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Doesn't that just mean that they have an interest in keeping these costs high ? The higher the costs, the larger that % is for the in absolute dollars. If all the costs come down, they are allowed to make less money.
Yes, this is one of the more unfortunate unintended consequences of the ACA.
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How is it disproven exactly? Are you saying 5% is not a lot because it's the number 5 or something?
From experience operating businesses and reading financials of various companies, 5% profit margin is on the low end. Walmart and other retail play in the 2% to 5% range.
Anyway I just think saying a 5% profit margin is small because other businesses have larger profit margins is kind of naive. I mean if through competition insurance companies' profit margins dropped to 2%, then the current status quo of 5% would seem crazy.
It's all just a matter of perspective. Saying 5% is low because other businesses have higher profit margins doesn't make much sense since the businesses are totally incomparable.
I'm one of the co-founders of Turquoise Health, mentioned in the article here. We've been downloading and parsing this data all day. It's a really big deal in the industry that the prices that insurance companies pay doctors are now being shared publicly. It will have all sorts of positive impacts over time, hopefully making rate negotiations more consistent and fair between different insurance plans. Right now, 10x…
Could this backfire - similarly to how publicly traded companies' CEOs disclosing their pay caused their pay to skyrocket?
It could raise prices. Consumers have some incentive to care how much they are spending on health care, but they aren't generally the claimant on savings they realize for their insurance plans. (Obviously the incentives for uninsured or self-insured patients (to the extent that there's anyone in the latter category) are quite different, but those populations are small.)
On the other hand, every hospital has a strong, strong incentive to care a lot about how much their competitors are getting for the same procedures. (Much more than consumers, for example.)
It's possible that these disclosures lead to prices falling as hospitals seek to undercut each other. However, most US hospital markets feature a small number of competing hospital systems in an oligopoly. The price-cutting pressures in such markets are much, much weaker. There is a "mutually assured destruction" aspect to price competition in such markets which may keep prices from falling.
The latter incentive can raise prices too. IF you know your competitors across town are getting an extra $5,000 for a knee replacement and you know that the two of you are the only game in town for hospitals, you may raise your prices rather than lowering them.
On balance I think this is the right policy, in part because I want this data myself as a researcher. But it is not unambiguous that this will lead to price reductions.
Source: am a health economist.
I'm one of the co-founders of Turquoise Health, mentioned in the article here. We've been downloading and parsing this data all day. It's a really big deal in the industry that the prices that insurance companies pay doctors are now being shared publicly. It will have all sorts of positive impacts over time, hopefully making rate negotiations more consistent and fair between different insurance plans. Right now, 10x…
Could this backfire - similarly to how publicly traded companies' CEOs disclosing their pay caused their pay to skyrocket?
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I never wrote they should. I am disputing the notion that they earn huge profits (“enormous scoop”). Which is trivially disproven by looking at their financials.
How is it disproven exactly? Are you saying 5% is not a lot because it's the number 5 or something?
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So? They're insurance companies. Why should they have high profit margins?
I never wrote they should. I am disputing the notion that they earn huge profits (“enormous scoop”). Which is trivially disproven by looking at their financials.
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Thanks! So far, so good. We don't sell anything to consumers. Our products are aimed at the healthcare industry which lets us post information for consumers for free and we have pretty good product-market fit. Obligatory "if anyone is interested in joining a fast growing, series A company doing impactful work, hit up our careers page!"
Interesting, I'm curious since you're in the industry, why do you think medical tourism has never taken off in a big way in the U.S.? I feel like I saw more people willing to go to Poland or Ukraine for things like dental work when I lived in Europe than people in the U.S. willing to go to Mexico or some other destination.
I want my medical providers to be local to me so they’re liable to my local community. I also want to keep my organs and have insurance cover the costs.
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Health insurers in the US have a cap on how much of premiums can go to profits.
That's a meaningless cap because you can decrease profits at will by increasing inefficiency and unnecessary costs inside the company.
They can get there by overpaying for care or by refunding money/charging less. But they can’t get there with increased internal administration spending.