group markets seem to have recently accounted for ACA regulations and an older, more costly risk pool than they expected by charging higher premiums that have largely been covered by federal government premium subsidies. (Me - great if you get a subsidy..but if you have to pay the "higher premium" that is not subsidized..not so great, obviously)..Stable year-over-year enrollment,despite large premium increases suggests a distorted market that involves large transfers from taxpayers to insurers.

 

[jimbee]

From the "Profitability of Health Insurance Providers" written by the Council of Economic Advisers in March, 2018..

Since ACA implementation on January 1, 2014, health insurance stocks outperformed the S&P 500 by 106 percent. (Me - Since stock prices are usually a direct reflection of profits and/or expected future profits - ie: price to earnings, outperforming the S&P by basically 2X since the ACA was passed is reflective of high profits and/or expected future high profits..hard to ignore the direct correlation - the stocks did not do anywhere near that well and basically tracked the S&P prior to passage of the ACA). Insurers remaining in the individual and small group markets seem to have recently accounted for ACA regulations and an older, more costly risk pool than they expected by charging higher premiums that have largely been covered by federal government premium subsidies. (Me - great if you get a subsidy..but if you have to pay the "higher premium" that is not subsidized..not so great, obviously)..Stable year-over-year enrollment,despite large premium increases suggests a distorted market that involves large transfers from taxpayers to insurers.

Thanks for the report. Looks like all of the meat is in the references, and a lot of the reference URLs are broken. The executive summary is light on actual data.

My statement was that insurance profits are not the cause of high insurance premiums. Using the example I quoted from ShokWaveRider, and applying the 80/20 rule of the ACA, a ~$20,000 annual premium would be ~$16,000 removing insurance company expenses and profits. People saying that $20,000 is too expensive probably wouldn't consider $16,000 cheap.

 

[NW-Bound]

Yet, there are areas that some years had only a single insurer signing up to provide ACA coverage. Phoenix was one of them.

Why are insurers so reluctant to compete, even though the government provides the backstop for them? I could not get an answer, when researching the Web on this.

And because the law requires them to pay out 80% of the premium as benefits, if insurers are eliminated then the premium would drop to 80% of its level now. A savings of 20% is nothing to sneer at, but the premium would not drop to 1/2 or 1/3 as some people might expect.

Funny thing is people always look elsewhere to place the blame. My nephew who is a hospital pharmacist had nothing but bad words for health insurers, the last time I talked to him. Insurers are no saints, but then hospitals are likely worse culprits, in my view.


PS. Cross-posted with jimbee above.

 

[24601NoMore]

Thanks for the report. Looks like all of the meat is in the references, and a lot of the reference URLs are broken. The executive summary is light on actual data.

My statement was that insurance profits are not the cause of high insurance premiums. Using the example I quoted from ShokWaveRider, and applying the 80/20 rule of the ACA, a ~$20,000 annual premium would be ~$16,000 removing insurance company expenses and profits. People saying that $20,000 is too expensive probably wouldn't consider $16,000 cheap.

Not sure I follow the logic..profits are at all time highs, regardless of the 80/20 rule.

Personally, I (as well as many others who have commented over time) don't believe for a second that most HC insurers are truly only making 20% or less on their premiums. Smart accountants always find a way to make it APPEAR that a company is making a smaller profit than they actually are. I don't have the hard data at my fingertips to prove it (although with enough time and effort, I'm pretty confident I could find examples), but the anecdotal evidence is plentiful - just witness Amazon and the fact they didn't pay corporate taxes for years now because their reported "profits" were either zero or close to it..and we all know Amazon basically prints money. Otherwise, Bezos wouldn't be the richest guy in the universe. Sounds like you don't think the HC companies are playing that game..but I sure do. And the general market must agree, because their stocks are on average up > 100% more than the S&P since the ACA was passed..the only bright spot is that my HC mutual fund is doing well as a result..and outpacing my S&P500 index fund by a LOT..

 

[NW-Bound]

Stock valuation is based on earnings.

If company A makes 5% profit, while company B makes 10% profit with the same sales, company B will be valued at 2x as much, roughly speaking.

Amazon's valuation is sky high, because people expect it to grow and grow, like Jack's bean stalk. But if you add up all the gross sales that Amazon makes, it pales besides the total sales of Walmart, Costco, Target, etc... Amazon does not have that big a gross sales, let alone profit.

In other words, Amazon is highly valued. Actually it is overvalued with respect to its sales and profits.

 

[jimbee]

Not sure I follow the logic..profits are at all time highs, regardless of the 80/20 rule.

I'm saying that even without the profit, as defined by the 80/20 rule, health insurance is expensive. Therefore, profit is not the reason, at least not the main reason, it is expensive.

Personally, I (as well as many others who have commented over time) don't believe for a second that most HC insurers are truly only making 20% or less on their premiums. Smart accountants always find a way to make it APPEAR that a company is making a smaller profit than they actually are. I don't have the hard data at my fingertips to prove it (although with enough time and effort, I'm pretty confident I could find examples), but the anecdotal evidence is plentiful - just witness Amazon and the fact they didn't pay corporate taxes for years now because their reported "profits" were either zero or close to it..and we all know Amazon basically prints money. Otherwise, Bezos wouldn't be the richest guy in the universe. Sounds like you don't think the HC companies are playing that game..but I sure do. And the general market must agree, because their stocks are on average up > 100% more than the S&P since the ACA was passed..the only bright spot is that my HC mutual fund is doing well as a result..and outpacing my S&P500 index fund by a LOT..

Ok, profits are at an all time high. Cut ACA premiums in half, and I bet most people still won't consider them cheap. (unsubsidized premiums)

 

[NW-Bound]

I'm saying that even without the profit, as defined by the 80/20 rule, health insurance is expensive. Therefore, profit is not the reason, at least not the main reason, it is expensive...

+1

The law says that for every $1 that an insurance company brings in as premium, it has to pay out $0.80 as benefit coverage.

That means that if the insurance paid its employees nothing, and incurred absolutely no cost in its business, it would make 20% profit.

If we eliminate that 20% profit and use it to reduce the premium by 20%, it is still expensive! You will pay $16,000/year in premium instead of $20,000/year. It's still not cheap.

It has been estimated that the cost of managing Medicare is something like 10% of the benefit payout. So, eliminate the private insurance of ACA and let the government run it, we will get a savings of around 10%.

By the way, United Healthcare shows a profit-to-sales of about 5%. That's a lot better than Walmart at 2.5%. Hence, United is valued higher than Walmart, proportionally to the gross sales.


PS. I would think it is not easy for an insurance company to cheat the book on premium brought in, and benefits paid out to doctors and hospitals.

PPS. Is 5% profit of United Healthcare excessive? For comparison, Intel profit is 9%, and Apple is 6%.

 

[copyright1997reloaded]

This is another of those no-win threads that sometimes pop up on ER.org and is especially emotional because many here are beneficiaries of ACA subsidies (while at the same time having large retirement portfolios).

Nothing in life is free. There is a cost to having preexisting condition coverage. There is a cost to having community ratings (or a lowest to highest age scale that doesn't reflect cost differentials), and there is a cost to having plans with tons of coverage items beyond catastrophic coverage.
http://www.early-retirement.org/sk/forums/images/editor/separator.gif
All one has to do is to look at one of the states (for example NY) which even pre-ACA had some/most of these features (e.g. community rated).

Way back in 2009 when I retired I looked at health plans in NY State which was community rated, guaranteed issue, no-preexisting condition checks. For a family of three (two adults, one child), I was looking at $25K or more annually for coverage.

Here's the net: Those of you who are getting discounted ACA coverage are doing so on the backs of young healthy individuals and the US taxpayer. Your subsidized costs do not come close to reflecting the actuarial costs (age adjusted) for your plan.

Many here want to blame the insurance companies. While I am not a fan of them, I seriously doubt that is the magical fix to the problem. We have a country of overweight and in general unhealthy people and a system that encourages bad health decisions, along with highly paid doctors and other hospital administrators (and insurance companies). That is why it is possible to go to other countries (e.g. Poland or wherever) and pay "full boat" and yet pay less for medical treatment.

 

[NW-Bound]

... Many here want to blame the insurance companies. While I am not a fan of them, I seriously doubt that is the magical fix to the problem...

It is easy to beat up the insurance company, when people look at the premium of $20K/year (out-of-pocket plus subsidy) yet they use less than $1K with a few doctor office visits each year.

But, but, but the moment you have cancer or need some surgeries, the hospital cost escalates to a few $100K in no time. One of the clauses of ACA is that there's no lifetime limit on benefits. My Pre-ACA private insurance had a limit of $1 million, and I thought that was plenty.

Obviously there are plenty of cases that cost more than $1M, else there would not be a law lifting that limit. Right?

Now, just one person costing $1M in the hospital, then there goes the premium of 49 other people paying $20K each.

To reduce the cost of healthcare, we need to look at what the hospital charges. Not my family doctor. Not my lab service that does blood tests. They are cheap.

 

[Packman]

To reduce the cost of healthcare, we need to look at what the hospital charges. Not my family doctor. Not my lab service that does blood tests. They are cheap.

Looked up the latest profit margin of HCA (Hospital Corporation of America) - 7.7%. Perhaps they waste money, perhaps they pay lawyers a lot, perhaps they have creative accountants, but that bottom line profit is about what investors expect.

The real answer to the insane cost of healthcare, is that 5% of the people use 90% of the healthcare costs, and that is growing as we all live longer. The only humane way to fix that is to spread the costs among all people and have the administration costs contained (a one payer system). The first part of that was tried with the original ACA and eliminated by executive order, and the second is pretty unlikely at this time.

 

[NW-Bound]

I cited the profit margin of United Healthcare in earlier posts because it is the largest insurance company, and the first that came to my mind.

But I now recall that UNH had limited participation in ACA. It was not in the ACA market at first, then participated for 2 years if memory serves, then abruptly dropped out in 2017. I knew this, because my ACA policy was with them when they were in the market.

The year they dropped out, all other insurers also did, and for a while the Phoenix Metropolitan area made the national news when it looked like we were not going to have any insurance. None. Finally, only one signed up, and the coverage was lousy. We lost access to all of our doctors. Good thing we were not sick the last few years.

Yet, when I looked at UNH financial data, it has been doing very well. In the past 4 years, sales increased 44%, while profits went up 2x. No wonder the stock price beats the S&P, but it's not because of ACA.

I should have bought this stock rather than the biotech ETFs that I still hold.

 

[NW-Bound]

Looked up the latest profit margin of HCA (Hospital Corporation of America) - 7.7%. Perhaps they waste money, perhaps they pay lawyers a lot, perhaps they have creative accountants, but that bottom line profit is about what investors expect...

Many hospitals are non-profit organizations. Because they have no shareholders, I guess they only answer to the board of trustees as to how they spend what they take in.

 

[samclem]

It seems very clear that the cost of actually providing the health care services has got to grappled with. There are several ways to do this. The admin costs aren't what make overall US spending on health care so high. Just re-arranging the payment scheme and stuckee (patient? employer? taxpayers?) to allow the health care service costs to continue to escalate is absolutely no answer, but it seems to be what gets talked about the most.

 

[Animorph]

Back maybe four years ago when DW was still working, Megacorp estimated that they spent $17k to insure both of us with a normal low deductible plan. We paid something like $50-$100/month on top of that.

When we first enrolled with an ACA plan we paid $10k/year with no subsidy. It was a high deductible HSA plan, but still much cheaper than the $20k I was expecting and budgeting.

Now we're up to $21k/year for the same HSA high deductible insurance. The prices for the first few years of ACA were unsustainable when lots of healthy people did not buy in. Insurance companies were unsure they could get enough healthy people to support the prices they thought people would pay. So they dropped out of the marketplace. But, compared to $17k+$1.2k four years ago, $21k is still pretty reasonable. I'd expect these rates to stay relatively stable, increasing with inflation. If ACA remains in place and more healthy people don't drop out.

If ACA is repealed I can't imagine what a replacement would look like, if anything could even be agreed on. I expect if we (actually just DW after this year) were able to qualify with our pre-existing conditions our rates within a healthier insurance pool would be somewhat lower. If we had to go into a high-risk pool run by the state I'd expect the rates to go higher. And rather ironically we would then be on "government insurance" I assume.

As far as replacement insurance, I think a few of the basic questions are:

How will insurance pools be created? Currently your j*b determines your pool. Does that make any sense at all?

How will we pay for people without insurance? Use to be the hospitals had to absorb that cost, increasing their prices. That's supposed to be better with ACA, and some of our hospitals are in better shape now, but there's still no universal coverage. How many people will go without insurance if it isn't subsidized? What is the cost of treating those people for $0 (uninsured) vs. having them pay something they can afford (subsidized insurance)?

How will healthcare prices be negotiated with the providers? We're all aware of the ridiculous list prices versus what the insurance company actually pays.

What will be covered? Something that didn't cover transplants would be cheaper, but then you get a bunch of people begging on the TV news for their Go Fund Me transplant account. Preventive healthcare? Is there a lifetime limit on benefits? Does the lifetime limit just throw people into the uninsured category until Medicare, if they make it that long? Under what conditions is hospice care acceptable?


If we spend $7k-$10k per person for healthcare on average in the U.S. (I see a range of numbers for this), unsubsidized health insurance plus out of pocket expenses will cost at least $8.4k - $12k per person per year. Not really far off from my current $21k + out of pocket for two people. Anything less than that and we'll have to figure out a new tax to pay for subsidies.

 

[marko]

With the sheer lack of action from those who can actually do something about HC in the USA, do you honestly blame this attitude?

I tend to be a 'follow the money' guy.

According to Mr Google: "U.S. health care spending grew 3.9 percent in 2017, reaching $3.5 trillion or $10,739 per person. As a share of the nation's Gross Domestic Product, health spending accounted for 17.9 percent."

That's a lot of motivation to keep that goose well protected and laying those golden eggs within the status quo.

It's a mess but I just don't see it getting straightened out in any of our lifetimes.

 

[NW-Bound]

+1

One person's expense is another person's income.

Spend, spend, spend...

Heh heh heh...


PS. Come to think of it, medical services are counted in the GDP, and contribute to its growth. How can we lose?

 

[neihn]

+1 - Marko, NW - I agree with you both - It is a big issue, however, I don't see it gets fixed in my life time nor my children's life time.

 

[MichaelB]

+1

One person's expense is another person's income.

Spend, spend, spend...

Heh heh heh...


PS. Come to think of it, medical services are counted in the GDP, and contribute to its growth. How can we lose?

Well, that level of spending implies our economy suffers from a misallocation of capital. Looking at the 20 year spending trend and comparing it with other countries, the increased allocation has not produced a corresponding improvement in health. So, while it is GDP and income for some, it's economic value is questionable. That money might be better spent elsewhere.

In more practical terms, part of that spending involves a medical services provider billing us an amount it knows to be incorrect and will not collect,, followed by multiple additional invoices, before changing the amount and sending an invoice that can be collected. It then hires administrative support to manage that process and interface with related parties, such as the patient and the insurer. What other business does that?

 

[NW-Bound]

I was being sarcastic about the contribution to GDP.

Of course, the health service providers will not agree with us.

 

[NW-Bound]

But here's something to consider.

Just recently, it occurred to me there was a lot of talk that much of the high cost of health care in the US was due to serious diseases such as cancer. If so, does the extra money buy us anything?

I searched the Web, and what do you know, cancer patients have a better survival rate in the US than in all other countries. The report I found collected data from many countries, and said that the result was due to cancer being treated more aggressively in the US than elsewhere.

Now, whether the result is worth the extra cost is a lot harder to determine. But we do get something more out of that money.

 

[cathy63]

Back maybe four years ago when DW was still working, Megacorp estimated that they spent $17k to insure both of us with a normal low deductible plan. We paid something like $50-$100/month on top of that.

When we first enrolled with an ACA plan we paid $10k/year with no subsidy. It was a high deductible HSA plan, but still much cheaper than the $20k I was expecting and budgeting.

Now we're up to $21k/year for the same HSA high deductible insurance.

One difference is that corporate group coverage is not age rated, but most states do allow age rating for plans purchased through their exchanges. So a young person leaving a corporate plan will often get a price break when switching to an ACA plan, while an older person doing the same will suffer some sticker shock.

For our specific plan, a couple that is currently 63/64 pays 55% more than one that is 53/54. Looking at it year-by-year, I've found that about 1/3 of our premium increases have been age related and 2/3 not.

 

[ziggy29]

It seems very clear that the cost of actually providing the health care services has got to grappled with. There are several ways to do this. The admin costs aren't what make overall US spending on health care so high. Just re-arranging the payment scheme and stuckee (patient? employer? taxpayers?) to allow the health care service costs to continue to escalate is absolutely no answer, but it seems to be what gets talked about the most.

We also have to talk about prescription drug prices. The US pays the most for its prescriptions in the world, by a wide margin -- sometimes, 10x or more what they are paying in Canada for identical medications. So I would suggest that at least one major problem is that drugmakers are making all their profits with massive markups on US consumers and "giving" their product away to the rest of the world.

In more practical terms, part of that spending involves a medical services provider billing us an amount it knows to be incorrect and will not collect,, followed by multiple additional invoices, before changing the amount and sending an invoice that can be collected. It then hires administrative support to manage that process and interface with related parties, such as the patient and the insurer. What other business does that?

I have often wondered how much this cost shifting costs not only insurance companies but also the "bottom line" price because it takes a fair amount of infrastructure to keep billing someone who won't or can't pay, and selling delinquent accounts receivable to collections for pennies on the dollar.

 

[Aerides]

Perhaps also another aspect of cost is the copious testing that's become part of most diagnoses these days.

I read this piece recently, from an actual Doctor who is aware of the over-testing issue, and a fascinating story of how the tables were turned on him when he was caught up as the patient:

https://www.healthaffairs.org/doi/f...d=ori:rid:crossref.org&rfr_dat=cr_pub=pubmed&

tl;dr, when you are sick or in pain, and they keep saying "eh let's check just in case" it's very hard to say no, and your $500 visit becomes a $9000 visit.