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Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

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Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#71

Post by readthenotes1 »

jmyeet wrote: post #65
getnormality wrote: post #2

> Conventional accounting measures portray large health insurers such as UnitedHealth Group (UHG) as earning relatively low profit margins because they treat premium dollars that are subsequently paid out in medical claims as revenue. However, these medical claims are pass-through costs, not income retained by the insurer. I don't understand this claim. Doesn't every business have costs to make its goods and services…

The ACA tried to address this sort of thing with a Medical Loss Ratio [1]. This basically meant that 80% of premiums had to be spent on healthcare. This has two obvious flaws: 1. Certain government contracts are what are called "cost plus" contracts. These have the same flaw. If the contractor earns 20% above "costs", they're incentivized for a cost blowout. Same with insurance premiums. If you have $100B in premiums…

That 80% problem also means that there's no incentive for an executive to reduce medical costs because that would then reduce the 20% hen can allocate to henself.

I'm pretty sure that's why UHC gives people on ACA $100 gift card just for visiting their PCP. That inflates the 80% bucket.

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#72

Post by rco8786 »

cwillu wrote: post #43
rco8786 wrote: post #33

Earlier quoted context omitted.

Not sure I'm buying it tbh. I'm no fan of the American healthcare system, but we don't need to invent new accounting to make it look worse than it is. Lots of businesses and industries have legal obligations to pay money for various things at various times, they don't treat that as pass through...it's revenue and expenses. Money is fungible.

This is addressed in the first paragraph of the pdf, with comparisons drawn to other industries and financial instruments where such income is not considered revenue. One can of course disagree whether it should be accounted this way, but the concept is not outlandish. “This measure, while a standard accounting metric, obscures the strong financial performance of financial intermediaries such as health insurance comp…

Seems to me that the argument is really "are my premiums a passthrough to medical providers" and I have a really hard time answering Yes to that.

If they are, then what do we call it when my medical expenses surpass my premiums? Negative passthrough? Contra passthrough?

What do we call it when I pay premiums for a year, never use a dime of it, and then cancel my insurance? I don't get that money back, nor does it get passed through to medical providers.

Do life insurance companies consider my premiums to be a passthrough to my eventual benefit payment or do they count them as revenue?

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#75

Post by [deleted] »

abtinf wrote: post #52
cmiles74 wrote: post #30

Earlier quoted context omitted.

I believe they are saying that only the portion of premiums paid by UHG customers _that are not_ spent on paying out claims should be counted as UHG revenue. That is if I and my employer pay UHG $18,000 over the course of the year and UHG pays out $2,500 to my doctors and to cover my prescriptions, only the remaining $15,500 should be counted as UHG revenue. The thinking here is that because UHG is legally obligated…

> if I…pay UHG $18,000 and… UHG pays out $2,500…, only the remaining $15,500 should be counted as UHG revenue To illustrate the problem with this, what would you calculate their revenue to be if you become severely ill and they pay out $100,000? There is no such concept in accounting as negative gross revenue. And situations where net revenue goes negative are exceedingly rare and complex (you’d probably hear about i…

[deleted]

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#76

Post by [deleted] »

rco8786 wrote: post #33
cmiles74 wrote: post #30

Earlier quoted context omitted.

I believe they are saying that only the portion of premiums paid by UHG customers _that are not_ spent on paying out claims should be counted as UHG revenue. That is if I and my employer pay UHG $18,000 over the course of the year and UHG pays out $2,500 to my doctors and to cover my prescriptions, only the remaining $15,500 should be counted as UHG revenue. The thinking here is that because UHG is legally obligated…

Not sure I'm buying it tbh. I'm no fan of the American healthcare system, but we don't need to invent new accounting to make it look worse than it is. Lots of businesses and industries have legal obligations to pay money for various things at various times, they don't treat that as pass through...it's revenue and expenses. Money is fungible.

[deleted]

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#77

Post by gruez »

ssivark wrote: post #45
gruez wrote: post #39

Earlier quoted context omitted.

All of this might be relevant in a conversation between accountants or investment analysts, but it's pretty obvious the "study" chose this particular methodology to get a number that makes insurance companies look as bad as possible. In this context, using their methodology does more to obfuscate/mislead than to clarify. If you say that UHI has a profit margin of 15%, most people would interpret that to mean that per…

> most people would interpret that to mean You're just asserting common convention among some implicitly selected audience that you consider "most" people, rather than justifying why that is the most reasonable practice. Not that I consider it unreasonable (as I explained above). Most people (in the populace) are unfortunately not numerate enough to have a thoughtful opinion on how it ought to be accounted, and are i…

>You're just asserting common convention among some implicitly selected audience that you consider "most" people, rather than justifying why that is the most reasonable practice.

The purpose of language is communication, so if "most" people (which I mean to be laypeople off the street, which is the presumptive audience for this report) understand what it means, then it's mission accomplished. On the flip side, if the language used is deceptive/misleading, even if the underlying principle is sound, that's bad. The "most reasonable practice" question is unhelpful because it quickly devolves into questions on how society ought to work, which is subjective and no objective statements can be made about it. For instance, why even argue what the "profit" margin is? Should private entities even be making money on healthcare? Why not put out a "study" on how much unitedhealth is "stealing" from people instead? After all, the position that for profit companies shouldn't be involved in the provision of healthcare isn't exactly an uncommon position.

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#78

Post by gruez »

bryanlarsen wrote: post #67
gruez wrote: post #28

Earlier quoted context omitted.

> It explicitly says that United is using standard accounting practices and proposes the “pass through” mechanism as a “better” metric. >Based on the source I, personally, don’t find it to be a credible argument Agreed. This just has "if we redefine [commonly used term], then we get a more shocking/favorable number for our cause" vibes. You see this in government statistics as well, eg. "the official unemployment rat…

It's not a redefinition, it's a reclassification. We have a set of accounting rules that apply to firms who are middlemen with clearly distinct transactions with both their suppliers and customers. We have another set of accounting rules that apply to firms who act as a third party agent in a transaction. Whenever you have such a classification, you are always going to have a gray area in between, firms where a judge…

>Whenever you have such a classification, you are always going to have a gray area in between, firms where a judgement has to be made on which set of rules to apply.

Which is fine. It's okay to argue to have debates over whether we should be paying attention to U3 unemployment vs U4 or U5. What's not okay is to silently swap out the definitions just so you can get an attention grabbing title. It's bad if you're saying "the unemployment rate is actually 3x higher than what the government claims!", just as it's bad to put out a study saying "UnitedHealth's profit margins four times what it claimed"

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#79

Post by mrguyorama »

jmyeet wrote: post #65
getnormality wrote: post #2

> Conventional accounting measures portray large health insurers such as UnitedHealth Group (UHG) as earning relatively low profit margins because they treat premium dollars that are subsequently paid out in medical claims as revenue. However, these medical claims are pass-through costs, not income retained by the insurer. I don't understand this claim. Doesn't every business have costs to make its goods and services…

The ACA tried to address this sort of thing with a Medical Loss Ratio [1]. This basically meant that 80% of premiums had to be spent on healthcare. This has two obvious flaws: 1. Certain government contracts are what are called "cost plus" contracts. These have the same flaw. If the contractor earns 20% above "costs", they're incentivized for a cost blowout. Same with insurance premiums. If you have $100B in premiums…

The weirdest thing about the PBM play is that the Medical Loss Ratio gives them the freedom to arbitrarily increase profit values without doing anything weird, because you can just not put any downward pressure on costs and they will just naturally rise.

Which of course means that these companies are not satisfied with a free ticket to arbitrary profit values, and have other motivations than just having all the money.

There's an aspect of "We also want to control things" to it.

Re: Study reveals UnitedHealth's profit margins four times what it claimed [pdf]

#80

Post by gruez »

estearum wrote: post #61
gruez wrote: post #51

Earlier quoted context omitted.

>Yes, all of this only works if the payer is large relative to other payers. There was a period of history where this was a caveat, now it's just an observation about history. Now, there is 1 or 2 mega-players in each region. They've divvied up the country into their own territories and will extract rent henceforth. ...which is specifically what I acknowledge in my original comment: >... unless UHI cornered the insur…

So your very substantive contribution to "they're abusing market power" is the observation "they could only do this if they have market power?" And you're wanting someone else to go demonstrate to you that the single entity that is both 1) largest health insurer and 2) largest health provider in the country has significant market power? I'll assume that this is legitimate ignorance and not a bad faith attempt to mudd…

>I'll assume that this is legitimate ignorance and not a bad faith attempt to muddy conversation, and I'll direct you to a few resources where you can read several years of extensive investigative reporting on the myriad ways the pay-vider structure enables acquisition and exploitation of market power:

I read through the first 3 and can't tell how they're related, so I'm not going to check the rest.

>https://www.economicliberties.us/data-tools/unitedhealth-gro...

https://www.statnews.com/unitedhealth-group-investigation-he...

These only claims that united health is the "biggest", but that's not the same as having monopoly in a given market, which is needed for the scheme to work. Otherwise if you only have say, 30% market share, and your associated hospital charges sky high rates, you might be able to get slightly fatter margins on your insurance side, but you'll be losing money to other competitors that can out-compete you through greater economies of scale. I did a cursory search and their national market share in insurance is around 15%, which really seems tough to have the economics work out, especially given how capital intensive hospitals are.

>https://www.wsj.com/us-news/unitedhealth-medicare-fraud-inve...

What does "Medicare Fraud" have to do with the question that they're a monopoly or not?

This and the other links feels like trying to smuggle in a specific claim about what united health might be doing (ie. they're charging irrationally high prices just so they can pump their insurance margins), by pointing to a bunch of other shady stuff that they do.

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