Pharmaceutical companies, hospitals, and doctors are free to charge by the medicine, by the night, and by the minute.
For example, this place does it:
https://surgerycenterok.com/surgery-prices/
Insurance companies do not force the sellers to use complex billing practices, they would benefit from more transparent pricing (since they are seeking to pay less).
The root cause is healthcare is inherently complicated and complex, it has a problem of supply being nowhere near demand, and since prices for things are so high (including liability), there is a lot of cover your ass and fraud prevention going on.
Insurance companies absolutely benefit from the higher and opaque prices, because they negotiate rebates with providers. This allows them to maximize patient copays and ensures they hit their deductible, i.e. paying as much as possible under their respective insurance plans. Contrast this with a no-rebate world with cheaper/more transparent pricing. Fewer patients would hit their out of pocket maximum.
They can use the rebates they get from the providers to subsidize the insured, allowing them to offer lower premiums and gain market share. This is what people mean when they say "In America, the sick people pay to subsidize the health care of the healthy people".
Of course, that above only applies if there is competitive pressure. If there is no competitive pressure (e.g. in states with only one or two insurers), they can keep premiums high and book as profit the difference between what the patient paid out and what the patient would have paid out in a lower-cost no-rebate world.
> Contrast this with a no-rebate world with cheaper/more transparent pricing. Fewer patients would hit their out of pocket maximum.
And premiums would go up. Every insurer has to get their premium approved by every state’s insurance regulator, and every state’s insurance regulator is not going to allow them to have more than a few percent of profit.
> They can use the rebates they get from the providers to subsidize the insured, allowing them to offer lower premiums and gain market share. This is what people mean when they say "In America, the sick people pay to subsidize the health care of the healthy people".
I’ve never heard of this, and it’s legally not allowed. The ACA mandates insurers price plans so that old people only pay at most 3x what young people pay. And the ACA does not allow insurers to charge more to people likelier to need healthcare. Mathematically, that means younger and healthier people pay higher premiums so that older and sicker people can have lower premiums.
NY state goes even further and says all ages pay the same premium, so young subsidizes old even more. MA has a 2x cap, I believe. And then of course, FICA taxes mean the young and working are paying for the healthcare for the old and non working, the vast majority of all healthcare spend in the US (Medicare).
> And premiums would go up.
Yes. As I wrote above, insurers compete on premiums, and they do do so by using rebates to subsidize those premiums by spreading patients' deductibles across the insured population. As far as profits go, I can't speak to regulatory issues since they will vary by state, but in any case the same critique would apply if insurers are pocketing a fixed percentage of a larger amount.
Re your second point, it completely twists my point and is largely irrelevant. Yes, older people paying the same premiums as younger people is a counter-argument in that older people are more likely to need healthcare, but the central point is that people who have to USE their insurance (i.e. sick people) subsidize the premiums of people who don't (healthy people), and this critique applies regardless of age. Now, one could argue that the structural factors that control costs across age cohorts counterbalances this phenomenon. And I'd agree with you! But that doesn't negate the original point that insurance companies benefit from, and advocate for, high sticker prices.
> but the central point is that people who have to USE their insurance (i.e. sick people) subsidize the premiums of people who don't (healthy people), and this critique applies regardless of age.
You’re losing me here. This claim is categorically false. You cannot consider only the deductible when calculating who subsidizes who.
The only way to calculate it is premiums + deductible + out of pocket maximum = total healthcare costs. And the subsidy via premium is so large that it negates effects of a deductible and out of pocket maximum.
Note that all plans have to be actuarially equivalent, regardless of what deductible you choose. The actuaries have to account for rebates and other pricing strategies when ensuring actuarial equivalence, so that the ratio of what the plan pays versus what you pay meets the required ratio for that metal level.
https://www.healthcare.gov/choose-a-plan/plans-categories/
Since your health is not a factor in pricing your insurance, it has to be that people less likely to need healthcare pay for the people likely to need healthcare.
It is the same as if the government forbade auto insurers from using moving violations history, or life insurers from using health measures, or home insurers from using flood maps.
The claim about who subsidizes who was always hyperbole, I'll grant you that. I included the statement to make the point that this is the phenomenon people are referring to when they make that statement.
I happen to think there is validity to the statement if you control for other actuarial factors. But if you don't think that makes sense as a lens through which to look at the problem, I won't quibble, even though I disagree. We're also only talking about drug prices here, which is a small portion of overall healthcare spending.
In any case, the central point, that insurers benefit from higher prices, still stands.
> In any case, the central point, that insurers benefit from higher prices, still stands.
All sellers benefit from higher prices. No one limits the price they ask for out of the goodness of their hearts. Lower prices are because a competitor offers a lower price, and because buyers can’t pay a higher price.
Everybody in this system benefits from this insanity, except the patient.
Don’t do pro bono PR for those companies. Healthcare isn’t so complicated that every other country in the world hasn’t been able to solve it for significantly less money and far less stress for users, not to mention better health outcomes in most cases.
Providing a chain of reasoning to support a logical conclusion is not “pro bono PR for those companies”. Claiming that someone doing that seems like an emotional kneejerk reaction to an idea that does not jive with the model of the world you would like to have.
I even provided an example of a healthcare provider choosing to be more transparent. It is always Eli Lilly’s choice to sell their medicine at a flat price to everyone. But it is also in Eli Lilly’s benefit to engage in price discrimination, so that they get paid more by people who can pay more:
https://en.wikipedia.org/wiki/Price_discrimination
Another example of this was when I was in college, US textbooks cost multiple times more than the international version of the textbook I could buy on Abe books or whatever website. Or, coupons for grocery stores. The insurance company has no hand in this.
To be clear, insurance companies also cause waste, because the government does not audit them, and the insurance companies are not staffed appropriately to resolve disputes in a timely manner.
What you gave us wasn’t a chain of reasoning: you just regurgitated the industry’s preferred excuses (“it’s complicated”, “people will use too much healthcare if it’s cheaper”, “liability!”) while begging the questions of whether those are true or why they affect the United States far more than any other advanced country. If you wanted to construct a logical chain of reasoning, that would be far more interesting than repeating another round of simply asserting that the status quo is inevitable.
If you need proof that delivering cutting edge services requiring split second decisions and multiple highly qualified people who are liable to the tune of millions of dollars for each decision is not complicated, then we are living on different planets.
> If you wanted to construct a logical chain of reasoning, that would be far more interesting than repeating another round of simply asserting that the status quo is inevitable.
You are welcome to explain why an insurance company would want to make things so complicated. They don’t make it so complicated for claims on a vehicle or a house. They are earning meager profit margins with the situation as is. There is literally nowhere they could go except up…why are they choosing not to?
And if you can come up with a more efficient system to administer insurance, I’m sure a few rich people like Dimon and Buffett and Bezos would be interested in your services. These two “titans” of industry couldn’t figure out how to make it better.
https://www.forbes.com/sites/brucejapsen/2021/01/04/amazons-...
> it has a problem of supply being nowhere near demand,
Get rid of the patents and this will solve itself in no time.
> The insurance company has no hand in this.
False. Insurance companies in the US own stock in big pharma firms like Pfizer, Johnson & Johnson, Eli Lilly, etc. They maintain substantial investment portfolios and generate returns on premiums and reserves. They also have voting rights as institutional investors.
Yes, no one is stopping US (or other countries’) taxpayers from paying for all the drug trials so that the resulting medicines are in the public domain.
> False. Insurance companies in the US own stock in big pharma firms like Pfizer, Johnson & Johnson, Eli Lilly, etc. They maintain substantial investment portfolios and generate returns on premiums and reserves. They also have voting rights as institutional investors.
This is a wild assertion. The sum total of all 7 publicly listed insurance companies’ market caps is less than Eli Lilly, just one pharmaceutical company. I would need some evidence before believing that health insurance company leaders have any influence on pharmaceutical companies.
I would also be surprised to learn insurance companies hold specific stocks, seems like a risk insurance companies would not take, especially ones that have lots of routine cash expenses. They spend ~85% of their premiums on medical expenses, and probably at least 5% to 10% on their own staff, so they shouldn’t even have much extra cash left to invest for the long term.
https://www.oliverwyman.com/our-expertise/insights/2023/mar/...
Edit: hit posting limit, so to respond to comment below about net income, that Yale link does not seem relevant as it is for all healthcare companies. All 7 publicly listed insurers’ combined annual net income is $35B or less for the previous 20 years, at a profit margin of 3% or less, which is peanuts. The pharmaceutical companies earn much more money than them, which is why the pharmaceutical companies have higher market caps.
> Why are we using market cap as a metric ? Look at investment value.
Because a company that owns influential portions of another company would have that reflected in their market cap. Like Berkshire Hathaway does. with the exception of UNH (due to its healthcare provider business), the other insurance companies are relatively tiny businesses compared to pharmaceutical companies and so cannot be holding any influential amount of stock.
The U.S taxpayer already pays for this. ~40% of FDA-approved drugs have direct NIH funding behind them. Nearly all modern drugs rely on NIH-funded foundational science. Taxpayer money additionally also floats through BARDA, DOD and DARPA.
COVID mRNA vaccines (Pfizer-BioNTech, Moderna) got billions in public funding. Yet, patents usually belong to the private company and prices are not capped as a condition of public funding. It is gross corruption begging for heads to be put on pikes.
Correct, people should be asking their federal politician why the US federal government is not spending the few billion dollars on drug trials to avoid having to pay extra to pharmaceutical companies.
But instead, people rail at health insurance companies and pharmaceutical companies and others who can’t or won’t make a difference.
> But instead, people rail at health insurance companies and pharmaceutical companies and others who can’t or won’t make a difference.
Because this is the Corrupt Evil Nexus that continues to ensure that taxpayer funds and exclusive patents keep flowing to them, while keeping prices high. They buy political power via campaign financing by the bucketload and the congressman/woman changes their vote to kill/oppose bills that would make a difference. You can find dozens of examples. Do your own research. As an example, take a look at the voting for the bill to permit Medicare to negotiate drug prices. Look at who received bribes and from whom to vote "No".
Which bill are you referring to? The 2022 Inflation Reduction Act passed with a provision allowing Medicare to negotiate drug prices.
(Although it is, of course, true that having special drug rates for Medicare trends against rather than towards "clear and consistent pricing".)
I am talking about the "Medicare Prescription Drug Price Negotiation Act of 2021", then "Medicare Drug Price Negotiation Act", then "Elijah Cummings Lower Drug Costs Now Act". They all had MUCH stronger drug-pricing proposals, all got stalled shamefully, with a watered-down version in BBB, which was further diluted in IRA that big pharma laughed at and accepted.
More specifically, the stronger acts which were killed by Big Pharma bribes would have
- Tied U.S. prices to international reference pricing (e.g., prices paid in Europe)
- Broad Medicare negotiation for many high-cost drugs - including dozens of new drugs.
- Applied negotiated prices beyond Medicare in the commercial market. (Private Insurance too!)
- Imposed strong penalties on drug companies that refused to comply
- Generated large federal savings. Also would have had faster rollout. Remember IRA pricing is YET to come into effect.
PS: Look at the Senators who diluted drug-pricing in BBB even further to a bad JOKE. (lol at price reduction for 10 drugs in 2026). Look at whom they received bribes oops..donations from.
> This is a wild assertion. The sum total of all 7 publicly listed insurance companies’ market caps is less than Eli Lilly, just one pharmaceutical company
Why are we using market cap as a metric ? Look at investment value.
From the NAIC report at https://content.naic.org/sites/default/files/capital-markets..., common stock holdings alone of U.S. insurance industry is roughly ~$1.2 trillion.
"Over the past 20 years, health care companies spent 95% of their net income on shareholder payouts, totaling up to $2.6 trillion, according to the research findings. Shareholder payouts also tripled over this period - a trend largely shaped by a few powerful pharmaceutical companies, the research team noted."
https://medicine.yale.edu/news-article/health-care-company-p...
> US textbooks cost multiple times more than the international version of the textbook
I mean, I think a lot of the incentives behind textbook pricing in the US are honestly not that dissimilar to the ones in healthcare. I know Pearson is particularly egregious for price gouging students because they have exclusive deals with schools to provide the textbook for some specific class or subject. They raise prices because f*ck it why not, they won’t get pushback, which is not a valid reason to do so in most other countries.
"they raise prices because f*ck it why not, they won’t get pushback"
This applies to more and more businesses these days. Textbooks, hospitals, colleges, veterinarians and so on. They basically have a captive audience so they do whatever they want.
Pharmaceutical companies, hospitals, and doctors are free to charge like that. But if I'm using insurance, it's irrelevant; that's the price to the insurer. It's the insurance company who determines the price I pay, using whatever arcane rituals they've chosen.
Unless the anesthesiologist is mysteriously out of network, or you failed to get some silly pre-approval, or…