kmundy

The inequality gap, the root of our divisive and fractious politics, continues to widen. The “Great Decoupling” of 1973 was just the first leak. The AI revolution is now poised to burst the entire pipe.

I’ve been working on a system called the Taproot Model that works at reducing inequality as we progress into the AI Age. It is a market-driven, non-inflationary alternative to the welfare state that aims to future-proof our economy. Before I reveal the architecture next week, can you suggest solutions that clear the 6 systemic constraints? Most current proposals (UBI, wealth taxes, subsidies) only clear a few. Join the discussion on Substack and enter your idea in the comments.

You’re right—Congress is the bottleneck for the important stuff (Residency Cap, MLR). And the lobby is massive. I'm a tad more hopeful than you though. I'm hoping that if we all have a shared understanding of how these well intentioned rules (MLR, GME caps) are unwittingly benefitting insurers, it helps bring some clarity into what precisely needs to change & will, perhaps, build some pressure on legislators.

Well, the subsidy just buys us some time to stabilize the risk pool. Meanwhile, the ACO+Factory model is emerging, which flips the incentives; changes the way the product is consumed, so we stop overpaying in the first place.

Right! Sort of the reason the MLR cap ran into this issue in the first place.

The insurers are forced into the only remaining avenues to grow profits: 1. Grow the pie, by letting prices rise. 2. Acquire the entities benefitting from this price rise.

Which is exactly what they did, leading to this constant upward spiral of insurance premiums.

OP here. I’m a retired engineer researching US healthcare pricing mechanics.

I analyzed the 10-K filings for the 'Big 3' insurers (United, CVS/Aetna, Cigna) to test the common claim that their profit margins are razor-thin (~3%) and therefore they aren't driving inflation.

The data shows a massive decoupling event in 2018. While margins remained flat (likely due to MLR regulations), total revenue quadrupled following the vertical integration of PBMs. Effectively, they shifted from a 'rate game' to a 'volume game.'

The chart in the post visualizes this split. I also discuss the 'Three-Legged Stool' solution (Residency Caps + MLR + AHPs) to address the structural incentives.

You are right about the math of the 'Death Spiral.' If we simply deregulated AHPs without a safety net, healthy people would flee, leaving the sick in a collapsing ACA pool. That is exactly what happened in the pre-ACA 'bad old days.'

But my proposal isn't just 'Deregulation.' It pairs AHPs with a specific mechanism designed to stop that spiral: Invisible High-Risk Pools (The Maine Model).

The 'Maine Model' allows insurers to 'cede' their highest-risk patients to a state-funded reinsurance pool. The patient keeps their same card and doctor (hence 'Invisible'), but the risk is offloaded.

The Data: Before the ACA, Maine implemented this. Anthem requested a 20% rate hike due to adverse selection. After the pool was implemented, the rate hike dropped to under 2%.

This shows we can protect the sick without forcing the healthy to pay $25k/year premiums to an oligopoly.

Regarding other countries: I’d love to write that article! But most of them (like Germany or Switzerland) succeed by strictly regulating prices or supply. In the US, we have the worst of both worlds: we cap insurer profits (via MLR) but leave costs unchecked, which actually incentivizes inflation. My 'Three-Legged Stool' proposal is an attempt to engineer a path out of that specific American trap.

OP here. This is Part 3 of my series on US Healthcare structural flaws. The core argument is that the ACA’s 'Medical Loss Ratio' (which caps insurer profits at 15%) inadvertently created a 'Cost-Plus' incentive for inflation. Insurers bought Pharmacy Benefit Managers (PBMs) to 'launder' profits from the regulated insurance side to the unregulated PBM side via rebates. I also dig into why the 'Association Health Plan' rule change in 2024 effectively locked small businesses out of the market.