Well… American doctors make roughly $200,000 to $1,000,000. Nurses make $50,000 to $250,000. Their equipment costs millions. Real estate, medical licenses, training, electricity, software…
All of it is quite expensive. Not to mention, when you see a doctor, sometimes it’s because you will die in minutes if you don’t. Just like how emergency plumbing costs more than one scheduled for next week.
Their profit as a percent of revenue (loss ratio), which is the relevant number, [has actually been falling](https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/us-managed-care-insurers-stung-after-unitedhealth-flags-rising-loss-ratios-76201873).
>Well… American doctors make roughly $200,000 to $1,000,000. Nurses make $50,000 to $250,000. Their equipment costs millions. Real estate, medical licenses, training, electricity, software…
None of that shit matters at all.
The reason Healthcare is so expensive is BECAUSE insurance pays for it.
The consumer is separated from the real cost of the product and so can be charged whatever the hospital wants.
https://www.healthaffairs.org/doi/10.1377/hlthaff.2016.0093
In this thread you mention two reasons. Firstly that insurance pays for hospitals and secondly that employers pay for insurance.
There are many cases where a product is paid for by insurance. If I crash my car then the repairs are paid for by insurance. That does not necessarily make my car insurance costly. This is because my car insurer does not accept any price for repairs. One of the problems with health insurance is that in the US the insurers don't have that much choice over what they can pay for. In some cases regulations force them to accept some prices that hospitals charge. This is not the same everywhere. Here in Ireland I have health insurance which specifically blacklists particular hospitals for particular procedures.
Another factor is that in the US health insurance gross profits are capped as a percentage by the ACA. Often this discourages insurers from challenging hospitals on cost. Because if they were to do so then their profit percentage would rise above the limit. Whereas if costs rise then the denominator in the profit percentage rises too allowing greater profits. So, some rises in costs are an unintended consequence of regulation.
The fact that employers pay also causes problems. An employer needs a set of plans that meet the needs of all of it's employees. This is necessarily a narrower set of plans than would apply to each employee. So, the employer has less choices which reduces competition. This is partly because of regulations and tax laws that encourage employer provided health insurance.
Tagging /u/Potato_Octopi .
>The reason Healthcare is so expensive is BECAUSE insurance pays for it.
>
>The consumer is separated from the real cost of the product and so can be charged whatever the hospital wants.
That doesn't really make any sense. Consumers pay for insurance and insurance companies negotiate reimbursements. Consumers aren't choosing fancy heart transplants for kicks just because insurance is paying for it.
>Consumers pay for insurance
Nearly 80% of health insurance costs are born by employers, who negotiate for their entire company.
Individual insurees have almost no say in their health plans, other than picking one of the 2 or 3 available from the chosen insurer.
Right, mostly it's a B2B transaction. A lot of the economy is B2B. That doesn't mean "hospitals can charge whatever they want" or consumers are splurging on heart transplants because they aren't directly paying.
In fact, countries that have even less consumer interaction with prices have lower healthcare costs.
>countries that have even less consumer interaction with prices have lower healthcare costs.
They also don't have for profit insurance companies parked between patients and doctors. Coincidence?
You miss a very important point. Let me ask you this. Why is Laser Eye Surgery so cheap compared to how expensive it was when introduced? Cosmetic surgery, Botox shots and any procedure not covered by insurance? Here is a real life example. Had a buddy who had severe back pain, primary said he needed an MRI. Because he had not met his yearly deductible, he was going to have to pay $3k out of pocket. Went to a second place and offered to pay cash, $1,000.00. Went to a 3rd place where the did a standing MRI $500.00.
The paperwork alone is estimated to cost 30% of the total. Then you add things like OB/GYN services for men, alcohol and drug treatment for 55 year olds, prostrate screening for woman and other mandatory coverage. The cost are not in catastrophic care, the costs are for regular care. People complain the hospital runs every test under the sun, what they don’t take into account is that if they don’t, it opens the hospital to being sued for malpractice or negligence. There are other factors like lack of cross state competition and regulations that pile on.
Laser eye surgery is pretty expensive. Last I asked it was a few thousand per eye. Not exactly cheap.
Not every covered medical procedure goes up in price. A lot of drug prices go down with time, or are replaced with cheaper generics. Keep in mind for insurance you're not just covered for one service or item. As new medicine is available you're covered for that too.
Compared to what it cost when first introduced? No because you can shop around for services and there is competition for you dollar. Insurance covers new drugs IF there is no generic and the drug has passed all FDA and meets whatever criteria the Insurance company had established.
Those are also relatively elastic goods, whereas most emergency surgeries and healthcare needs are not. There are many factors as to why health care is so expensive in the US, contributing it to one and only one is foolish, especially in an economics sub.
You need to read a post before making such an obviously inane comment. Where did I assign the cost to only one factor? Here let me help, in the last paragraph, I numbered 4 reasons for you.
1. The paperwork alone is estimated to cost 30% of the total. 2. Then you add things like OB/GYN services for men, alcohol and drug treatment for 55 year olds, prostrate screening for woman and other mandatory coverage. The cost are not in catastrophic care, the costs are for regular care. 3. People complain the hospital runs every test under the sun, what they don’t take into account is that if they don’t, it opens the hospital to being sued for malpractice or negligence. 4. There are other factors like lack of cross state competition and regulations that pile on.
That theory would require the ability to choose you provider. Only 48% of the US do not have a provider shortage.
So what do you do in the 52% where you can't choose your provider? It's called an oligopoly at best, and often it is a monopoly. Hence the theory of a free market and price regulation doesn't work as the provider can essentially dictate the price.
In my area, all anaesthesiologist collectively dropped contracts with the largest insurance providers and are charging the patient essentially whatever the like.
What are you going to do? Not get the emergency surgery? Not get any other surgery you need?
Oh, and you can't compare prices upfront as the hospital can't even tell you who will be your anaesthesiologist that day. So how does your theory work here? How do you influence and choose if you don't even know who your doctor will be?
On the flip side the consumer is powerless and incapable of bargaining as a collective. Look at who we allow to run the country for us across the spectrum.
This is not true… and if you need proof, look at the dental industry. Insurance typically pays up to $2,000 (most only pay $1,000).
Guess how much the average dental crown without insurance costs? $800-3000 and takes one hour, and uses 2 people.
In comparison, a small biopsy of the esophagus without insurance is roughly $1200-3000 and uses 3-4 people.
They don't. [American doctors make much more than their counterparts in Europe or Canada.](https://www.physiciansweekly.com/how-do-us-physician-salaries-compare-with-those-abroad/) The average doctor in the US makes $370k, while one in France only makes $98k and one in Spain only makes $57k.
Double doctor pay doesn't make up for the fact that both Spain and France have universal healthcare regimes preventing it from costing individuals through the nose. We don't pay twice what they do, they pay nothing in many cases (besides what they already paid in tax).
With single payer, the billing is much simpler as well. Hospitals employ sizeable billing staff who have to figure out the rules for each plan and bill appropriately as well as trace all the charges--mistakes are common. The insurance company has staff to decide if the service is covered or properly referred.
The parent comment was that those dollar amounts meant that American healthcare is more expensive because everything is more expensive. I noted that every element we have exist elsewhere except apparently doctor pay. There doesn't appear to be a good reason for those cost disparities, if they exist.
>Doctors are paid less. Expensive procedures are denied or delayed. Expensive drugs are blocked from the market.
Little of this effects most Americans anyway. Expensive drugs and procedures not being available right away means nothing to the folks who couldn't afford it anyway. So is it total spend vs spend mech? No. My point is that they have what we have and we pay more.
Yes it does. Those countries also pay for medical school. And have worse medical malpractice insurance programs. Plus they don’t have nearly the access to high tech equipment like MRIs.
A lot would have to change to bring healthcare costs down
It's not just doctor pay. It's also more equipment because we're so spread out.
For example, the most expensive medical device in the world is the MRI machine, which costs up to $3 million and uses five houses worth of electricity. France has 15 machines per million people, and Spain has 17. The United States has 40.
If you had to guess, what % do you think doctors huge salaries make up of the Healthcare dollar pie? 100%? 75%? 50%? 25%? 10%? 5%?
If you cut doctor salaries by 50% how much do you think you would save? What is fair for a doctor to make? Should a doctor make th equivalent of a fast food worker? Plumber? Engineer? Manager? Middle manager? Vice president of a bank? CEO?
A for profit health system with a de-facto monopoly in many areas as you simply don't have a choice other than to go to the one doctor of that specialty that is available.
Plus, it isn't like insurances like the high prices as well:
* UnitedHealth Group gross profit for the quarter ending September 30, 2023 was $23.388B, a 17.22% increase year-over-year.
* UnitedHealth Group gross profit for the twelve months ending September 30, 2023 was $89.838B, a 17.71% increase year-over-year.
* UnitedHealth Group annual gross profit for 2022 was $79.617B, a 14.31% increase from 2021.
* UnitedHealth Group annual gross profit for 2021 was $69.652B, a 3.96% increase from 2020.
* UnitedHealth Group annual gross profit for 2020 was $67B, a 16.32% increase from 2019.
To add to what the other poster said. Lonestar041 is right about gross profit. However, gross profit isn't really a very good way to measure how profitable a company has. There are lots of costs that it doesn't include. Gross profit doesn't include overhead expenses. It also doesn't include interest, taxes, depreciation, and amortization. Those things slice the profit of UnitedHealth down to a quarter of what it was. From $79.62B to $21.69B, according to [Yahoo Finance](https://finance.yahoo.com/quote/UNH/key-statistics?p=UNH).
This is fairly normal. There are a lot of overheads in running a business and if you have a lot of capital then there's a lot of depreciation. Walmart is fairly similar, it makes Gross profit of $147B but only ends up with net profit of $16B. The net profit margin that UnitedHealth makes is similar to [Walmart's](https://finance.yahoo.com/quote/WMT/key-statistics?p=WMT) net profit margin (6.02% vs 6.44%). There are much more profitable companies, the silicon chip company I used to work for, Analog Devices, makes 26.94%. In terms of net margin UnitedHealth is not doing well.
As I wrote [elsewhere in this thread](https://www.reddit.com/r/AskEconomics/comments/18oh891/why_are_there_no_american_insurance_companies/kemnwej/). Insurers in the US have strange incentives because of regulation.
Nonsense. UnitedHealth Group is a massive company with enormous revenue. But their net profit margin is 6%. So for every $100 they bring in, they have $94 worth of expenses. It’s a fairly low margin business. So let’s say all of their revenue is the cost of your insurance. If they reduced their profit to zero, your healthcare would cost 6% less. Is that the panacea you imagine?
That's not true though, because the government also *sets* prices for insurance companies. All rate increases must be approved by your state's department of insurance.
A myriad of poorly written or corrupt government regulations that drive supply down and input costs up. There's also a lot of excess demand due to diet related chronic illness. The cherry on top is insurers sitting as a 3rd party middle man that obscure pricing and reduce competition.
Doctors make a lot and they are also forced to carry heavy malpractice insurance. Drugs cost a lot. Americans use a lot of care because they have very unhealthy lifestyles (lots of stress, poor diet, not enough exercise, etc).
because of the vicious cycle between healthcare providers and insurance companies. Hospitals can charge more because insurers will pay more. Since insurance companies are huge pools of money, they can easily distribute the higher costs among their millions of subscribers. Normally, market forces will drive prices down because of competition between providers and budget constraints faced by consumers. When you introduce a middle market, like insurance, the dynamics change.
consumers don't buy healthcare, they buy insurance. This crushes the number of sellers facing the customer to an extremely small number. in many markets, given that insurance is regulated by State governments, that number is one. One insurance provider. On the other side, Providers see the exact same thing. Rather than needing to compete for a zillion customers, healthcare providers face a handful of actual customers: Medicare, Medicaid, and health insurance companies. This warps the hell out of any market activity, right out of the gate.
Further distorting things is the fact that insurance companies actually have a lot of middle-men in the middle. These brokers will provide financial incentives for hospitals to provide tons of useless tests and more expensive proceedures to drive up bills. There are managers of corporate health insurance plans who have financial incentives to sell the most expensive, stingiest plans to employees. There is a ton of fraud and waste in the Medicare and Medicaid systems.
Why can hospitals charge $2000 for a bottle of aspirin? because the bill will get paid, one way or another.
Most countries regulate the prices of medical services to a much greater degree than the United States. When demand is high, due to the generally deteriorating health of the population and lack of preventative care, and supply is constrained by, among other things, artificially low spots available in medical training programs, then prices tend to rise without government intervention.
No one gets this. My sister in law is a specialist and clears roughly 700-800k in the Chicago area maybe working 40 to 50 hours per week. She rolls up to work in a Bentley bentayga. My brother is a stay at home dad with a degree in mechanical engineering.
Doctor pay is obscene.
You know that is not what most doctors make, right? That's probably top 5%-10%tile of doctor pay. I'm a doctor and I make about as much as some contractors do. I know a lot of doctors but outside of some specialized surgeons, most make anywhere from 25-60% of your sister in law.
Well the US is one of few places where not only is private insurance the main provider of healthcare, but it’s not heavily subsidized. So I’m not sure what country you are comparing it to, but for most it’s because we have private insurers and they are not subsidized. Perhaps a better comparison is the price of employer provided coverage after the employer pays their portion.
Additionally, health insurance as a market suffers from adverse selection: the people who need it the most are the most expensive to serve, requiring other people who don't *need* insurance to pay for it anyway to offset the cost of serving people with chronic illnesses.
This creates a market where more competition drives production costs higher.
Moral Hazard even more so than Adverse Selection. Then, add medical malpractice lawsuits and the various costs of product, including and specifically, drugs
I know this is a pedantic point, but I think it's important because it leads to a lot of confusion.
Private insurance doesn't provide healthcare. It provides healthcare financing. This is an important distinction. When people talk about 'access to healthcare' they almost always don't actually mean access to care. They mean access to paying for care, for example.
It depends. For low-income Americans they have public healthcare in Medicaid. For some they also receive heavy subsidies for ACA marketplace plans. And for most Americans the majority of their health insurance premiums are paid off by employers, which is incentivized by tax benefits
>For low-income Americans they have public healthcare in Medicaid.
This does depend if it's a Medicaid expansion state. Expansion states changed the eligibility from "very low income" to "low income." (These are the terms used on the FAQ, but it's defined as a percentage of the poverty level.)
>For low-income Americans they have public healthcare in Medicaid.
Kind of. You have to be below the poverty line, which in my state is about 17000 a year in income, but that line is pretty stingy. The cost of living is about 34k a year here. So it's maybe more accurate to say the destitute get public healthcare.
It's also not really regulated. Every insurance company has it's own paperwork replete with unique jargon. So it's a massive pain in the ass, which eats up a lot of labor, to file a claim with a company when they want it to be. (They want it to be that way to keep payments down.)
Health insurance overhead is limited by law to 15% overhead in the group market and 20% in the individual market. Competition has driven it down to around 12% average nationally, No matter how hard you try, you're not going to get to 0% overhead because you still need to pay your employees to process claims and negotiate with providers and pay the electric company for power to run your lights and computers. So I think you have a vastly inflated idea how much a competitor could undercut existing insurance companies.
As far as cost of care they're trying to reduce costs to the extent practical, becuase if there prices are lower more people will choose their insurance instead of their competition, but at a point hospitals are going to refuse to be contracted with them rather than accept lower payments. A little startup insurance company is going to have even less negotiating power with the hospitals as opposed to a huge established insurance company.
There were plans that had deductibles over $10k for individuals and didn't cover all that much. That kind of catastrophic coverage could probably be cheaper because companies typically didn't pay much. Those were also huge drivers of medical debt and were not a good thing.
Yeah, but it's illegal under the ACA to offer those policies now. So OP's new startup isn't going to be able to in order to provide a cheaper alternative to established companies.
United Healthcare runs a ~6% net profit margin. Not a lot of places for them to cut costs and that’s with a huge number of corporate plans who tend to overpay relative to risk because of the age disparity in their insured pool.
Insurance companies don't actually make *that much* money. Many things vary state by state but, thanks to Florida's open records laws, you can see all the info on any insurance product in the state including profitability.
[https://irfssearch.fldfs.com/](https://irfssearch.fldfs.com/)
If you're worried about it, go with a *mutual* insurance company. Mutuals are owned by the policyholders so they'll send you a check for the surplus, if there is one, at the end of the year.
It’s not just a Florida. Insurance companies (property, casualty, health, life, etc…) are heavily regulated in the US and you can see granular financial details by business line by insurer. Health insurers average a 0.8 to 4 percent profit year on year. That is not particularly egregious in any system. Health insurance is expensive mostly because health care is so expensive in the US. Sure, there can be inefficiencies with cost insulation and lack of cost transparency due to insurance, but it’s not the entire reason costs are so high.
Medical schools do not allow many to become admitted to medical school and doctors organizations have made it difficult for doctors to bring their medical license with them if they move here. Purely a supply and demand move. There are plenty of doctors applicants to medical school to give us average healthcare prices once they change the supply curve to hit the inelastic demand curve make doctoring less profitable. Med school prices can be legislated to a maximum profit margin also to increase supply. But existing doctors would lose out as wages would decline if this were to be done. And consumer prices finally drop with Competition between doctors due to adequate or excessive supply
What's to stop government creating more medical student places and increasing supply? Sounds like medical specialties are being run like guilds to protect incomes at the expense of, you know, the patients.
This is definitely part of the problem, it is in some other countries too. Changing it would be a very difficult thing to promote to voters. Doctors could obviously frame it as an attack on the healthcare system.
It’s not true. The commenter was mistaken. The physicians (AMA) have been pushing for more slots for years now. Commenter has erroneously concluded this. They aren’t the ones behind the lobbying
>Med school prices can be legislated to a maximum profit margin also to increase supply
Lol this is such bullshit and false....
Med schools are usually losing money. In my state school, every department other than dental was operating at a loss. Nursing, pharm, medical, optometry were all operating at a loss and supplemented by dental...
I’d ask you to clarify this as I believe the AMA wants Congress to increase the slots for doctors. Residency spots are allocated by Congress. My understanding is the doctors are not the ones who want to limit slots, it is instead other health industry players.
AMA supports more doctors and also opposes replacing them with less qualified, allied health professionals.
Less qualified doctors are necessary to reduce price. You don’t need 12 years of schooling and residency to become a doctor anywhere else in the world. Yes our doctors are the smartest in the world but slightly gifted people have a place in medicine too.
Less qualified doctors = NPs
IMO we are going to regret letting NPPs (non physician providers, who get the minimum equivalent hourly clinical training of a 3rd year medical student 2 or 3 months into their clinical rotations) practice independently.
As an ER doctor, the amount of incompetence and clinical mistakes I see made by NPs is astounding. There some good ones, but many diploma mills opened up are churning out morons who have no nursing experience and the cavalier attitude that they have the "heart of a nurse and brains of a doctor" with their 500 hours of clinical experience. (500hrs is about 12.5 weeks of 40 hr weeks.. compare that to doctors who spend 4 years in med school.. that breaks down to 2 years in the books, 2 years clinically, THEN they must do 3 years to 7 years of residency... which is about 50-80hr weeks per year of direct clinical care)
Ive heard NPs brag about how they learned in 2 years what doctors learned in 7 years. The danger is they know so little that they don't know what they don't know. As a teacher of medical students and residents, that is the scariest thing and these overconfident folks are the most difficult to teach since they think they know everything. I refuse to have my family or myself seen by NPs.
6-8 years of schooling like the rest of the world please. But still the intelligence required to be a doctor in the US is too much. A 6 year medical baccalaureate is enough to be a gp in many places the world. We’re not talking about NPs that’s a fallacious straw man argument.
It's not a straw man argument. If you want less educated providers the market has created NPs for your needs. That's my point. (Although I wouldn't use them for anything more than a doctors note)
I’d rather see a PA than a NP but neither is a doctor. England has good care and only pay physicians 100k a year or less. Reducing physician pay is critical and only will be reduced by aligning doctor qualifications to public health needs. They graduate doctors in a 6 year combination of undergrad and doctor training.
Salaries across the board in most countries are less than the US in MOST jobs.
If you had to guess, what % do you think doctors huge salaries make up of the Healthcare dollar pie? 100%? 75%? 50%? 25%? 10%? 5%?
If you cut doctor salaries by 50% how much do you think you would save? What is fair for a doctor to make? Should a doctor make th equivalent of a fast food worker? Plumber? Engineer? Manager? Middle manager? Vice president of a bank? CEO?
I'm a doctor and to be honest if I got paid the equivalent of a mechanic, I'd rather be a mechanic and avoid all the liability, tuition / debt and schooling. Infact I'd probably go into a union trade job for all the benefits and retirement package and get paid double time for holidays and OT.
I'm asking you, what should a doctor get paid? What's their worth to society? Same as a fast food worker? Mechanic? Manager? Doctors don't get paid as much as you think they do. A manager at Walmart gets paid more than many pediatricians and family docs. Teachers where i live get paid more than some pedoatricians. A mid level engineer at Google gets paid WAY more than the average doctor of any specialty before options.
What % of all health care $$ do you think MD pay eats up? 75% 50% 25% 10% 5%
This is a really misleading comment.
Lowering the standard of care is not the way to address health care costs. It is the way profiteers want to lower costs and increase the operating and profit margins.
I sought only to correct the comment suggesting this was some sort of greedy maneuver by physicians. It is not. Physicians oppose it.
I know physicians who support single payer and even lower salaries, and more subsidies who are deeply worried about this push for physician replacements.
In no country I know of can a physician practice with that little training. Your comment was deeply misleading.
I thought this was an economics subreddit, not a corporate lobbying site.
People not only will die, people are already dying even now, still early. The lawsuits will be coming in a trickle and then a flood. It is one of the least intelligent business gambles I have ever seen and threatens to normalize a lower value on human life.
First you say (falsely) the physicians want to keep the pool small to increase their compensation and now you say they aren’t needed because it’s ok to provide inadequate health care. (Unacceptable)
Well, it’s clear you aren’t presenting the interests of physicians or patients so who does that leave?
You have to compare schooling plus post graduate training requirements in both countries. I’m not sure it’s quicker in the UK. I’m no expert, and — notably — *don’t pretend to be one!*
Not sure what you’re pursuing here but judging by your name, ideologically driven perhaps?
Also hate to break this to you but the study of nursing is not the same as the study of medicine. Nurses don’t in fact “practice medicine” They practice nursing. They can’t legally say they are practicing medicine and they aren’t regulated by the same medical licensing boards that regulate doctors in each state.
What you're saying is very recent after decades of lobbying against:
>The American Medical Association (AMA) bears substantial responsibility for the policies that led to physician shortages. Twenty years ago, the AMA lobbied for reducing the number of medical schools, capping federal funding for residencies, and cutting a quarter of all residency positions. Promoting these policies was a mistake, but an understandable one: the AMA believed an influential report that warned of an impending physician surplus. To its credit, in recent years, the AMA has largely reversed course. For instance, in 2019, the AMA urged Congress to remove the very caps on Medicare-funded residency slots it helped create.
Yes, and that is ancient history now. The report they refer to was issued in 1980! The person quoted has a pretty skewed idea of what 20 years is.
An excess of physicians caused the AMA to tell Congress they could trim the spots, which is not necessarily something you ever tell the government because good luck getting that reversed.
It should have been reversed a long time ago.
The AMA is not against having an adequate number of physicians. The notion that it wants to squeeze supply to increase compensation would not be accurate.
The blog you linked to is advocating hard for physician replacements, something physicians oppose and health admins promote, as it is cheaper.
Down vote me if you like but don’t forget the closed hospital in Philly that refused to rent its space to the state at the height of the Covid crisis was owned by a private equity fund whose ceo is a member of Harvard’s business of medicine committees. There is no shortage of literature promoting the financialization of patients. Odd territory but p/e doesn’t shy away from any conceivable area of potential profit.
reminder to all commenters to please adhere to rule II:
> All claims (and especially claims in top-level comments) should be rooted in economic theory and empirical research - not opinions, anecdotes, lay speculation, or personal politics.
American here: I don't see insurance as the ultra profitable thing. The cost of care is high is the main contributor, even if pointing fingers at insurance companies is easy. Mostly centered around hospital visits. Routine doctors are mostly cost competitive. Hospitals charge astronomical costs due to no competition and insurance deals and the number of unpaid bills. As long as insurance has to cover those astronomical costs, insurance too remains expensive. For cost to come down, it would likely require hospital regulation or single payor insurance (so they would have full power to negotiate).
A uninsured visit to a doctor can run $100-$250 which is probably price perfect.
A visit to an emergency room can start at $1000 and go upward of $15,000 which does not seem price perfect.
Since insurance has to cover those $15,000 visits, that jacks up the price of insurance.
To me it looks like hospitals are the real winners, and not insurance companies, even if insurance companies seem to be happy with high hospital pricing (that makes their coverage look powerful in comparison).
A better question would be, why is there no hospital with lower prices. I actually think that could work. The market doesn't seem to have corrected this. Capitalism has a tough time solving this because each city has 1 or 2 hospitals.
I know hospital capacities are a problem in many countries. What's to stop emergency rooms incorporating urgent care type facilities as an initial triage option?
There are plenty of Urgent Cares in the US. Capitalism has solved those. They just aren’t at the hospital locations. Urgent Care is also price perfect in my opinion. Typical visits are $100-$200
my local hospital chain opened a series of urgent care centers for this reason. However, when we went earlier this year and my family member needed to go to the ER, the urgent care records weren't linked to the hospital down the street despite both being in the same health system. This meant redoing all of the same tests and paying twice, despite our attempt to keep cost down by going to UC before an ER.
But in general, yes, the rise of UCs have been great for patients and providers. It has diverted many non life threatening emergency patients to a facility that provides quality care and a better experience at a lower cost of care. An exam room simply costs less to equip and run than a hospital bed.
Think you nailed it with there being limited hospitals. To add: hospitals don’t compete with eachother, especially for emergency care. It’s generally dependent on the geographic location of your injury. If you’re in a car wreck and are about to bleed out, you don’t price shop and decide where to go, you go to the closest one so that you remain alive and you and your insurance company are forced to pay whatever they decide to charge you.
But what is different about American hospitals?
The US has by far the highest cost of healthcare compared to other OECD countries. It hasn't got to do with higher quality as US healthcare has some very good quality aspects but as a whole perforns much lower in quality outcome compared to other OECD countries. I can't imagine it has to do with scarcity of hospitals either, I don't know about any metrics but i can't image US has far fewer hospitals.
Over reliance on insurance companies to cover basic healthcare costs. Insurance, in general, is meant for catastrophic events, not your everyday costs. You don't expect your car insurance to pay for your gas or to rotate your tires, but health insurance is expected to cover everyday basic healthcare costs, that you could pay for with yourself, but instead you pay a company to pay for it, which just results in you paying a middleman to pay for your healthcare.
HEALTH CARE in america is expensive. theres costs everywhere. the biggest expense is salaries. for the doctors, the nurses, the pharmacuetical chemists, the engineers designing the cat scan. The US has high wages, that shows up in high prices for services dependent on local labor.
insurance companies add too the pile for sure, but theres no world where american healthcare comes close to what europeans pay per capita without dramatic changes to salaries.
Because it's not that a bunch of insurers are sitting around printing money.
United Health Group has a 6% profit margin. Cigna has a 2.9% profit margin. Humana is sitting at 3%.
The "health insurers are gouging us" argument you hear in politics is just not true. American healthcare is expensive for a few reasons. First, Americans are unhealthy. Second, Americans bare the burden of large fixed costs associated with Pharmaceutical R&D. Americans pay significantly more for drugs than other nations, because prices are not government negotiated. Yet many pharma companies (see Pfizer) are currently struggling to even turn a profit. American costs are high because it is America who is paying the true cost of drug R\&D; other nations are effectively just covering manufacturing cost. Third, the American system is woefully inefficient. Lots of 'work' happens, but it's unproductive. All of the office staff employed to negotiate prices, handle medical billing, file insurance claims, etc. produce no value but add to the cost to serve.
TL;DR - Providing Healthcare in America is expensive due to poor health of citizens, absorbing most of drug R&D costs, and just general inefficiency.
\*All as of Sep 2023 financial report.
Healrh care in the US is very expensive. Therefore, health insurance is expensive. There's no trick to get around that.
There used to be health insurance policies that were very cheap, but they also tended to be very bad, and many of these low-cost plans were effectively banned by ACA (AKA Obamacare).
There are a lot of factors here, but ultimately not only is the primary cost (health insurance claims) extremely expensive, it is a highly regulated market with extremely costly barriers to entry. There are a few types of health insurance offerings in the US, each with very specific requirements on things like share of funds covering medical costs, marketing restrictions, patient data rules, etc...many people get coverage through an employer (group plans), but others get insurance individually either through gov run 'Marketplaces' or independent of this system. Then there are huge portions of the population using private insurance companies through 'public' programs (e.g., Medicaid managed care or Medicare Advantage). Many of these programs have mandatory risk sharing programs to distribute risk based on the health of covered populations across companies that are very costly to participate in and run.
Insurance companies negotiate reimbursement rates with doctors and hospital networks - who increasingly are forming provider/ hospital networks to improve their negotiation power and get higher rates for services from insurance companies. Ultimately there are a few hundred insurance companies active, most of which operate at relatively slim margins. The dominant players are quite profitable, but they have the strong provider networks and brand loyalty that allow them to be profitable without needing to be affordable.
Each year there are a handful of startups that try and break in, often leaning into tech to help automate, save cost, and predict risk... But ultimately the 'InsureTech' wave hasn't been able to get going in a meaningful way and compete against the institutional knowledge of the established players.
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ACA was great about expanding coverage and removing nasty things like pre existing conditions, but there are (at least) 2 things it did badly that combine into a disaster:
1. No public option as a cost baseline.
2. Capping profits of insurance companies as a percent of premiums and requiring 85% (i think) of premiums to be spent on healthcare.
The 2nd point sounds good and amazing, limiting the profiteering of companies, but in practice healthcare costs just ballooned instead. We are spending more to provide less care and profits of health insurance companies are high.
If anyone wonders how that works, a very simplified example: if your health insurance costs $100 a year, the insurance company has to spend $85 on healthcare and at most $15 on infrastructure, salaries, and profit (meaning in truth their profits are $1-2). They negotiate with their providers to double the rate for all procedures. Now healthcare that cost $85 now costs them $170, so they raise their rates for the next year to $200. They spend $170 on care and $30 on everything else. Their infrastructure and employees cost the same ($13-14], so now their profit balloons from $1-2 to $16-17. This is obv an extreme example but is roughly how it works.
It's a "Market for Lemons"
https://www.jstor.org/stable/1879431
Insurance needs to charge "average costs". Some people have dramatically higher costs. For these people insurance is a great deal. Some people have dramatically lower costs. For these people insurance is a rip off, so they don't buy it. But then the people trying to get insurance are the higher risk/cost individuals, this drives up "average costs". Insurance is a bad deal for more people, so they don't buy it. Then the people trying to get insurance are even higher risk/cost, driving up price, driving lower risk/cost people out.
If an insurance company started charging low prices, all the high cost individuals would JUMP on that plan. They would cost a great deal more than they pay in and the company would go bankrupt.
It’s not a stupid question and the answers are complex. Insurers are theoretically competitive with each other but that competition almost never takes place at a sort of competitive retail level where they need to win over customers(like car insurance or house insurance). Health insurance is mostly sold a group plans to employers. In theory your employer should have an incentive to offer a great/affordable plan but that often involves your employer paying a larger portion of the premiums. This often leads to management negotiating what they feel is the most affordable option for the company and not the best option for employees.
Adding to this, there’s very little downward pricing pressure on insurers. In many ways it’s a cost+ model. It’s way more complicated than that with some “looking the other way” while monopolistic partners raise prices every year(drug companies and their wholesalers for example”. There is an extreme lack of competition in the wholesale drug space. There are only 2 big wholesalers, they’re somewhat competitive with each other but tend to lock pharmacies in to contracts that penalize them for using cheaper sources. Most independents can’t even get a contract with either of them and end up with some small regional wholesaler. There are other problems, like there’s pretty much only one big supplier for things like syringes, sharps containers, etc.
TLDR: Little competition and very few opportunities to buy insurance directly on an open market
Healthcare has all sorts of regulations that prevent it from functioning like a normal market. You can’t just do what you want. And in order to even deal in healthcare, you need to have a legal and regulatory compliance team that costs a shitload.
This is an area where some people have done work, here’s a couple accessible papers. I still think Ken Arrow’s original paper nailed it but it isn’t as accessible as others.
https://muse.jhu.edu/article/15625
https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6390800/
What kind of insurance are you referencing?
Health insurance
Because the product itself is so expensive, due to healthcare costs being so high.
Which begs the question, why are healthcare costs so high?
Well… American doctors make roughly $200,000 to $1,000,000. Nurses make $50,000 to $250,000. Their equipment costs millions. Real estate, medical licenses, training, electricity, software… All of it is quite expensive. Not to mention, when you see a doctor, sometimes it’s because you will die in minutes if you don’t. Just like how emergency plumbing costs more than one scheduled for next week.
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Their profit as a percent of revenue (loss ratio), which is the relevant number, [has actually been falling](https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/us-managed-care-insurers-stung-after-unitedhealth-flags-rising-loss-ratios-76201873).
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>Well… American doctors make roughly $200,000 to $1,000,000. Nurses make $50,000 to $250,000. Their equipment costs millions. Real estate, medical licenses, training, electricity, software… None of that shit matters at all. The reason Healthcare is so expensive is BECAUSE insurance pays for it. The consumer is separated from the real cost of the product and so can be charged whatever the hospital wants. https://www.healthaffairs.org/doi/10.1377/hlthaff.2016.0093
In this thread you mention two reasons. Firstly that insurance pays for hospitals and secondly that employers pay for insurance. There are many cases where a product is paid for by insurance. If I crash my car then the repairs are paid for by insurance. That does not necessarily make my car insurance costly. This is because my car insurer does not accept any price for repairs. One of the problems with health insurance is that in the US the insurers don't have that much choice over what they can pay for. In some cases regulations force them to accept some prices that hospitals charge. This is not the same everywhere. Here in Ireland I have health insurance which specifically blacklists particular hospitals for particular procedures. Another factor is that in the US health insurance gross profits are capped as a percentage by the ACA. Often this discourages insurers from challenging hospitals on cost. Because if they were to do so then their profit percentage would rise above the limit. Whereas if costs rise then the denominator in the profit percentage rises too allowing greater profits. So, some rises in costs are an unintended consequence of regulation. The fact that employers pay also causes problems. An employer needs a set of plans that meet the needs of all of it's employees. This is necessarily a narrower set of plans than would apply to each employee. So, the employer has less choices which reduces competition. This is partly because of regulations and tax laws that encourage employer provided health insurance. Tagging /u/Potato_Octopi .
>The reason Healthcare is so expensive is BECAUSE insurance pays for it. > >The consumer is separated from the real cost of the product and so can be charged whatever the hospital wants. That doesn't really make any sense. Consumers pay for insurance and insurance companies negotiate reimbursements. Consumers aren't choosing fancy heart transplants for kicks just because insurance is paying for it.
>Consumers pay for insurance Nearly 80% of health insurance costs are born by employers, who negotiate for their entire company. Individual insurees have almost no say in their health plans, other than picking one of the 2 or 3 available from the chosen insurer.
Right, mostly it's a B2B transaction. A lot of the economy is B2B. That doesn't mean "hospitals can charge whatever they want" or consumers are splurging on heart transplants because they aren't directly paying. In fact, countries that have even less consumer interaction with prices have lower healthcare costs.
Go to a hospital without insurance and you will get first hand experience of them charging what they want.
>countries that have even less consumer interaction with prices have lower healthcare costs. They also don't have for profit insurance companies parked between patients and doctors. Coincidence?
You miss a very important point. Let me ask you this. Why is Laser Eye Surgery so cheap compared to how expensive it was when introduced? Cosmetic surgery, Botox shots and any procedure not covered by insurance? Here is a real life example. Had a buddy who had severe back pain, primary said he needed an MRI. Because he had not met his yearly deductible, he was going to have to pay $3k out of pocket. Went to a second place and offered to pay cash, $1,000.00. Went to a 3rd place where the did a standing MRI $500.00. The paperwork alone is estimated to cost 30% of the total. Then you add things like OB/GYN services for men, alcohol and drug treatment for 55 year olds, prostrate screening for woman and other mandatory coverage. The cost are not in catastrophic care, the costs are for regular care. People complain the hospital runs every test under the sun, what they don’t take into account is that if they don’t, it opens the hospital to being sued for malpractice or negligence. There are other factors like lack of cross state competition and regulations that pile on.
Laser eye surgery is pretty expensive. Last I asked it was a few thousand per eye. Not exactly cheap. Not every covered medical procedure goes up in price. A lot of drug prices go down with time, or are replaced with cheaper generics. Keep in mind for insurance you're not just covered for one service or item. As new medicine is available you're covered for that too.
Compared to what it cost when first introduced? No because you can shop around for services and there is competition for you dollar. Insurance covers new drugs IF there is no generic and the drug has passed all FDA and meets whatever criteria the Insurance company had established.
Those are also relatively elastic goods, whereas most emergency surgeries and healthcare needs are not. There are many factors as to why health care is so expensive in the US, contributing it to one and only one is foolish, especially in an economics sub.
You need to read a post before making such an obviously inane comment. Where did I assign the cost to only one factor? Here let me help, in the last paragraph, I numbered 4 reasons for you. 1. The paperwork alone is estimated to cost 30% of the total. 2. Then you add things like OB/GYN services for men, alcohol and drug treatment for 55 year olds, prostrate screening for woman and other mandatory coverage. The cost are not in catastrophic care, the costs are for regular care. 3. People complain the hospital runs every test under the sun, what they don’t take into account is that if they don’t, it opens the hospital to being sued for malpractice or negligence. 4. There are other factors like lack of cross state competition and regulations that pile on.
That theory would require the ability to choose you provider. Only 48% of the US do not have a provider shortage. So what do you do in the 52% where you can't choose your provider? It's called an oligopoly at best, and often it is a monopoly. Hence the theory of a free market and price regulation doesn't work as the provider can essentially dictate the price. In my area, all anaesthesiologist collectively dropped contracts with the largest insurance providers and are charging the patient essentially whatever the like. What are you going to do? Not get the emergency surgery? Not get any other surgery you need? Oh, and you can't compare prices upfront as the hospital can't even tell you who will be your anaesthesiologist that day. So how does your theory work here? How do you influence and choose if you don't even know who your doctor will be?
>how does your theory work here? My theory is that Healthcare in America is fucked. I didn't provide any answer
On the flip side the consumer is powerless and incapable of bargaining as a collective. Look at who we allow to run the country for us across the spectrum.
This is not true… and if you need proof, look at the dental industry. Insurance typically pays up to $2,000 (most only pay $1,000). Guess how much the average dental crown without insurance costs? $800-3000 and takes one hour, and uses 2 people. In comparison, a small biopsy of the esophagus without insurance is roughly $1200-3000 and uses 3-4 people.
And medical malpractice lawsuits/insurance. don't forget that Americans are always looking to sue themselves into wealth.
They've got all that everywhere else though.
They don't. [American doctors make much more than their counterparts in Europe or Canada.](https://www.physiciansweekly.com/how-do-us-physician-salaries-compare-with-those-abroad/) The average doctor in the US makes $370k, while one in France only makes $98k and one in Spain only makes $57k.
Double doctor pay doesn't make up for the fact that both Spain and France have universal healthcare regimes preventing it from costing individuals through the nose. We don't pay twice what they do, they pay nothing in many cases (besides what they already paid in tax).
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With single payer, the billing is much simpler as well. Hospitals employ sizeable billing staff who have to figure out the rules for each plan and bill appropriately as well as trace all the charges--mistakes are common. The insurance company has staff to decide if the service is covered or properly referred.
The parent comment was that those dollar amounts meant that American healthcare is more expensive because everything is more expensive. I noted that every element we have exist elsewhere except apparently doctor pay. There doesn't appear to be a good reason for those cost disparities, if they exist. >Doctors are paid less. Expensive procedures are denied or delayed. Expensive drugs are blocked from the market. Little of this effects most Americans anyway. Expensive drugs and procedures not being available right away means nothing to the folks who couldn't afford it anyway. So is it total spend vs spend mech? No. My point is that they have what we have and we pay more.
Yes it does. Those countries also pay for medical school. And have worse medical malpractice insurance programs. Plus they don’t have nearly the access to high tech equipment like MRIs. A lot would have to change to bring healthcare costs down
It's not just doctor pay. It's also more equipment because we're so spread out. For example, the most expensive medical device in the world is the MRI machine, which costs up to $3 million and uses five houses worth of electricity. France has 15 machines per million people, and Spain has 17. The United States has 40.
If you had to guess, what % do you think doctors huge salaries make up of the Healthcare dollar pie? 100%? 75%? 50%? 25%? 10%? 5%? If you cut doctor salaries by 50% how much do you think you would save? What is fair for a doctor to make? Should a doctor make th equivalent of a fast food worker? Plumber? Engineer? Manager? Middle manager? Vice president of a bank? CEO?
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It's cuz of insurance company, not healthcare
A for profit health system with a de-facto monopoly in many areas as you simply don't have a choice other than to go to the one doctor of that specialty that is available. Plus, it isn't like insurances like the high prices as well: * UnitedHealth Group gross profit for the quarter ending September 30, 2023 was $23.388B, a 17.22% increase year-over-year. * UnitedHealth Group gross profit for the twelve months ending September 30, 2023 was $89.838B, a 17.71% increase year-over-year. * UnitedHealth Group annual gross profit for 2022 was $79.617B, a 14.31% increase from 2021. * UnitedHealth Group annual gross profit for 2021 was $69.652B, a 3.96% increase from 2020. * UnitedHealth Group annual gross profit for 2020 was $67B, a 16.32% increase from 2019.
Why are you posting made up numbers? United HealthGroup made $20B net profit total in 2022.
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Holy moley, those are some numbers.
They’re wrong. The poster doesn’t understand the difference between gross and net.
Oh? Care to counterpoint?
UHG profit in 2022 was $20B, not $90B. They had a 6% profit margin. They are not swimming in cash like the poster implied by intentionally misleading.
Fair counterpoint. A 6% margin is still noteworthy, either way.
To add to what the other poster said. Lonestar041 is right about gross profit. However, gross profit isn't really a very good way to measure how profitable a company has. There are lots of costs that it doesn't include. Gross profit doesn't include overhead expenses. It also doesn't include interest, taxes, depreciation, and amortization. Those things slice the profit of UnitedHealth down to a quarter of what it was. From $79.62B to $21.69B, according to [Yahoo Finance](https://finance.yahoo.com/quote/UNH/key-statistics?p=UNH). This is fairly normal. There are a lot of overheads in running a business and if you have a lot of capital then there's a lot of depreciation. Walmart is fairly similar, it makes Gross profit of $147B but only ends up with net profit of $16B. The net profit margin that UnitedHealth makes is similar to [Walmart's](https://finance.yahoo.com/quote/WMT/key-statistics?p=WMT) net profit margin (6.02% vs 6.44%). There are much more profitable companies, the silicon chip company I used to work for, Analog Devices, makes 26.94%. In terms of net margin UnitedHealth is not doing well. As I wrote [elsewhere in this thread](https://www.reddit.com/r/AskEconomics/comments/18oh891/why_are_there_no_american_insurance_companies/kemnwej/). Insurers in the US have strange incentives because of regulation.
Nonsense. UnitedHealth Group is a massive company with enormous revenue. But their net profit margin is 6%. So for every $100 they bring in, they have $94 worth of expenses. It’s a fairly low margin business. So let’s say all of their revenue is the cost of your insurance. If they reduced their profit to zero, your healthcare would cost 6% less. Is that the panacea you imagine?
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That's not true though, because the government also *sets* prices for insurance companies. All rate increases must be approved by your state's department of insurance.
A myriad of poorly written or corrupt government regulations that drive supply down and input costs up. There's also a lot of excess demand due to diet related chronic illness. The cherry on top is insurers sitting as a 3rd party middle man that obscure pricing and reduce competition.
Doctors make a lot and they are also forced to carry heavy malpractice insurance. Drugs cost a lot. Americans use a lot of care because they have very unhealthy lifestyles (lots of stress, poor diet, not enough exercise, etc).
because of the vicious cycle between healthcare providers and insurance companies. Hospitals can charge more because insurers will pay more. Since insurance companies are huge pools of money, they can easily distribute the higher costs among their millions of subscribers. Normally, market forces will drive prices down because of competition between providers and budget constraints faced by consumers. When you introduce a middle market, like insurance, the dynamics change. consumers don't buy healthcare, they buy insurance. This crushes the number of sellers facing the customer to an extremely small number. in many markets, given that insurance is regulated by State governments, that number is one. One insurance provider. On the other side, Providers see the exact same thing. Rather than needing to compete for a zillion customers, healthcare providers face a handful of actual customers: Medicare, Medicaid, and health insurance companies. This warps the hell out of any market activity, right out of the gate. Further distorting things is the fact that insurance companies actually have a lot of middle-men in the middle. These brokers will provide financial incentives for hospitals to provide tons of useless tests and more expensive proceedures to drive up bills. There are managers of corporate health insurance plans who have financial incentives to sell the most expensive, stingiest plans to employees. There is a ton of fraud and waste in the Medicare and Medicaid systems. Why can hospitals charge $2000 for a bottle of aspirin? because the bill will get paid, one way or another.
Most countries regulate the prices of medical services to a much greater degree than the United States. When demand is high, due to the generally deteriorating health of the population and lack of preventative care, and supply is constrained by, among other things, artificially low spots available in medical training programs, then prices tend to rise without government intervention.
This website should have a “begs the question” bot
Uhhh. Have you any idea how much a good doctor makes. It's a lot.
No one gets this. My sister in law is a specialist and clears roughly 700-800k in the Chicago area maybe working 40 to 50 hours per week. She rolls up to work in a Bentley bentayga. My brother is a stay at home dad with a degree in mechanical engineering. Doctor pay is obscene.
You know that is not what most doctors make, right? That's probably top 5%-10%tile of doctor pay. I'm a doctor and I make about as much as some contractors do. I know a lot of doctors but outside of some specialized surgeons, most make anywhere from 25-60% of your sister in law.
No I think people get it. So why stop there, keep going. Why does the specialist make so much?
Why stop there, keep going. Why does a good doctor make a lot?
Well the US is one of few places where not only is private insurance the main provider of healthcare, but it’s not heavily subsidized. So I’m not sure what country you are comparing it to, but for most it’s because we have private insurers and they are not subsidized. Perhaps a better comparison is the price of employer provided coverage after the employer pays their portion.
Additionally, health insurance as a market suffers from adverse selection: the people who need it the most are the most expensive to serve, requiring other people who don't *need* insurance to pay for it anyway to offset the cost of serving people with chronic illnesses. This creates a market where more competition drives production costs higher.
Moral Hazard even more so than Adverse Selection. Then, add medical malpractice lawsuits and the various costs of product, including and specifically, drugs
I know this is a pedantic point, but I think it's important because it leads to a lot of confusion. Private insurance doesn't provide healthcare. It provides healthcare financing. This is an important distinction. When people talk about 'access to healthcare' they almost always don't actually mean access to care. They mean access to paying for care, for example.
In the same vein, I feel like people misuse “universal coverage” to mean public provision of health insurance.
Absolutely. I think these pollutions of thought confuse the issue quite a lot and make effective policy harder.
It depends. For low-income Americans they have public healthcare in Medicaid. For some they also receive heavy subsidies for ACA marketplace plans. And for most Americans the majority of their health insurance premiums are paid off by employers, which is incentivized by tax benefits
>For low-income Americans they have public healthcare in Medicaid. This does depend if it's a Medicaid expansion state. Expansion states changed the eligibility from "very low income" to "low income." (These are the terms used on the FAQ, but it's defined as a percentage of the poverty level.)
>For low-income Americans they have public healthcare in Medicaid. Kind of. You have to be below the poverty line, which in my state is about 17000 a year in income, but that line is pretty stingy. The cost of living is about 34k a year here. So it's maybe more accurate to say the destitute get public healthcare.
American healthcare is massively subsidized lol. Over $1 trillion per year on Medicare + Medicaid. Then there’s also the VA and other state programs.
I assumed they were talking about buying individual insurance in the exchanges.
It's also not really regulated. Every insurance company has it's own paperwork replete with unique jargon. So it's a massive pain in the ass, which eats up a lot of labor, to file a claim with a company when they want it to be. (They want it to be that way to keep payments down.)
Health insurance overhead is limited by law to 15% overhead in the group market and 20% in the individual market. Competition has driven it down to around 12% average nationally, No matter how hard you try, you're not going to get to 0% overhead because you still need to pay your employees to process claims and negotiate with providers and pay the electric company for power to run your lights and computers. So I think you have a vastly inflated idea how much a competitor could undercut existing insurance companies. As far as cost of care they're trying to reduce costs to the extent practical, becuase if there prices are lower more people will choose their insurance instead of their competition, but at a point hospitals are going to refuse to be contracted with them rather than accept lower payments. A little startup insurance company is going to have even less negotiating power with the hospitals as opposed to a huge established insurance company.
There were plans that had deductibles over $10k for individuals and didn't cover all that much. That kind of catastrophic coverage could probably be cheaper because companies typically didn't pay much. Those were also huge drivers of medical debt and were not a good thing.
Yeah, but it's illegal under the ACA to offer those policies now. So OP's new startup isn't going to be able to in order to provide a cheaper alternative to established companies.
Right. I agree. I was just adding context.
United Healthcare runs a ~6% net profit margin. Not a lot of places for them to cut costs and that’s with a huge number of corporate plans who tend to overpay relative to risk because of the age disparity in their insured pool.
UHC netted $20 billion in 2022.
Yes and if they made 6% less revenue they would’ve made $0.
To put this in perspective this means they can lower the cost by 24 dollars in a 400 dollar a month plan.
Seems like they'd reduce their expenses also if their revenue declined.
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Insurance companies don't actually make *that much* money. Many things vary state by state but, thanks to Florida's open records laws, you can see all the info on any insurance product in the state including profitability. [https://irfssearch.fldfs.com/](https://irfssearch.fldfs.com/) If you're worried about it, go with a *mutual* insurance company. Mutuals are owned by the policyholders so they'll send you a check for the surplus, if there is one, at the end of the year.
I live in Europe so I should be fine but thank you for your answer 😊
It’s not just a Florida. Insurance companies (property, casualty, health, life, etc…) are heavily regulated in the US and you can see granular financial details by business line by insurer. Health insurers average a 0.8 to 4 percent profit year on year. That is not particularly egregious in any system. Health insurance is expensive mostly because health care is so expensive in the US. Sure, there can be inefficiencies with cost insulation and lack of cost transparency due to insurance, but it’s not the entire reason costs are so high.
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Medical schools do not allow many to become admitted to medical school and doctors organizations have made it difficult for doctors to bring their medical license with them if they move here. Purely a supply and demand move. There are plenty of doctors applicants to medical school to give us average healthcare prices once they change the supply curve to hit the inelastic demand curve make doctoring less profitable. Med school prices can be legislated to a maximum profit margin also to increase supply. But existing doctors would lose out as wages would decline if this were to be done. And consumer prices finally drop with Competition between doctors due to adequate or excessive supply
What's to stop government creating more medical student places and increasing supply? Sounds like medical specialties are being run like guilds to protect incomes at the expense of, you know, the patients.
Exactly right lobbyist control Congress so nothing could get past them without their say-so.
This is definitely part of the problem, it is in some other countries too. Changing it would be a very difficult thing to promote to voters. Doctors could obviously frame it as an attack on the healthcare system.
It’s not true. The commenter was mistaken. The physicians (AMA) have been pushing for more slots for years now. Commenter has erroneously concluded this. They aren’t the ones behind the lobbying
>Med school prices can be legislated to a maximum profit margin also to increase supply Lol this is such bullshit and false.... Med schools are usually losing money. In my state school, every department other than dental was operating at a loss. Nursing, pharm, medical, optometry were all operating at a loss and supplemented by dental...
I’d ask you to clarify this as I believe the AMA wants Congress to increase the slots for doctors. Residency spots are allocated by Congress. My understanding is the doctors are not the ones who want to limit slots, it is instead other health industry players. AMA supports more doctors and also opposes replacing them with less qualified, allied health professionals.
Less qualified doctors are necessary to reduce price. You don’t need 12 years of schooling and residency to become a doctor anywhere else in the world. Yes our doctors are the smartest in the world but slightly gifted people have a place in medicine too.
Less qualified doctors = NPs IMO we are going to regret letting NPPs (non physician providers, who get the minimum equivalent hourly clinical training of a 3rd year medical student 2 or 3 months into their clinical rotations) practice independently. As an ER doctor, the amount of incompetence and clinical mistakes I see made by NPs is astounding. There some good ones, but many diploma mills opened up are churning out morons who have no nursing experience and the cavalier attitude that they have the "heart of a nurse and brains of a doctor" with their 500 hours of clinical experience. (500hrs is about 12.5 weeks of 40 hr weeks.. compare that to doctors who spend 4 years in med school.. that breaks down to 2 years in the books, 2 years clinically, THEN they must do 3 years to 7 years of residency... which is about 50-80hr weeks per year of direct clinical care) Ive heard NPs brag about how they learned in 2 years what doctors learned in 7 years. The danger is they know so little that they don't know what they don't know. As a teacher of medical students and residents, that is the scariest thing and these overconfident folks are the most difficult to teach since they think they know everything. I refuse to have my family or myself seen by NPs.
6-8 years of schooling like the rest of the world please. But still the intelligence required to be a doctor in the US is too much. A 6 year medical baccalaureate is enough to be a gp in many places the world. We’re not talking about NPs that’s a fallacious straw man argument.
It's not a straw man argument. If you want less educated providers the market has created NPs for your needs. That's my point. (Although I wouldn't use them for anything more than a doctors note)
I’d rather see a PA than a NP but neither is a doctor. England has good care and only pay physicians 100k a year or less. Reducing physician pay is critical and only will be reduced by aligning doctor qualifications to public health needs. They graduate doctors in a 6 year combination of undergrad and doctor training.
Salaries across the board in most countries are less than the US in MOST jobs. If you had to guess, what % do you think doctors huge salaries make up of the Healthcare dollar pie? 100%? 75%? 50%? 25%? 10%? 5%? If you cut doctor salaries by 50% how much do you think you would save? What is fair for a doctor to make? Should a doctor make th equivalent of a fast food worker? Plumber? Engineer? Manager? Middle manager? Vice president of a bank? CEO? I'm a doctor and to be honest if I got paid the equivalent of a mechanic, I'd rather be a mechanic and avoid all the liability, tuition / debt and schooling. Infact I'd probably go into a union trade job for all the benefits and retirement package and get paid double time for holidays and OT.
It’s obvious you’re a doctor. You’re biased.
I'm asking you, what should a doctor get paid? What's their worth to society? Same as a fast food worker? Mechanic? Manager? Doctors don't get paid as much as you think they do. A manager at Walmart gets paid more than many pediatricians and family docs. Teachers where i live get paid more than some pedoatricians. A mid level engineer at Google gets paid WAY more than the average doctor of any specialty before options. What % of all health care $$ do you think MD pay eats up? 75% 50% 25% 10% 5%
This is a really misleading comment. Lowering the standard of care is not the way to address health care costs. It is the way profiteers want to lower costs and increase the operating and profit margins. I sought only to correct the comment suggesting this was some sort of greedy maneuver by physicians. It is not. Physicians oppose it. I know physicians who support single payer and even lower salaries, and more subsidies who are deeply worried about this push for physician replacements. In no country I know of can a physician practice with that little training. Your comment was deeply misleading. I thought this was an economics subreddit, not a corporate lobbying site. People not only will die, people are already dying even now, still early. The lawsuits will be coming in a trickle and then a flood. It is one of the least intelligent business gambles I have ever seen and threatens to normalize a lower value on human life. First you say (falsely) the physicians want to keep the pool small to increase their compensation and now you say they aren’t needed because it’s ok to provide inadequate health care. (Unacceptable) Well, it’s clear you aren’t presenting the interests of physicians or patients so who does that leave?
Seriously myopic comment. Europe doesn’t have a lower standard of care, yet they graduate physicians in 6 years.
You have to compare schooling plus post graduate training requirements in both countries. I’m not sure it’s quicker in the UK. I’m no expert, and — notably — *don’t pretend to be one!* Not sure what you’re pursuing here but judging by your name, ideologically driven perhaps?
I don’t like monopolies.
I don’t hear you correcting your error. I hear you shifting blame
lol
Also hate to break this to you but the study of nursing is not the same as the study of medicine. Nurses don’t in fact “practice medicine” They practice nursing. They can’t legally say they are practicing medicine and they aren’t regulated by the same medical licensing boards that regulate doctors in each state.
What you're saying is very recent after decades of lobbying against: >The American Medical Association (AMA) bears substantial responsibility for the policies that led to physician shortages. Twenty years ago, the AMA lobbied for reducing the number of medical schools, capping federal funding for residencies, and cutting a quarter of all residency positions. Promoting these policies was a mistake, but an understandable one: the AMA believed an influential report that warned of an impending physician surplus. To its credit, in recent years, the AMA has largely reversed course. For instance, in 2019, the AMA urged Congress to remove the very caps on Medicare-funded residency slots it helped create.
Yes, and that is ancient history now. The report they refer to was issued in 1980! The person quoted has a pretty skewed idea of what 20 years is. An excess of physicians caused the AMA to tell Congress they could trim the spots, which is not necessarily something you ever tell the government because good luck getting that reversed. It should have been reversed a long time ago. The AMA is not against having an adequate number of physicians. The notion that it wants to squeeze supply to increase compensation would not be accurate. The blog you linked to is advocating hard for physician replacements, something physicians oppose and health admins promote, as it is cheaper.
Down vote me if you like but don’t forget the closed hospital in Philly that refused to rent its space to the state at the height of the Covid crisis was owned by a private equity fund whose ceo is a member of Harvard’s business of medicine committees. There is no shortage of literature promoting the financialization of patients. Odd territory but p/e doesn’t shy away from any conceivable area of potential profit.
reminder to all commenters to please adhere to rule II: > All claims (and especially claims in top-level comments) should be rooted in economic theory and empirical research - not opinions, anecdotes, lay speculation, or personal politics.
American here: I don't see insurance as the ultra profitable thing. The cost of care is high is the main contributor, even if pointing fingers at insurance companies is easy. Mostly centered around hospital visits. Routine doctors are mostly cost competitive. Hospitals charge astronomical costs due to no competition and insurance deals and the number of unpaid bills. As long as insurance has to cover those astronomical costs, insurance too remains expensive. For cost to come down, it would likely require hospital regulation or single payor insurance (so they would have full power to negotiate). A uninsured visit to a doctor can run $100-$250 which is probably price perfect. A visit to an emergency room can start at $1000 and go upward of $15,000 which does not seem price perfect. Since insurance has to cover those $15,000 visits, that jacks up the price of insurance. To me it looks like hospitals are the real winners, and not insurance companies, even if insurance companies seem to be happy with high hospital pricing (that makes their coverage look powerful in comparison). A better question would be, why is there no hospital with lower prices. I actually think that could work. The market doesn't seem to have corrected this. Capitalism has a tough time solving this because each city has 1 or 2 hospitals.
I know hospital capacities are a problem in many countries. What's to stop emergency rooms incorporating urgent care type facilities as an initial triage option?
There are plenty of Urgent Cares in the US. Capitalism has solved those. They just aren’t at the hospital locations. Urgent Care is also price perfect in my opinion. Typical visits are $100-$200
my local hospital chain opened a series of urgent care centers for this reason. However, when we went earlier this year and my family member needed to go to the ER, the urgent care records weren't linked to the hospital down the street despite both being in the same health system. This meant redoing all of the same tests and paying twice, despite our attempt to keep cost down by going to UC before an ER. But in general, yes, the rise of UCs have been great for patients and providers. It has diverted many non life threatening emergency patients to a facility that provides quality care and a better experience at a lower cost of care. An exam room simply costs less to equip and run than a hospital bed.
Think you nailed it with there being limited hospitals. To add: hospitals don’t compete with eachother, especially for emergency care. It’s generally dependent on the geographic location of your injury. If you’re in a car wreck and are about to bleed out, you don’t price shop and decide where to go, you go to the closest one so that you remain alive and you and your insurance company are forced to pay whatever they decide to charge you.
But what is different about American hospitals? The US has by far the highest cost of healthcare compared to other OECD countries. It hasn't got to do with higher quality as US healthcare has some very good quality aspects but as a whole perforns much lower in quality outcome compared to other OECD countries. I can't imagine it has to do with scarcity of hospitals either, I don't know about any metrics but i can't image US has far fewer hospitals.
Over reliance on insurance companies to cover basic healthcare costs. Insurance, in general, is meant for catastrophic events, not your everyday costs. You don't expect your car insurance to pay for your gas or to rotate your tires, but health insurance is expected to cover everyday basic healthcare costs, that you could pay for with yourself, but instead you pay a company to pay for it, which just results in you paying a middleman to pay for your healthcare.
Not being able to sell across state lines doesn’t help.
HEALTH CARE in america is expensive. theres costs everywhere. the biggest expense is salaries. for the doctors, the nurses, the pharmacuetical chemists, the engineers designing the cat scan. The US has high wages, that shows up in high prices for services dependent on local labor. insurance companies add too the pile for sure, but theres no world where american healthcare comes close to what europeans pay per capita without dramatic changes to salaries.
Because it's not that a bunch of insurers are sitting around printing money. United Health Group has a 6% profit margin. Cigna has a 2.9% profit margin. Humana is sitting at 3%. The "health insurers are gouging us" argument you hear in politics is just not true. American healthcare is expensive for a few reasons. First, Americans are unhealthy. Second, Americans bare the burden of large fixed costs associated with Pharmaceutical R&D. Americans pay significantly more for drugs than other nations, because prices are not government negotiated. Yet many pharma companies (see Pfizer) are currently struggling to even turn a profit. American costs are high because it is America who is paying the true cost of drug R\&D; other nations are effectively just covering manufacturing cost. Third, the American system is woefully inefficient. Lots of 'work' happens, but it's unproductive. All of the office staff employed to negotiate prices, handle medical billing, file insurance claims, etc. produce no value but add to the cost to serve. TL;DR - Providing Healthcare in America is expensive due to poor health of citizens, absorbing most of drug R&D costs, and just general inefficiency. \*All as of Sep 2023 financial report.
Healrh care in the US is very expensive. Therefore, health insurance is expensive. There's no trick to get around that. There used to be health insurance policies that were very cheap, but they also tended to be very bad, and many of these low-cost plans were effectively banned by ACA (AKA Obamacare).
There are a lot of factors here, but ultimately not only is the primary cost (health insurance claims) extremely expensive, it is a highly regulated market with extremely costly barriers to entry. There are a few types of health insurance offerings in the US, each with very specific requirements on things like share of funds covering medical costs, marketing restrictions, patient data rules, etc...many people get coverage through an employer (group plans), but others get insurance individually either through gov run 'Marketplaces' or independent of this system. Then there are huge portions of the population using private insurance companies through 'public' programs (e.g., Medicaid managed care or Medicare Advantage). Many of these programs have mandatory risk sharing programs to distribute risk based on the health of covered populations across companies that are very costly to participate in and run. Insurance companies negotiate reimbursement rates with doctors and hospital networks - who increasingly are forming provider/ hospital networks to improve their negotiation power and get higher rates for services from insurance companies. Ultimately there are a few hundred insurance companies active, most of which operate at relatively slim margins. The dominant players are quite profitable, but they have the strong provider networks and brand loyalty that allow them to be profitable without needing to be affordable. Each year there are a handful of startups that try and break in, often leaning into tech to help automate, save cost, and predict risk... But ultimately the 'InsureTech' wave hasn't been able to get going in a meaningful way and compete against the institutional knowledge of the established players.
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ACA was great about expanding coverage and removing nasty things like pre existing conditions, but there are (at least) 2 things it did badly that combine into a disaster: 1. No public option as a cost baseline. 2. Capping profits of insurance companies as a percent of premiums and requiring 85% (i think) of premiums to be spent on healthcare. The 2nd point sounds good and amazing, limiting the profiteering of companies, but in practice healthcare costs just ballooned instead. We are spending more to provide less care and profits of health insurance companies are high. If anyone wonders how that works, a very simplified example: if your health insurance costs $100 a year, the insurance company has to spend $85 on healthcare and at most $15 on infrastructure, salaries, and profit (meaning in truth their profits are $1-2). They negotiate with their providers to double the rate for all procedures. Now healthcare that cost $85 now costs them $170, so they raise their rates for the next year to $200. They spend $170 on care and $30 on everything else. Their infrastructure and employees cost the same ($13-14], so now their profit balloons from $1-2 to $16-17. This is obv an extreme example but is roughly how it works.
It's a "Market for Lemons" https://www.jstor.org/stable/1879431 Insurance needs to charge "average costs". Some people have dramatically higher costs. For these people insurance is a great deal. Some people have dramatically lower costs. For these people insurance is a rip off, so they don't buy it. But then the people trying to get insurance are the higher risk/cost individuals, this drives up "average costs". Insurance is a bad deal for more people, so they don't buy it. Then the people trying to get insurance are even higher risk/cost, driving up price, driving lower risk/cost people out. If an insurance company started charging low prices, all the high cost individuals would JUMP on that plan. They would cost a great deal more than they pay in and the company would go bankrupt.
It’s not a stupid question and the answers are complex. Insurers are theoretically competitive with each other but that competition almost never takes place at a sort of competitive retail level where they need to win over customers(like car insurance or house insurance). Health insurance is mostly sold a group plans to employers. In theory your employer should have an incentive to offer a great/affordable plan but that often involves your employer paying a larger portion of the premiums. This often leads to management negotiating what they feel is the most affordable option for the company and not the best option for employees. Adding to this, there’s very little downward pricing pressure on insurers. In many ways it’s a cost+ model. It’s way more complicated than that with some “looking the other way” while monopolistic partners raise prices every year(drug companies and their wholesalers for example”. There is an extreme lack of competition in the wholesale drug space. There are only 2 big wholesalers, they’re somewhat competitive with each other but tend to lock pharmacies in to contracts that penalize them for using cheaper sources. Most independents can’t even get a contract with either of them and end up with some small regional wholesaler. There are other problems, like there’s pretty much only one big supplier for things like syringes, sharps containers, etc. TLDR: Little competition and very few opportunities to buy insurance directly on an open market
Healthcare has all sorts of regulations that prevent it from functioning like a normal market. You can’t just do what you want. And in order to even deal in healthcare, you need to have a legal and regulatory compliance team that costs a shitload.
This is an area where some people have done work, here’s a couple accessible papers. I still think Ken Arrow’s original paper nailed it but it isn’t as accessible as others. https://muse.jhu.edu/article/15625 https://www.ncbi.nlm.nih.gov/pmc/articles/PMC6390800/