Insurers and a one way ratchet lobby

This is interesting to me as it strongly implies that the health insurers and providers has two pathways towards increasing revenue:

1) Cover more people
2) Increase average payment level per person

From a business perspective this makes sense.

Let’s unpack it a bit as we looked at provider side accounts receivable preferences years ago:

Providers have their preferences as to what patients and insurance scenarios they see. Uninsured individuals have always been the least preferred by both the treatment/clinical side and the finance side for a multitude of reasons….
Providers have clear account receivable preferences as to what patients they treat.

The ideal patient from an account receivables perspective pays a very high percentage of the billed charge with a high degree of certainty and a short turn around time and minimal haggling. Excluding celebrity rehab centers and $40,000/year per person coverage, there are few payers who meet this provider ideal. Everything else is a trade-off.

Let’s look at it from an insurer revenue side perspective now.

An uninsured individual brings no revenue. An individual in Medicaid fee for service brings in no revenue. However an individual in Medicaid managed care brings in some revenue. This is a direct revenue source and also a source of slightly more leverage on payer-provider negotiations that would allow the insurer to get slightly lower rates. Insurers support expanding Medicaid because most of the incremental money is flowing through managed care and a good chunk of the incremental ACA covered population is either getting a new Medicaid ID card or were uninsured.

Medicare Advantage tends to pay more than Medicaid. Exchange plans tend to pay anywhere from Medicare Advantage-esque rates to full commercial rates. Large group plans tend to pay the highest as they have the strongest network constraints if they have a large geographic footprint for their critical employees.

These industries want a one way ratchet where program expansion is only allowed to go from lower paying subgroups to higher paying subgroups.

Medicare Advantage for All, Medicaid Buy-ins, Medicare Buy-ins, Medicare for All would move a tremendous number of people out of higher paying categories and into lower paying categories. That is what the fight was about in the Washington State public option bill as the original proposal was for it to pay providers Medicare plus a little bit and the final proposal ended up at basically commercial rates. This is the fight in North Carolina where the state treasure wants to “only” pay 200% Medicare for the State Employee Health Plan. The large hospital groups in North Carolina have not signed onto the proposal.

Providers and insurers are talking their book of business and they want a one way ratchet. And from a business perspective, that makes sense. From a societal perspective, let’s just be aware of what is happening here.

17 replies
  1. 1

    This is a pretty important point. I saw something on Twitter yesterday to the effect that they will use the same arguments against all the new plans.

    OTOH, did any of us think that the insurance industry was going to give in to their altruistic impulses and back plans that might save the country money and make health care more available to all?

  2. 2
    Chris Johnson says:

    There are actually a lot of things where the perspective, “I just want to take money from people. What do I have to do, to just take your money?” is bad.

    I get that in capitalism there’s (long ago when we were all more naive) a fantasy that you exchange money for goods and services and this makes up a thing called ‘market economics’, but in practical terms when there’s a prospect of JUST taking money anyway, that proves way more effective, and from a business perspective, that crowds out the more foolish people trying to exchange payment for benefit.

    I guess you see this too, and are presenting it as ‘this is fine’ from the business perspective, but also giving a nod to the ‘HOLY SHITBALLS ROBBER BARONS WTF’ reality that is the practical application of this philosophy. Nice to see the nod to reality, from such a master of the behind-the-scenes and the quant mechanics of it all.

  3. 3
    rikyrah says:

    The insurance industry anti-Medicare-for-all group is also running against the public option and Medicare buy-in, FWIW. (cc @libbycwatson)

    — Dave Weigel (@daveweigel) July 26, 2019

    Who coulda knowd?

  4. 4
    daveNYC says:

    Companies like money. Got it.
    Nor is it shocking that the insurance industry is going to fight tooth and nail against any sort of expansion of government health insurance. That’s just straight up competition for their customers, can’t have that happening.

  5. 5
    A Ghost To Most says:

    To be fair, discussions of health insurance make my head hurt as much as my RN wife’s must hurt when I talk about databases. But this is important stuff, so please accept my (silent) thanks.

  6. 6
    JKC says:

    I know some docs who are advocates of boutique medical practices and talk a lot about physical autonomy. What I hear is “we want more money and fewer questions asked.”

  7. 7
    Eolirin says:

    I suppose the question is then how can we overcome that force and what measures can we take that would further improve the system that won’t generate a strong enough backlash to effectively kill?

    There shouldn’t be much in the way of push back from industry groups from things like expanding exchange subsidies and possibly turning Medicaid into a federally run program that still uses managed plans, yeah? Would lowering the Medicare age also fall into that category?

    Then there’s the big issue with preventative care costs not necessarily accruing savings to the insurer that paid for it because people change plans, so would there be support for a fix to that problem, at least on the insurance side? I feel like that’s possibly one of the easier major inefficiencies in our system to get support for correcting?

  8. 8
    Arcnor says:

    U.S. demand is threatening Canada’s drug supply
    U.S. plans to allow importing prescription drugs from Canada

    Oh good, this can only end well. I do like how America is so entirely incapable of dealing with pharmaceutical companies and their quite-literally lethal prices that you have to go elsewhere to find prices that aren’t murderous. And now Canadians get to be the villains for telling poor people desperate for insulin and the like that there’s only enough supply and infrastructure in the Canadian health system for one country, not two, particularly not when the one supplying the medicine is only one-tenth the population and tax base of the one wanting cheap drugs on someone else’s dime. The entire U.S. has now adopted the Sarah Palin model of health care — when in doubt, when in debt, let the Canadians sort it out for you. And then tell us our health care system sucks on the way out the door.

    I may be very slightly bitter about this, by the way.

  9. 9
    Aurona says:

    I live in WA so this information is important for me to follow here, so thank you. I would really like to see Part D, the drug part of Medicare, cleaned up or redone. I will never forget Billy Tauzin and his quickly meandering from being a US House representative to being PHRMA CEO in “fixing the donut hole” back in the early ’00’s. There were more, but his name is still on the tip of my tongue.

  10. 10
    jl says:

    Thanks for making an important point and highlighting the ad I saw someplace. And I think it reinforces the point I made recently, that it is a mistake to think more moderate plans for Medicare for All, such as public option or buy in can be more politically feasible or do-able than the Sanders style straight Medicare for All with private insurance only providing supplemental benefits in addition to (versus as a substitute for) the basic mandatory benefit plan. The insurance industry and corporate providers will lump everything together that threatens a penny of their profits and fight against them fanatically. So, pick your preferred policy on the merits, and then on how can it be explained to voters. not on how ‘easy’ you think it can get through Congress.

    I don’t know of a successful high income industrialized country that does not stringently control the short run profit motive for insurance and provision of the basic mandatory benefit package. That includes the few countries that still rely mostly on private insurance: Netherlands and Switzerland. How a country pays for insurance is a distraction. The real action is
    universal coverage
    single mandatory benefit package for everyone to prevent cream skimming by insurers and providers (Ihose who want extra buy supplemental insurance on a separate market)
    Some risk adjustment mechanism for providers to equalize health differences between health status of their patients
    Some kind of community rating system, no underwriting, and some subsidy system for low income people
    Some mechanism to stop corporate price gouging due to local monopoly power and lack of price transparency.

    It is that last that seems to be a forbidden topic, except for Warren. The advantage of the various Medicare for All proposals is that there is an active and constructive debate over which plan can achieve those goals, even if each one is not mentioned explicitly. The conservative and moderate Democrats who want to stay with the PPACA or gradually strengthen it just have vague talk and slogans.

    So,as commenters here know well, my favorite examples are Australia and Switzerland. Australia had Medicare for All which is very close to the more aggressive plans proposed in the US. Switzerland has a much more highly regulated version of PPACA, which remove profit motive for basic mandatory benefit package. Both have moved from being so-so for several demographic groups, to be among the best in the world for all of them . Both spend between 10 and 12 percent of the GDP on health care. Look almost identical in terms for performance, cost a lot less, yet have completely different ways to get there.

    Anyway, I am most interested in the Medicare for All debate since at least there is a productive debate on how to get policy that touches the real issues.

  11. 11
    jl says:

    I disagreed with Krugman on his initial analysis of Warren’s foreign trade policy proposals yesterday. But I think he has a perceptive twitter thread on the economics and politics of the Dem health policy debate today.

  12. 12
    HinTN says:

    Just read the note that Scotian passed last night. Not really off topic since we’re his “insurance” provider. Well done, Jacaltariat.

  13. 13
    L85NJGT says:


    Start with accepting that ObamaCare is the underpinning of the US healthcare system for the next fifty years.

    Anyone promising a radical re-tooling is a liar and a knave. This goes for left and right. It was a significant factor in a number of 2018 GOP house losses, and now revanchist progressives are saying hold my beer, and grabbing for a political electric fence.

  14. 14
    Ruckus says:

    @Cheryl Rofer:
    The only way someone can make that argument is if the only things they see rainbows, butterflies, unicorns, always clear blue skies, flower petals everywhere they are.
    We should never forget that insurance companies are in business to make money, by charging more money than they spend. That is the sum total of their business model. So there are two ways for them to give back less than they take in. Charge more, or give back less. Mandate that they make less profits will always get a fight.

  15. 15
    JustRuss says:

    @Arcnor: Yeah, I attended a presentation on healthcare by an insurance exec last night and the crap about how horrible Canadians have it was really annoying, especially to my Canadian friend who was sitting next to me. Silver lining was that they admit that drug prices are way out of hand and government intervention may be the only remedy. Maybe we can get all the insurance execs in a room with all the pharma execs and let them duke it out. Or pray for a meteor.

  16. 16

    This is a compelling argument for a single-payer system, or at least one in which pricing control is taken away from the health insurance industry.

    After all the abuses, after the price-gouging, after the care denials, after the outright unnecessary deaths, why are we even giving the health industry the time of day? If there such a thing as crimes against humanity trials for businesses their execs would be up before tribunals.

  17. 17
    jl says:

    @Raven Onthill: You shouldn’t trust the insurance industry or the corporate providers at all. If you want them to play a useful role in a health care system, then the government has to regulate the holy living hell out of them, like they do in the Netherlands and Switzerland. And then be prepared to beat back endless attempts by insurers and corporate providers to wreck the system so they can make more exessive profits.

    We can look at those two countries as good examples that do health care better and cheaper than we do. But their insurance industries will tell you that their system are sheer evil, the most infernal diabolic messes ever imposed on innocent humankind.

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