Providers, not insurers, are responsible for excess U.S. health care cost (2024)

https://www.noahpinion.blog/p/insurers-arent-the-main-villain-of

by paulpauper • 1 month ago

56 116 1 month ago

bell-cot• 1 month ago

True.

OTOH, this is a world where many people get yelling-and-cursing angry with a bottom-tier Post Office clerk in (say) Podunk, Montana over the latest increase in the price of 1st Class postage stamps. When that decision was made by a bunch of executives in Washington DC. Whose names the clerk doesn't even know.

jayturley• 1 month ago

Yep, for-profit healthcare is a bad idea. It's the main reason our USA healthcare costs so much.

lopsotronic• 1 month ago

"Stay 'til 2300 codepounding or watch your child die of a medieval disease" seems to work really well for productivity, though.

Oh, no, people stopped having children. Whatever could be the reason.

jasonlotito4• 1 month ago

Yep, for-profit healthcare is a bad idea. It's the main reason our USA healthcare costs so much.

And yet it still exists in the rest of the world. But people tend to think of it only as for rich people as opposed to covering things the rest of the world ignore. I'm not saying the US is perfect, but having lived under both kinds of healthcare, cost and quality are two reasons I'm in the US.

dgellow4• 1 month ago

Because you wanted to pay more? Or are you saying it is cheaper in the US? If the latter, could you be more specific?

I pay the maximum possible in Germany for my health insurance and from what I understand I still pay less for healthcare than I would in the US.

FireBeyond4• 1 month ago

I've lived for many years each in the UK, Australia and the US. I've worked as a healthcare provider for many years in the US.

I would dearly love to know what "costs" of healthcare you are looking at when you say the US is preferable enough to actually move to/be in/stay in the US.

Because when I can have higher end insurance from my employer, and still be out $9K for a kidney stone after insurance, I'm not seeing it. That is an outlier, for me, I'll acknowledge, but it's still nearly five digits that had to come out of my pocket after my employer paid thousands, I paid premiums, for insurance (that is insurance-in-name-only).

neilwilson• 1 month ago

It’s not a matter of profit. It’s a matter of costs.

From the graphic the insurers take in $371.6b and pay out $241.9b in medical services costs.

That’s $130b on a pointless activity that uses up physical resources that would be better deployed elsewhere in the economy.

Healthcare needs to be provided as a matter of course, and “competition” won’t improve it or control it because there is always a supply side shortage of provision.

That’s a difficult problem to solve, but solving it by forcing a huge bill on expectant mothers and cancer victims, etc in a futile attempt to control demand is not the way.

Which is why the rest of the world charts a different path.

znnajdla• 1 month ago

It’s neither a matter of profits nor costs. It’s a matter of incentives. The basic principle of capitalism can’t work if the buyer doesn’t have a choice, if the buyer is not the one who usually pays, and if the payer has a way of avoiding responsibility to pay. The privatized health insurance system is truly and completely fucked up.

xenadu02• 1 month ago

By definition a free market in healthcare requires forcing some people to die from a treatable injury or condition to discover the optimal price. That's part of the definition.

Spooky23• 1 month ago

The buyer and sellers are frequently wrong. The buyer isn’t the patient, it’s the employer. The insurer is either charging a premium for risk or servicing work for a self-pay employer.

The biggest buyer is the Federal government and by law they are required to get the best deal, the government also restricts the supply of providers. It’s not a capitalist system at all. It’s a weird hybrid command economy with a consolidating cartel of providers and administrators.

zephen6• 1 month ago

That’s $130b on a pointless activity that uses up physical resources that would be better deployed elsewhere in the economy.

No, it's much worse than that. How much time and money is spent by medical providers dealing with the billing?

Arguably at least twice as much -- the insurers have economy of scale that providers can't match.

And that's before you even get to the direct time and stress impacts on the consumer from bullshit denials.

colechristensen6• 1 month ago

The rest of the world has private healthcare on top of the public ones because the public ones are often inadequate.

Just go look for the local debate in any country with government healthcare and look for the parties who are pushing for change and their complaints.

Then ask yourself if you really would want the current administration in charge of your healthcare... if you'd like every four years to be a coin toss for how your healthcare was going to be for the next four years.

People arguing for public health care, are you ready to say you want Donald Trump to be in charge of your health insurance instead of a private provider? (because we're not in a magical fairy land where government is efficient and agrees with everybody's priorities)

ryandrake2• 1 month ago

The fact that a single person is "in charge" of the government, with the other two branches largely deferring all power to that one person, is a recent aberration from the norm in the USA. I'm for a single-payer health system that is administered by a well-checked regulatory apparatus and institutions that are not subject to wild policy swings at the whim of a single king-like leader.

rickydroll• 1 month ago

Before we go pushing money into private insurance, we need to define why. We need to understand why the public ones are inadequate and who/what drove those decisions.

A public health care system should be independent of politics. Unfortunately, as the latest administration has shown, even if you designed it to be independent, such as the CFPB, it doesn't matter with an autocrat in charge. On the other hand, private industry does not have all that good a reputation for not effing with your healthcare.

toast02• 1 month ago

Public healthcare in the US can work. Most seniors on traditional Medicare like it. Make that available to more people, and bob's your uncle.

I propose allowing buy into medicare at 5 years before regular eligibility. And a long phase in of lowering the eligibility age. Drop it by 6 months every year for 10 years, then 1 year every year for 10 years, then 2 years every year until everyone with work credits is eligible.

At the same time, start covering all kids up to some age with Medicaid (after all, kids tend to have no income, so if eligibility was based on their own income instead of household income, they'd qualify). First year, kids get covered until 6 months, next year until 1 year, etc.

When the Medicare and Medicaid ages meet, we have universal health care. It would take a long time to get there on my schedule, but it would be gradual, so everyone could adapt. And if future legislation could adjust the timeline as needed.

Also, clearly someone needs to add more residency slots.

collingreen3• 1 month ago

There are so many more options than a 4 year administration being hostile to the people it's supposed to represent. Corruption will undermine any collective action amongst honest collaborators regardless of what color their party flag is.

Also, having a baseline of public care and then private as an option on top doesn't sound like the boogeyman this is pitching it as to me. That seems like a great way to reduce the scope of what the state needs to be in charge of.

If the take is that government cannot possibly work for the people no matter what then yeah, all policy is bad.

eli_gottlieb• 1 month ago

“competition” won’t improve it or control it because there is always a supply side shortage of provision.

Why is there always a supply-side shortage?

anon2915• 1 month ago

Because the American Medical Association artificially restricts residency spots in hospitals. There's really not much more to it. This explains the proliferation of NPs, PA-Cs, etc acting as GPs. In reality, we simply need more doctors, so we should uncap the # of spots.

polski-g2• 1 month ago

Because human labor is supply side constrained.

There's only so many doctors, only so many MRI machines, so many valve stents, so many syringes.

Everything on earth is supply constrained.

tqi2• 1 month ago

They are not solely responsible, but of course they bear some responsibility. ACA has a Medical Loss Ratio that requires insurers to spend 80% or 85% of premium revenue on medical services "thereby limiting administrative costs and profits to the remaining 15-20 percent."[1] In other words the only way for them grow profits is to increase cost.

This guy is way out of his depth.

[1] https://www.rand.org/pubs/external_publications/EP71133.html

esseph• 1 month ago

This guy is way out of his depth.

He does that a lot, tbf

zephen6• 1 month ago

the only way for them grow profits is to increase cost.

And, of course, things like spurious denials drive up costs for them and for the providers. More direct costs, more costs at the provider they have to cover...

From the insurance company perspective, it's a win-win!

chongli2• 1 month ago

things like spurious denials drive up costs for them and for the providers

Spurious denials? Or improperly filed claims?

akramachamarei7• 1 month ago

How would spurious denials drive up the cost of medical service?

readthenotes13• 1 month ago

I'm on ACA. I get between $100 and $150 on a gift card to do my annual PCP visit even though my premium is $0/month.

Why? Obvious if you know about the perverse incentive tqi mentions

dgellow4• 1 month ago

Could you elaborate?

FireBeyond4• 1 month ago

There are all sorts of perverse incentives in play. Many plans won't pay for weight loss drugs (obviously GLP-1s, but even beyond that) but will happily pay for gastric bypass, for one simple example.

EvanAnderson3• 1 month ago

You must have very little income.

I had an ACA "marketplace" plan back for my family back in 2017 when I was self-employed. My premiums were >$15K / year for a >$10K deductible and no tax credits (because of my income).

antasvara2• 1 month ago

The insurance company that provides your ACA plans gets money from the government for doing so. How much money they get is tied to a few things (not an exhaustive list):

1. On average, how healthy is your group of ACA plan holders? If the group has a bunch of chronic conditions, they get more subsidy money to offset the increased care costs. Going to the PCP allows them to have official medical evidence of those conditions.

2. The government gives these plans quality ratings to help people compare them to each other. These ratings are partially based on how often patients get their annual screenings and patient satisfaction. A gift card for a PCP visit accomplishes both aims.

There are also more practical concerns. Preventative care is cheaper than an acute incident for the company. You'd rather catch an arrhythmia at a PCP appointment than pay for the cost of a heart attack.

stymaar• 1 month ago

This guy is way out of his depth.

It's literally Noah Smith, what did you expect?

treis3• 1 month ago

They can grow profits by capturing a larger share of the market.

ch4s33• 1 month ago

After the ACA passed it's really hard for insurers to differentiate on policies because so much is mandated. They're essentially all identical products that are going to have similar prices.

akramachamarei7• 1 month ago

What you wrote seems fully consistent with the blogpost. Unless you are suggesting that health insurance companies collude with providers to raise the cost of medical service?

tqi2• 1 month ago

It doesn't require collusion, just misaligned incentives.

"Perversely, with the MLR requirement capping profit margins and administrative costs, insurers are discouraged from containing health plans’ premium increases. Economists have noted that the MLR requirement effectively turns health insurers into “cost-plus” businesses: If insurers’ predicted premiums are less than the actual medical care spending on claims, it can lead to higher MLRs and less profits, within MLR restrictions. Professor Scott Harrington warned early on that MLR requirements could reduce insurers’ motivation to control premium increases. Prior research has found that the MLR requirement is associated with stronger financial performance for insurers, since they can raise premiums to cover higher claims and still comply with the MLR threshold."

Fire-Dragon-DoL• 1 month ago

Wow, I did not realize how deep the hole is

i_idiot• 1 month ago

It has always been pretty clear to me. Same medical equipment, infrastructure, education elsewhere in the world is often 30-50 times cheaper. The providers just charge as they want because people will pay their fortune to live, just like lawyers.

jugg1es2• 1 month ago

I've worked in the healthcare space for a decade and I have asked some tough questions of my leadership and I got a response I'll never forget: "Everyone in healthcare is a little bit evil"

pdxandi2• 1 month ago

That's a an honestly upsetting statement. My wife is a pediatric critical care physician and there is not an evil bone in her body. She works her tail off, is (in my opinion) underpaid (like most pediatricians), and her job takes huge emotional toll. The same is true for all of her partners. Maybe I'm reading this wrong and you mean administrative or insurance or something else. But at least in my orbit, that statement is not true.

Legend24402• 1 month ago

Is she really underpaid? The average pediatric critical care physician in the US makes $262K-$440K a year according to Glassdoor.

This is twice what the same role pays in most European countries. Unless she is well below that range for some reason, she is likely overpaid.

Everybody in healthcare, from the nurses to the hospital CEOs, makes far far more in the US than they would in a country with socialized medicine.

jugg1es2• 1 month ago

The statement was in reference to the players in the US healthcare system: payers, ACOs, MCOs, providers, suppliers, SNFs, third parties, etc... It was not in reference to individuals. Most individuals in the healthcare system are decidedly not evil.

readthenotes13• 1 month ago

"But when we look at United Health Group’s operating costs in the diagram above, they’re only 22.6% of the actual cost of medical care."

A 22% decrease and a return to providers having to consider the cost implications to their patients would be a good thing.

("Return" I know a 95 year old doctor who said he still carries some guilt from keeping a poor guy in the hospital an extra night back in 1955 days because he couldn't get some blood tests done quickly enough. $5. "We only need medical insurance because we have medical insurance" ain't too far wrong)

akramachamarei7• 1 month ago

Of course, it wouldn't be a 22% decrease, it might be an 11% decrease if we assume optimistically that operating costs are cut in half. I don't know if administrative efficiency is exactly a strength of the government, either.

antasvara2• 1 month ago

The main cost benefits are that you don't have to pay for marketing, underwriting, plan administration for a bunch of different plan types, negotiating with thousands of employers on the premium they'll pay, etc.

I think an 11% decrease is conservative if anything. None of our peer nations spend more than ~5% on administration as a share of overall healthcare spending.

tdb78932• 1 month ago

When arguing that health insurance isn't that inneficient he talks about "But when we look at United Health Group’s operating costs in the diagram above, they’re only 22.6% of the actual cost of medical care.". 22.6% for a middleman is not insignificant! Also providers have to spend a lot dealing with insurance so it's certainly an undercount of their total cost. This makes the burden of insurance seem like a huge % of the total medical costs in the US, which seems like the opposite of what he's trying to argue.

Overall, there are lots of nitpicks with this article but my personal takeaway is: if this is the best defense people can make for the US medical insurance system then that shows how bad it really is.

collingreen3• 1 month ago

Well said. If this is the steel man then it's worse than I thought.

pfannkuchen• 1 month ago

I don’t like the current system at all, but is insurance really just a middleman? Like part of their function is being a middleman, but they also apply some kind of cost smoothing that is outside what a pure middleman would do.

tdb78932• 1 month ago

I don't think it's odd for a middleman to have some functions in a market (as long as they aren't actually producing anything) but also the definition of a middleman is unimportant to me. I am just highlighting how he glides over a lot in this article (some of which are actually common progressive critiques of the insurance system) and I don't come away from it sympathetic to medical insurance companies at all.

polski-g2• 1 month ago

22% isn't bad to remove the need for me, personally, to negotiate prices for services. I wouldn't know where to begin on how to price a bone marrow transplant, but UNH does.

tim-tday• 1 month ago

Bullshit

ngriffiths2• 1 month ago

It’s not hard to understand why people hate health insurers. When you interact with the U.S. health care system, the providers — the hospital staff, the doctor, the nurses, the technicians — all just take care of you.
Your interaction with the health insurer, on the other hand, feels like a struggle against an enemy who wants to destroy you.

Exactly, the big factor driving healthcare costs is that people like expensive providers. They like the fancy plan that covers their doctor, that doesn't limit them to a community hospital. Any choice that involves retaining even the slightest market leverage is a deal breaker for many people. I think all the clever stuff we do to optimize costs and increase transparency is worth doing and helpful, but like, it will still be expensive. We want that!

Meanwhile it is not really better to go to an expensive doctor, in terms of health outcomes. So the public health problem is to stop people (and employers) from voluntarily wasting their money on healthcare, so we can use it for better stuff.

gopher_space2• 1 month ago

They like the fancy plan that covers their doctor

The fancy plan.

ngriffiths2• 1 month ago

Yeah, because it covers all the doctors. It is literally the same as saying you will pay any price. It is a luxury good.

insane_dreamer• 1 month ago

Many problems with this article, but no time to pick them apart; needless to say, Noah's argument is thin.

I will say this: profit margin % is not the yardstick by which we should measure whether insurance companies are responsible for high health care costs in the US.

akramachamarei7• 1 month ago

Seems like a pretty good yardstick to me. Ultimately, it shows (partially) how much money is going through an insurer vs to an insurer. The revenue flow graph is included for UnitedHealth Group, for example, and about 2/3 is going through the company to medical providers.

Any good hacker is familiar with Amdahl's Law, and the same principle applies here. You can optimize the insurance providers all you want and maybe recover about 1/6 the total cost of care. At the very least, the first place we should be looking is the biggest expense, which is also clearly not the insurance.

supertrope2• 1 month ago

The blog post is too simplistic an analysis. It ignores the second order effects of medical care financing reform.

Imagine if car engine oil changes had to go through car insurance. In such an inefficient equilibrium you might remark that only that insurer overhead is only 20% of a $300 oil change. Sellers always capture easy money that flows in from insurance money, credit, or government subsidies.

The fewer layers between a buyer and the seller, the lower the cost. Compare buying a bottle of ibuprofen at $5 for 200 doses compared with going to an urgent care and having a registered nurse hand you five doses at $200. Professional labor often used in medical care is expensive. Legalizing over the counter medication like birth control helps. Ironically a lot of poorly run companies try to shift HR policing of employees onto the healthcare system by requiring doctor’s notes. An insurance company processing claims is expensive.

Fee for service encourages more work ups and surgeries. The US caps physician residencies at a low count. Having the operations and financing as separate and adversarial companies adds a lot of friction. Hospitals charge 10x and the insurance brags they negotiated a 90% discount. No one health insurer has enough market power to push down outpatient, inpatient, or drug pricing. Without strong competition, automation, and price signals, healthcare spending is not going to get under control.

franktankbank• 1 month ago

Does not consider global kickback schemes skimming money off the before profit revenue.

dlev_pika3• 1 month ago

The incentives are all fucked up all the way down

WarmWash• 1 month ago

This has been an open secret for 15+ years now.

The problem is that people knee-jerk blame the one who they are giving money to. People think the teams are "Me and doctor vs. greedy insurance" whereas the reality of the situation is much more "Me and insurance vs greedy doctor".

ecshafer• 1 month ago

I am not sure providers are entirely blameless. My daughter had an annual checkup, when we were asked if there were other issues, we asked about a bug bite. They charged us for a second emergency visit, what the hell is the point of an annual visit if we can't ask about issues? Insurance company okayed it. So they are both at fault for this insanity.

The most efficient medical experiences I have had have both been ones where there were no insurance involved:

1. A USCIS surgeon, that was like 80 years old, running his own office, everything via check, on paper. Guy put more patients through per day then the big hospital systems special immigrant medical services did.

2. A specialized Eye Surgeon who did my wife's ICL eye surgery (which insurance wont cover). Ended up being the most efficient practice I've seen, every follow up and pre-surgery meeting was not separately billed. Just the surgery was. Eye Doctors / Surgeon spent a ton of time with you. And they had massive amounts of flexibility. But even the out of pocket surgery was probably less than an insurance covered surgery at a hospital.

BrenBarn• 1 month ago

It is certainly true that providers charge more in the US. However, it's hard to disentangle this from the insurance issue because of the way that providers and insurers are intertwined in a gordian knot of insanity.

The article mentions one example of this, which is that part of "provider costs" is actually paying for the provider to wrangle with the insurer. But even apart from such direct costs, the care is distorted in various ways in order to comply with the insurer's whims. One you hear about a lot is doctors ordering tests that likely aren't really necessary, simply to avoid having the insurer deny something later because they didn't go through all the required motions.

Another reason that "profit margin" is grossly inadequate as a measure of cost or inefficiency is that it doesn't count the actual "work" done by the companies, even though a lot of it simply doesn't need to be done. There are thousands of people with jobs in insurance companies that simply do not need to exist because most of what the industry does simply doesn't need to be done. The leeching is not just a matter of shareholder returns or executive salaries. All the salaries of everyone working for insurance companies are a form of waste. (Okay, probably not all, since even with a saner system some bookkeeping would need to be done, so if you look at the net difference it's not a total waste. But it's more than just shareholders and executives.)

qwertyuiop_• 1 month ago

Once you get rid of the made up term “provider” see the costs go down.

dkuntz2• 1 month ago

whoever keeps posting this dweeb needs to stop he's never had a correct or novel thought in his life.

keernan• 1 month ago

What I haven't seen mentioned is the identification of "providers". The days of your doctor being the 'provider' are long gone. Providers are now large corporations and, interestingly, the largest "providers" are health insurance companies.

Point 4 of an article[1] about health delivery is quoted below:

>Perhaps the most underappreciated transformation of the past 40 years is the corporate consolidation and financialization of medicine. Care delivery—once local and community-based—is now dominated by corporations.
>Vertical consolidation is now a defining feature of American health care. UnitedHealth Group isn’t just the largest insurer; it’s also the largest employer of physicians and the largest operator of home health and hospice agencies. CVS Health, the largest pharmacy chain, also owns the biggest pharmacy benefit managers—and now giant insurer, Aetna. McKesson, a pharmaceutical distributor, now operates the nation’s largest chain of oncology practices and is rapidly expanding into other specialties. These combinations raise all the conflicts of interest you’d expect—higher prices, business steered away from independent providers and pharmacies, gaming regulations, and more.

[1] https://yourlocalepidemiologist.substack.com/p/aca-health-ca...

Providers, not insurers, are responsible for excess U.S. health care cost (2024)

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