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Comment by heisenbit | Hacker News Reader

This may be a misconception. In other countries there are also insurance companies at work making good money managing premiums and payments. And yes, they are not liked there ether particularly when they find excuses not to pay. The US problems however run deeper.

One of the biggest US health insurer is UnitedHealth Group. In their last financial quarter report they published:

Revenues $48.7 billion

Earnings From Operations $3.4 billion

Net Margin 4.5%

These type of good and enviable stable profits are not enough to explain the inefficiencies in the US. Insurance may be lobbying but that is dwarfed e.g. by the marketing expenditure of the pharmaceutical industry (same level as their R&D). Yes health insurance is living well on the inefficiencies and their (in part unnecessary) middle man role but there are way bigger money leaks.

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That is showing only official profits. There is so much else being siphoned off within the insurance companies as inefficiencies. I agree there are efficiencies external to the insurance companies though, but I am not sure how incentivized these companies are to minimize costs.

They spend 83% of premiums on medical care.

(they list both numbers on page 9 of http://www.unitedhealthgroup.com/~/media/CEBA762A544B44D19F1... )

Some of the 17% represents necessary administrative costs. Who knows how much.

It's irrelevant how much they spend on premiums, because they are the ones who set prices of procedures and drugs. There is no one to step in and introduce hard price controls, because it doesn't benefit anyone on the gravy train, just the consumer.

Imagine if there existed a company whose only job was to buy oil from OPEC and deliver it somewhere else. They could say "we spend 99% of our revenue on oil! look at how efficient we are!", ignoring the fact that OPEC is a cartel that sets prices, so not only can they be vastly overpaying, but the amount of oil purchased can be wildly inadequate to cover the needs.

It's a little relevant, they aren't capturing any more than the 17% of the premiums (and they aren't capturing all of it as profit, they do provide some necessary administration).

Yes, but if they are capturing 4% as profit on 17% of the premium, they have a perverse incentive to keep costs high, which is directly opposed to their customer's interests.

Sure. I was just pointing out that we have pretty clear information about the amount of money that ends up inside the insurance company and how much gets passed on to providers.

In a functioning market they would face competition for customers and try to lower premiums (and so try to lower costs). In our system they seem to look at provider prices in a region and decide if they can profit there or not (and in the case of non profits, if they can operate without losing money).

One of the provisions of Obamacare was a cap on the administrative costs of insurance companies at 20% of premiums, with any excess returned to the purchaser as a rebate. The first year it was in effect more than a billion dollars was returned. The deadweight cost of the private insurance industry over the years is pretty staggering.

In contrast, the Medicare program spends less than 2% of its budget on administrative costs.

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