There are more powerful forces than the profit caps, namely that the big insurers now actually also own the doctors.
And capped or not, the pay-vider structure allows intra-company eliminations to bury arbitrary amounts of money as "not profit" even though it effectively is.
And even if that weren't true, the expected coverage term for a US patient is ~4 years due to it being tied to employment, so there is quite literally zero incentive to address any health issue that won't materialize as cost in the next few years (obesity being one such type of health problem).
> And capped or not, the pay-vider structure allows intra-company eliminations to bury arbitrary amounts of money as "not profit" even though it effectively is.
Source? There are 7 large publicly listed health insurers with public financials, all underperforming SP500 for more than a decade. There are myriad other non profits such as Kaiser/Cambia/Premera/Providence/various BCBS/etc, all with public financials as well.
Where is all this fraud going? And it’s happening across hundreds of executive offices across the country? And getting past 50 state insurance regulators that have to approve prices for insurance?
That would be remarkable levels of corruption and collusion.
It's not "fraudulent" per se, nor does it require corruption or collusion beyond what people already openly accept when they accept the existence of payviders (which they shouldn't! Or at least not for-profit payviders).
Payvider: An entity that is both a payer (insurer) and a provider (medical practice). Most payviders also have vertically integrated PBMs (pharmacy benefit managers), pharmacies, and labs, all of which participate in the same scheme.
A few of the examples you listed are NOT payviders, they're just payers, and therefore do not have these levers available to them.
Vertically integrated companies evade profit caps on their insurance division by shifting money to their unregulated provider, PBM, or labs divisions. It's pretty simple: the insurance arm overpays its own subsidiary doctors and clinics and records these internal transfers as mandatory "medical care" which is recorded as loss on the insurance side. The parent company then pockets the excess money as unrestricted profit on the provider/PBM/lab side, effectively bypassing the legal limit on how much insurance revenue they can keep and completely destroying the incentive to manage costs through their insurance division, at least when those costs originate from their own providers, which given that e.g. UHG is now the largest employer of doctors in the US, is increasingly often!
Is it fraudulent, corrupt, or collusive for a health insurer to employ doctors who deliver care? Not per se, but it gives insurers the ability to more or less arbitrarily convert premium dollars into profit while still getting people to defend them with claims like "they've been underperforming the SP500 for more than a decade."
Here are a few sources about different constituent behaviors, though you'd have to do a decent amount of reading to stitch together the full picture of how this works:
> Vertically integrated companies evade profit caps on their insurance division by shifting money to their unregulated provider, PBM, or labs divisions. It's pretty simple: the insurance arm overpays its own subsidiary doctors and clinics and records these internal transfers as mandatory "medical care" which is recorded as loss on the insurance side. The parent company then pockets the excess money as unrestricted profit on the provider/PBM/lab side, effectively bypassing the legal limit on how much insurance revenue they can keep and completely destroying the incentive to manage costs through their insurance division, at least when those costs originate from their own providers, which given that e.g. UHG is now the largest employer of doctors in the US, is increasingly often!
Yes, UNH does better than the other managed care organizations because their healthcare business has higher margins than their insurance business. But it’s certainly not arbitrary, and it’s apparently not enough to make their shares worth buying.
More importantly, UNH competed against other insurers. They don’t get to “arbitrarily” pay their doctors (as if any business wants to overpay their employees). If they pay too much, then they will have to charge higher premiums. Premiums which also have to be approved by state regulators. And it’s a fact that UNH’s premiums are comparable to everyone else’s premiums. Why else would people buy from them?
>Is it fraudulent, corrupt, or collusive for a health insurer to employ doctors who deliver care? Not per se, but it gives insurers the ability to more or less arbitrarily convert premium dollars into profit while still getting people to defend them with claims like "they've been underperforming the SP500 for more than a decade."
The silly claim is stating managed care organizations are booking outsize profits, yet they don’t show up in 10-Ks or even shateholders’ pockets.
Underperformance relative to SP500 is a factual claim. 2% to 3% profit margin (objectively a tiny profit margin is a factual claim for 6 different businesses. UNH is at 5% to 7%, which is decent, but pathetic compared to tech/pharmaceutical/finance/real estate/oil companies.
Hopefully you can see why this all sounds like unfounded conspiracy theories. Just the fact that it’s better to own SP500 than a health insurer stock should be enough to conclude there are no “unrestricted” arbitrary profits being taken. They are very much restricted, and their shareholders know.
> Yes, UNH does better than the other managed care organizations because their healthcare business has higher margins than their insurance business. But it’s certainly not arbitrary, and it’s apparently not enough to make their shares worth buying.
> The silly claim is stating managed care organizations are booking outsize profits,
Is this claim in the room with us now?
My claim is that the pay-vider structure enables these businesses to produce way, way, way more money than their regulatory "profit cap" leads people to believe. They can remove what would be profit from their insurance arm (where profit is capped anyway, so it keeps them under the cap) and dump it into their healthcare arm (proven by above-market self-reimbursement rates) to fund network expansion, which then further strengthens the insurance arm's market position (alleviating their need to "compete against other insurers" [ lol ])
Your claim is actually concordant with mine, which is that this profit doesn't show up as margin and doesn't show up as excellent stock performance. Correct! That's what it means to hide profit in order to stay below profit cap!
Anyway it's clear that I'm talking to a "stocks guy" who lacks the curiosity to actually understand how a business works beyond the 10-K (where all this stuff is discussed, by the way, you can find it euphemistically referred to as "network optimization").
Like I said, you'd have to do some reading well beyond the 10-Ks and the price chart lmao.
>Your claim is actually concordant with mine, which is that this profit doesn't show up as margin and doesn't show up as excellent stock performance. Correct! That's what it means to hide profit in order to stay below profit cap!
This definition of “hide profit” seems to be no different than “invest in the business”.
> which then further strengthens the insurance arm's market position (alleviating their need to "compete against other insurers" [ lol ])
Why is this “lol”? It is true that vertical integration results in efficiencies, and that can lead to lower premiums (not that it will absent sufficient competition). Kaiser has been doing it to much acclaim for almost 100 years.
I hadn't thought about the 4 year aspect. That is a great insight. I am against the current US healthcare system in general but I wonder if decoupling healthcare from employment (slightly) could help. Maybe employers should be required to pay for coverage that an employee selects? (clearly a lot of hand waiving of the exact mechanism here but..) This would incentivize healthcare plans to actually compete for someone to sign up with them and to give them an incentive to keep that person healthy since they would likely stick around longer with them.
And capped or not, the pay-vider structure allows intra-company eliminations to bury arbitrary amounts of money as "not profit" even though it effectively is.
And even if that weren't true, the expected coverage term for a US patient is ~4 years due to it being tied to employment, so there is quite literally zero incentive to address any health issue that won't materialize as cost in the next few years (obesity being one such type of health problem).