Will hospitals buy ACA insurance for their uncovered patients?

I had not thought of this angle before:

US hospitals are exploring ways to buy “Obamacare” insurance plans for their sickest and poorest patients as they strain under the weight of tens of billions of dollars in uncompensated costs from the uninsured.

But the move is opposed by the Obama administration and insurers, who fear it could add to the turmoil surrounding the new healthcare marketplace.

…Both the White House and insurers are concerned that if hospitals started paying for insurance for certain chronically ill patients, it will skew the insurance risk pool for the new healthcare exchanges, created under the Affordable Care Act. The exchanges need to attract at least 2.7m healthy and young people, out of 7m that were estimated to join the exchanges by March 2014, in order to keep monthly premiums low.

Ms Hatton said the prospect of buying health insurance for patients has become especially important in Republican-controlled states that have decided not to expand the federal insurance programme for the poor, known as Medicaid.

From the FT, here is more.


'Ms Hatton said the prospect of buying health insurance for patients has become especially important in Republican-controlled states that have decided not to expand the federal insurance programme for the poor, known as Medicaid.'

Got to love a free market freeloader - using someone else's money is just fine, after all.

And I enjoy the ongoing absurdity of just how messed up the health care system in America is. No other nation can even imagine running a system in such a way. And of course, as all the other systems cost less with comparable results (minus a bit of that old statistical magic which seems to be another American specialty these days), it isn't as if they have any reason to.

"free market freeloader" - What is your point? The people who decided to reject the Medicaid expansion (state governments) are not the same people who are now signing patients up for the exchanges (hospital administrators). Nor is there any reason to place them in the same ideological box.

"minus a bit of that old statistical magic" - that is a nice way to dismiss all debate about your claim.

You cannot escape the fact that the same people complaining about how "messed up the health care system in America is" just swung a wrecking ball through it, putting tens of millions in jeopardy. That's always been the trouble with your cult. You guys are really good at burning down the established order, but not very good at coming up with suitable replacements.

Ooh, ooh: I know the answer! It is the Republicans' fault for not voluntarily participating in a law they strongly disagreed with and believed to be a disaster.

I'd go further. Boehner's excessive tanning is what caused all of those good people to search for a way to end tanning beds, which ultimately led to ObamaCare. So, it is John Boehner's fault!

Yes, We Can!

Approximately 4,200,000 Americans lose health b/c of ObamaCare.

Hope and change!

Suppose you were a liberal. And, suppose you were an idiot. But, I repeat myself.


Are you even an economist, bro? You seem dumb.

Statistical magic? I think you mean statistical logic. Showing that American's with private insurance enjoy the most responsive health care system in the world with better outcomes after adjusting for reasonable factors like homicide, suicide, traffic fatalities, etc. (factors that are not effected by health insurance or health care)

This is not meant as a full endorsement of our previous system (or current one for that matter). We did need change, but wow did we mess it up.

Screw things up then opine as to how things are screwed-up. fantastic. maybe you can propose 'Health Reform' as you did with 'Banking reform' or now proposing 'immigration reform' - all of which are clearly admitting that you had no clue in the first place what the hell you were doing and now want another chance to clean up you total screw-up. Democrats are insane,.

Brilliant! My how I laughed. I will continue with my policy of not advising Americans how to arrange paying for healthcare (except for saying "don't copy the NHS"), but I do feel obliged to thank you all for this endless feast of entertainment (while still feeling sympathy for its many victims, naturally).

Here we see the central defect of the cult of modern liberalism. They always start out assuming people will fully cooperate with the spirit of the scheme, even if it works against their interests. They forget that "All within the state, nothing outside the state, nothing against the state" was a threat, not a promise. People will inevitably start gaming the system in order to extract the maximum benefit with the minimum amount of cost. Instead of cooperation, socialism makes weasels of us all.

Yes, darn those nasty liberals for thinking that Republican governors wouldn't actively prevent the poor from getting health coverage, at no cost to the state! Darn them to heck!

The administration is opposed to anybody "forcing" insurance on the poor:

The biggest problem with insuring the poor today in any area (you see the same issue in auto lending) is a lack of plans that fit their budgets. What they need are plans with weekly payments.

John Goodman discussed this earlier this month:


I can't read the FT article, but why would the administration be opposed to this? It seems as though these are precisely the people it is most important for the ACA-reforms to reach. Acknowledging that I'm not very sympathetic to the insurance's industries continued attempts to manipulate their risk pools, the "sickest and poorest patients" were always going to be subsumed into the mainstream insurance market under Obamacare, one way or the other.

Insurers need to take the long view here, and understand that reducing hospital expenses for the uninsured is a key way to reduce total dollar claims in the long term. Beyond, of course, also understanding that near full coverage for the entire US population is the headline goal of the law.

Note that there is no real "reducing hospital expenses for the uninsured" going on here. Rather, this is simply giving the bill for existing hospital expenses to the government rather than the hospital. While technically they are using something called "insurance" to do this, this use case of the exchanges is not insurance in any meaningful sense. The patient is being signed up in order to pay for expenses that are about to occur, and presumably the hospital won't keep paying their insurance after they get better.

I can see why the administration is mad about this. But blaming the hospitals won't go very far, because individuals can and will use the system in the same way. It reveals the fact that the whole system is untenable.

Yes, if everybody has signed up for insurance this is not a problem....but because in the near term this poisons the pool with the most expensive patients it tends to raise rates to be unaffordable for anybody else.

See http://en.wikipedia.org/wiki/Death_spiral_(insurance)

There's an old adage in sales management that seems applicable here.

Salesmen will always find ways to game the system. The aim of effective sales compensation design is -- when they figure out how to game the system, they will be doing pretty much what you want them to do.

So, the hospitals are gaming the system. How can anyone be surprised at this? I would say it's very American, but frankly it's just very human. And the general rule that the more complicated the system, the more niche opportunities there are for gaming it seems applicable here, as well.

Of course it's expected by all normal people, but politicians and partisans refuse to believe that unintended consequences exist.

Often overlooked by those who harp on death spirals is the question of where these people were before the ACA?

If they were getting insurance from employers or privately, then grouping them in the exchanges will lower the cost that other insurance. if they were being paid for by charity or the gov't then grouping them under insurance lowers the burdens on those other programs.

Death spirals by definition spawn a twin 'Benefit spiral' that has to be taken into account in this analysis.

+1 I agree with you, Boonton, but in eh short run this should be a boon to the hospitals.

Or would it be a boon to other insurance companies, Medicare and Medicaid who could now bargain more intensely with hospitals for better deals?

Remember, if hospital A buys a year long insurance policy for a poor person with a chronic illness like diabetes, they aren't buying a policy that only pays for hospital A but many hospitals and doctors. The insurance company can turn around and push that patient to use hospital B instead....if hospital B offers a better deal. In that case it's a boon to hospitals in general but it's a diaster to the high priced hospital which has now just paid to send a patient to the lower priced competition.

Or would it be a boon to other insurance companies, Medicare and Medicaid who could now bargain more intensely with hospitals for better deals?

I don't think you have a good grasp of the current system. M

MedPAC: 64% of Hospitals Lose Money on Medicare Patients http://www.forbes.com/sites/aroy/2011/09/21/medpac-64-of-hospitals-lose-money-on-medicare-patients/

In that case it’s a boon to hospitals in general but it’s a diaster to the high priced hospital which has now just paid to send a patient to the lower priced competition.

Please, Brer Fox, please don't throw me into the briar patch.

I don't buy for a moment 64% of hospitals lose money on Medicare. Get rid of Medicare today and tomorrow 64% of hospitals are going to veer towards bankruptcy.

I don’t buy for a moment 64% of hospitals lose money on Medicare.

None the less, that is what the data said.

You are entitled to your own opinion, but you are not entitled to your own facts. - Daniel Patrick Moynihan

Really? You hadn't thought about the uncompensated care issue, one of proponents' central arguments, incentivizing insurance coverage for parties providing the uncompensated care?

Absent the ACA, how did these people pay?

If they paid on their own, then the hospital buying insurance for them would be counter productive.

If they didn't pay, then either the gov't paid or other insurance companies paid as the hospital priced in order to recover from insured and self-paying patients the costs. In that case then at least the insurance costs now are transparantly associated with the patients who incur them.

If they were kicked out on the street and denied care, well then this addresses a serious humanitarian problem.

None of these options seem like a major problem to me.

The hospital paid.

The fact that insurance will be more efficient & paid for by the party being insured is of course not relevant to the Admin...

A fact that's not relevant to anyone here. Unless the poor person being rolled in off the street has the hope diamond hidden in the bottom of his shoe, he isn't not going to pay for either insurance or his hospital bill. Saying it would be more 'efficient' if he did so is one of those things that sounds intelligent until you actually think about what it means. Social Security would be much more efficient with a fountain of youth that stopped aging. Transportation would be much more efficient if we had Star Trek transporters in every building around the world.

No, it wouldn't. That would break the Social Security system.

That escalated quickly!

the hospital will pay the insurance cost. $10k in insurance is less than $100k in unreimbursed services that the hospital is required to provide by law. so the insurance shifts the burden to the insurance company.

pretty clever.

All medical care is a marginal choice, because everyone dies eventually, and all systems ration. Is it a "serious humanitarian problem" that the rest of the OECD does half as many MRIs and transplants? Funny, haven't been hearing about that one much...

Some choices are of course more marginal than others. So the effect of any rationing, individual or government, is to move to more efficient care that provides somewhat lower utility (i.e. you limp instead of getting that knee looked at, or you wait a year for an appointment, or you go on the Liverpool Pathway).

That's why the U.S. gets better healthcare than the rest of the OECD -- we spend more, because we ration less, but the marginal benefit is small..

This is hardly new.

If you go into a hospital now (pre ACA full implement) and it's clear you won't be able to pay your bill, there's a whole setup there that will come to you and help you fill out the paperwork to Medicaid or indigent care. If you are approved for Medicaid (at least in this state, and I think it's universal) your approval goes back 45 days, so you can insure back to cover costs you've already incurred.

This is like food stamps supporting the ag industry, Medicaid is as much a support for the health care industry than for the patients, and always has been. I'm not saying that's wrong, but it is funny how when people criticize folks "taking" welfare they kind of forget the tax money pretty much flows right through the hands of those being given it and into the hands of industry.

To be fair, the compensation a hospital gets is much less than it would like to get. We're talking $5,000 bills getting paid off at less than $1000. But it beat nothing. So the hospital takes a service that is worth $3000, charges $5000, gets $1000, and spreads the cost to other patients by similarly charging $5000 for a $3000 service, and some of those guys pay it. It's a big game, and everyone in the system knows it. Part of the problem with ACA is that no one outside the system seemed to have known about this beforehand, which is pretty remarkable (and probably willful) ignorance.

Great summary!

Ad advantage over simply writing off the cost of treatment as 'charity care' is that the patient actually has insurance. This, IMO, offers two possible good things:

1. The patient now can see doctors on an out patient basis, fill scripts and do other things that could hopefully avoid them landing in the hospital again.

2. The insurance company is in a position to bargain with health care providers over the costs of treatment, challenge unnecessary treatments etc. That's that whole 'bend the curve' thing.

What's a bit puzzling about this story, though, is the insurance you can buy on the exchanges have a limited enrollment period and won't take effect until the new year begins. If someone comes into the ER on a Monday and needs a major operation by the weekend, they are not going to have coverage in time for the hospital to just buy them a policy. If these are patients with chronic problems that the hospital expects to treat on a regular basis, then getting them coverage makes sense.

The piece says that they are trying to enroll "certain chronically ill." (It happens to the best of us)

Absent needing constant hospital care, a lot of chronic illnesses can be managed outside the hospital...or at least can reduce hospital costs by outpaitent management. A prime example is diabeties which is a huge waste of money to manage by going from ER visit to ER visit but can often be efficiently managed by regular doctor checkups and drugs.

Granted such a patient won't be as low cost to an insurance company as a 25 yr old, but you'd still get a lot of savings.

Unless, of course, the 25 year old is the diabetic.

Type 1, Type 2, you know. With Type 1 being far more expensive.

But a major problem faced by hospitals is that many people who are eligible for Medicaid simply won't sign up, even if you hand them the paperwork yourself. And why would they? It's much easier to just show up when you need acute care.

I've seen stories indicating that the reason many of the Medicaid eligible do not sign up is that they have no fixed address.

If the Massachusetts paperwork is any indication, its a fifteen page form, which looks more complex than most people's tax returns.

Actually hospitals are happy to take that $1,000 in many cases because that's what they'd get paid by Medicare or Blue Cross or an commercial insurer, the $5,000 bill is based on phony 'chargemaster' pricing. Here's one example of that phenomenon: http://theselfpaypatient.com/2013/09/23/hospital-bills-student-2000-for-lab-test-insurer-pays-375/

Among the many broken parts of the U.S. health care system is a lack of real prices.

In economics there really isn't a 'real price'. In your traditional market bazaar you go and haggle with the merchant. You want a rug, the merchant tells you $1200. You tell him it's crap and offer him $100. At the end of the day you both agree upon a price and the exchange is made. The next customer that comes along will get a totally different price.

That experience is lost on most of us who may only experience it in garage sales and used car markets. We are used to our Wal-Marts where all prices are clearly labelled and the same for everyone. But there's no law of economics that says that is the way it should work and even there that's not how it works. You buy paper towels from Wal-Mart for $1 a roll, Wal-Mart buys ten million rolls and demands a price of $0.40.

No, there is not 'a' real price, but there are an awful lot of 'real prices.' Any price agreed to by buyer and seller is a real price, where both are receiving sufficient value to justify parting with either the good or the money (or goods, in a barter system). It doesn't really matter whether that price is one arrived at after haggling in the bazaar, or posted on the shelf at Walmart.

In health care, thanks to third-party payment, real prices are hard to come by. But that doesn't mean they don't exist.

Presumably both sides felt the something of sufficient value to justify parting with the good (money in the case of the consumer, time and effort in the case of the provider) or else the transaction would have not happened.

Unless a transaction happens at the exact point where supply and demand meet, there's always consumer surplus at play. You're driving to your in-laws house, you need to show up with some gift. You're willing to spend $50 to make that happen but as luck would have it they just put up a new Wal-Mart there and you can get it for $35. You've reaped $15 in consumer surplus that Wal-Mart could have had if they employed a policy of hiring expert hagglers to argue prices on every purchase.

What the street merchant reaps by haggling, Wal-Mart forgoes in favor of massive volumn. Even so, retail in developed countries doesn't just have one price. Retailers have all sorts of gimmicks from loyalty cards to coupons to special limited time sales to charge different people different prices.

So why should a hospital charge an individual patient whose buying a single blood test the same price as the insurance company that has the potential to provide for hundreds, even thousands of patients every year?

Boonton: For starters, insurers aren't buying thousands of tests in a single transaction, the way Walmart does when they buy 10 million paper towel packages from Bounty. Each test is being bought one at a time, with all the adminstrative/transactional costs that go along with it. Ask yourself - would Bounty still sell those rolls at $0.40 each to Walmart if they were sold one at a time, with a Walmart employee going over to the Bounty warehouse/distributor and buying each one on the Walmart credit card?

Much of the 'bulk buying' rationale that exists in other markets doesn't exist in health care because of the way the third-party payment system is set up - insurers don't actually buy in bulk, they just the same thing over and over and over and over...

Plus, at least in the case of primary care, doctors have found that it's an awful lot cheaper to eliminate insurance altogether and just accept cash. Forcing medical providers to maintain large bureaucratic systems to process claims payments is expensive, and I don't think anyone has believed since the 1970's that you can lose money on every sale but make it up on volume.

Boonton: For starters, insurers aren’t buying thousands of tests in a single transaction,

I think the hospital will disagree with you. when the Blue Cross rep is saying to the administrator "we can make your hospital a preferred in-network provider" the administrator is probably correctly envisioning hundreds of patients. When you are going to that hospital as a self-pay patient, you're one transaction and only one.

Ask yourself – would Bounty still sell those rolls at $0.40 each to Walmart if they were sold one at a time, with a Walmart employee going over to the Bounty warehouse/distributor and buying each one on the Walmart credit card?

Suppose Walmart said they would integrate with Bounty's website. People shopping on Walmart.com, when they see Bounty products, would have their orders routed directly to Bounty. Since millions of people shop on Walmart's site, and few go directly to Bounty, I'm sure Bounty would be willing to entertain such a deal for say $0.50 even though the actual sales would happen one at a time.

In fact people do this all the time with Amazon.com and ebay.

Plus, at least in the case of primary care, doctors have found that it’s an awful lot cheaper to eliminate insurance altogether and just accept cash.

Really? Most doctors are cash only these days! You mean to say a few doctors find it easier to accept only cash. If your waiting room is naturally filled with patients then you can dispense with the insurance company's promises to bring more patients to you in exchange for reduced rates per visit. Some doctors are able to build up such a patient base but most aren't and most will never be.

The next customer, though, doesn't get a totally different price. There's a reasonable range. The hagglers start with 1200 and 100 because they both know the rug isn't worth either 1 or 10,000 (and in reality, the starting range for haggling will be much smaller or the merchant knows not to even bother and to move on to another customer). They both know about what the rug is really worth -- let's say 700? -- and the game is all about trying to push it to 800 or 600.

But in health care, you can have a $4000 bill that some folks will pay $4000 of and some folks will pay $300 of. You can have a medication that costs $100 a vial but some people think it costs $20 a vial and some people think it costs $70 a vial, because they don't see the real price ever when they are paying their portion. You can have huge swaths of the public (what, 70%) that have no idea what is being paid for their insurance premiums every month -- seriously, they think their contribution is the total payment, or did until recently. You have doctors who don't even know how much they charge for services, not even ballpark. You have tests that cost $12 in one system and $60 in another, sometimes from the same lab.

What if someone needs a roof repair. It can last until the rainy season, no longer. He asks around, finds out the costs, saves up or gets credit, gets the repair.

But if the same guy has a hernia, needs surgery but can wait a bit if needs must, he can't do the same thing. He can get some ballparks which may or may not pan out, but he can't figure out ahead of time how much the surgery will cost and plan, much less negotiate ahead.

I had a biopsy once, I tried very hard to talk to insurance and providers to figure out what my costs where going to be. The best guess I got was almost twice the final price. Good thing for me the error was in that direction. This is talking to billing people who were the ones who should know, about a very simple and common procedure that went just as planned.

The problem with capitalism isn't too many capitalist, but too few. The problem with health care wasn't too much market, but too little. If I had to buy groceries every day with the kind of all over the place chaos in pricing you see in medical, I'd be a basket case. More of a basket case.

This is absolutely true, and huge, and has been.

Prices for health care services and products vary so widely, so whimsically, so baselessless, and so unpredictably it really screws up the market.

When you add in that we have to factor prices for end consumers, prices for middle men, prices wholesale retail, etc., it gets so convoluted as to make it very difficult to construct a rational system where people can make decisions based on reason. Decision making is shooting at a moving target.

To see another "death spiral", consider what happens to blue-state vs. red-state labor costs, after blue states start to take waivers to have public-options or single-payers, as ACA allows any state to do after 2017. (Vermont is already moving on it.)

Labor costs, of course, include the healthcare costs of the labor. If the blue states all go to public-options or single-payers, they may save an additional 20% of healthcare costs, thus, have lower labor costs. (And it becomes big news.)

But if the red states decide to continue paying healthcare insurers 20% (for no-value-added, by the way), then red states are going to put themselves out of business: because red-state employers will find that the higher labor costs in red states make their products uncompetitive in the national market and international market.

Self-interest will get them, where mere altruism could not penetrate...

Perhaps the red-states will collapse even FASTER, if you consider that red states tend to be a little unhealthier (according to Centers for Disease Control, due to e.g. a higher rate of obesity).

So, if blue states chase private insurers out of their markets via public-options or single-payers, the private insurers get stuck with "adverse selection" of the red states as a whole.

The next question is: Will the federal taxpayers consent to bailing-out the private healthcare insurers for being stuck with the red state lemons? Stay tuned!

I don't think I have read a more deluded comment than this one.

See his previous comments. Blue states are just rolling in cash flow, California hasn't had any budget issues in at least a week, so much so that even though they have been free to do such a single-payer system forever, none have tried it. Perhaps when the budget must balance unlike at the federal level, state's are more responsible and averse to taking such a risky step.

Other than a jab at red states and a lesson in horrible labor economics, I see little point to his post.

It's not that California hasn't had any budget issues in at least a week, it's more like California hasn't had an impossible to ignore or hide budget crisis in at least a week....

Are you guys from the Blog Comments Management Depts. of the lobbies and D.C. public relations firms?

He's just pointing out the obvious fact that government is better at managing administrative costs than the private sector.

You're acting like Medicaid sent $18M to a couple of Nigerian "doctors" the other day.

I say cross that bridge when and if we come to it. Plenty of states are blue, very blue (i.e. California and NY) yet a state instituted single payer system doesn't seem any nearby politically. Making it even harder, these states have put a lot of effort into the Obamacare model building their own exchanges, pushing people to enroll etc. Ironically the more they push Obamacare to work the harder it is to make a case for single-payer in those states. Look at Mass., which had Obamacare before there was Obama. Are they moving to replace it with a single payer system? I don't think so.

Politically I think the only candidate for a single payer system in the near future would be if you had a very red state that suddenly flipped radically blue. I don't see a plausible way that is likely to happen, though (zombie outbreak in NY causing ten million NYers to relocate to South Carolina?)

Vermont has already announced it is taking the waiver to go single payer in 2017.

When a state that barely has more people than Staten Island chooses to go single payer, I will raise an eyebrow. It's easy for politicians who may or may not still be in office 4 years from now to announce they'll be opting for a waiver. The state has already done a pretty good job of driving out all the private providers anyway.

Each and every state has always been free to enact Single Payer within its borders. Indeed, states can do so without utilizing a dubious Constitutional argument as their powers are much more like those of the European states whose healthcare systems are all the rage.

Given the enormous savings which would have followed, do you have any idea why no state has gone in that direction to this point?

I think most people don't understand that in many ways states have more power than the national government, and that cohesion around a policy is easier with a smaller population.

That said, I think the problems are that (a) states don't have the financial resources of the federal government, and (b) progressives in particular think of local control as an historic residual of state's rights ideology.

In reverse order:

b. Yea right, as though New York or California or Mass doesn't have local politicians who seek to appeal to a local base of progressives. In the recent eleection the candidates for NYC mayor did propose a single-payer system for the city. So I doubt the reason could be that state and local progressives are blind to anything below a Washington DC solution. Note that when when it comes to decriminalizing pot, many are following a non-national gov't route.

a. Finances may have a lot to do with it. Blue states tend to be rich in financial resources, at least compared to red states. The idea of doing single payer while letting redneck states rot with their Tea Party dominated silliness probably would appeal to many progressives. But that's probably also the problem. Blue states also have populations of upper class and very upper class people as well as many middle class people who get coverage from work. These people are going to be reluctant to see their own healthcare overturned. Hence the appeal of Obama's solution which for the most part leaves people untouched unless they were already uncovered or marginally covered.

I always assumed that this didn't happen because of moral hazard... I live in low-tax Florida until I get sick, and then I move to single-payer New York. Maybe NY has a residency requirement, but I can establish residency very quickly. Maybe NY tries to say "you must have been a resident for N years," but then the courts strike that down as a violation of equal protection. In the end, there's no way for NY to avoid the moral hazard, and so nothing happens.

Alternatively, maybe it's the case that 40% of New Yorkers don't want a single payer system, and that's enough to prevent it.

Is there a literature on attempts at state-level single payer systems? Cowen's Second Law says there is. What does it say?

California doesn't have single payer, or any other truly progressive economic policies, because when we say Cali is "deep blue" we mean it's full of affluent liberals who drive Priuses and insist on drive through abortions and gay marriages. These people think a commitment to the working class means giving the gardner an extra $20 at Christmas. These people actually rank lower than in my regard than the scumbags who run the House of Representatives.

Actually you can play that game with employer provided health insurance, which is like single-payer but on the corporate scale. You get sick you take a job, sign up for benefits, then when treatment is over you quite. Then repeat. When you're healthy you take jobs with companies that don't offer benefits (presumably for a bit more take home pay). Provided you can cultivate a career that has a lot of job hopping and you're very good at anticipating when you'll need serous medical care and when you won't you could pull this off.

Of course one way to short circuit this would be the concept of 'open enrollment' where you get one time a year to sign up. If you opt not too then you have to wait a full year until then.

Keep in mind true single payer means the gov't and only the gov't can pay for health care....it would be illegal to do anything else. This is very unlikely, even in many countries that have single payer it is possible to pay privately for health care. That means it would be possible to have single payer here in a state but the state could say you're not covered until X period of time elapses. You'd then have to buy your own private insurance or pay out of pocket to be covered.

Maurice de Sully: "...do you have any idea why no state has gone in that direction to this point?"

I do not. From the histories on-line, it appears that single-payer was always thought about in a national context.

I imagine that one thing ACA does is to rectify (in the sense of align) the healthcare system across all states, thus allowing a few years of price discovery for the whole system, after which a state can then decide to eliminate the middleperson (i.e. the private health insurers) and thus save some unnecessary costs, while still retaining knowledge of what the supply-side (doctors, nurses) requires from the monopsony. Whether or not such a theory would work, is another question.

"But if the red states decide to continue paying healthcare insurers 20% (for no-value-added, by the way)"

According to, Ezra Klein, the democratic party's Obamaganda point man, the health insurance industry's profit margin was 4.54% in 2011.


Currently it's 3.7%.



The 20% being referred to likely includes administrative overhead as well as profit.

Administrative costs averaged 9% for private health plans in 2008.


“By contrast, about 6.1%, or $60 billion, of the $974 billion in public program healthcare spending went for administrative costs in 2007, the Commonwealth report claims. That includes federal, state, and local governments’ administrative costs for public health programs such as Medicare, Medicaid, and the State Children’s Health Insurance Program.”

The article which you link to also reports the following:

"However, Cathy Schoen, senior vice president at The Commonwealth Fund in New York City, says the Sherlock study is narrowly drawn. 'It focused more on the Blues than the whole industry, and it is focusing just on what it narrowly calls the administrative costs, not profit margins,' Schoen says. 'When you talk about the share of the premium that is not being paid out in benefits, it’s both administrative and profits.'

"Schoen says corporate reports from larger companies such as Aetna and UnitedHealthcare show pre-tax profits in the 6% range in 2008 and administrative costs as a share of operating revenue running in the 15%–16% range. “UnitedHealth, out of all the revenue it took in, the amount it paid out was only 82%. So 18% was not paid out in medical benefits. In 2007, it was 19%,” she says.

"The Blues also don’t count the average 5% commission that businesses usually pay the agents who write the insurance contract as administrative costs, Schoen says. 'That is on top of the Blues’ marketing costs. From the employer’s perspective, that agent fee is part of it,' she says. 'But the Blues’ don’t count it because they don’t pay the agent. The customer pays it though.' "

"These frequently cited estimates have been criticized for incorrectly measuring and reporting administrative costs in various ways that, together, exaggerate differences between private and public insurance. Major shortcomings of administrative cost estimates include the following:

Ignoring unreported administrative costs of government programs.
- Perhaps the most obvious shortcoming of many estimates is that they ignore unreported spending on administration of government programs. Such uncounted administrative costs are especially evident in the Medicare program and include:

• Tax collection to fund Medicare, analogous to premium collection by private insurers. Although premium collection expenses of private insurers are rightly counted as administrative costs, tax collection expenses incurred by employers and the Internal Revenue Service do not appear in the official Medicare or NHEA accounting systems, and so are usually overlooked

• Medicare program marketing, outreach and education

• Medicare program customer service

• Medicare program auditing by the Office of the Inspector General

• Medicare program contract negotiation

• Staff salaries for CMS personnel with Medicare program responsibilities

Reporting administrative costs as percentages rather than dollars.
- Presenting administrative costs as a percentage of total health care costs gives a misleading impression of Medicare’s efficiency relative to private insurance. Medicare patients are an expensive population, with much higher medical costs per person and per claim relative to the general privately insured population. Thus, an identical dollar amount of administrative cost per enrollee or per claim in the two sectors would make Medicare administrative costs appear lower. For example, a $10 administrative cost per insurance claim represents 10 percent of a $100 claim but only 1 percent of a $1,000 claim. Similarly, rising medical costs of Medicare enrollees create the appearance that Medicare is becoming administratively more efficient over time.

Confusing costs of regulatory compliance with health plan inefficiency. - Private insurers face administrative costs not imposed on public programs, such as the need to comply with multiple sets of state and federal regulations. Both overregulation and arbitrary differences in regulation create unnecessary administrative costs and prevent cost-savings from economies of scale. Private insurers also must pay premium taxes, usually counted as an administrative expense, driving up administrative costs as a percentage of total costs and creating the appearance of reduced efficiency."


From that pdf: "The AMA is hopeful that the implementation of the Patient Protection and Affordable Care Act, the health system reform legislation that was enacted into law in March 2010 (Public Law 111-148), will address many of these key concerns." (pg. 1)

A lot of the administrative costs are the result of synergies. If we had no Medicare we'd still have the income tax and social security and payroll taxes to fund unemplooyment. That means most of the adminstrative infrastructure to collect payroll taxes would still be in place. Medicare then runs on top of that resulting in little additional administrative costs.

Not having read the article, I am confident Dr. Cowan did not intend to reiterate the point made in the second half of the quote: '…Both the White House and insurers are concerned that if hospitals started paying for insurance for certain chronically ill patients…' In my opinion, that is someone's opinion; it is not fact. Unless this blog is for political discussions instead of economic discussions, I think Dr. Cowan's point was the ACA may reach more people than previously expected, which is a counter-intuitive microeconomic outcome. Additionally, it was previously thought that many people would be unable to apply due to the complexity of applying. On politics, unfortunately there are minimums and everything, but wouldn't it be great if hospitals paid for ACA insurance and helped patients get out of the hospital debt free using donations?

it could add to the turmoil surrounding the new healthcare marketplace.

What turmoil is that?

For a fun exercise, imagine Barack Obama is CEO of a company that sold everyone a product that he repeatedly promised wouldn't cause them to lose their insurance or doctor, but then it did (oops).

Next, imagine President Barack Obama demanding CEO Barack Obama be charged with fraud and sent to jail.

And what would you expect the hospitals to do....nothing?

Uncompensated care is costing hospitals billions. Imagine if you had a business where 20-30% of your customers DIDN'T pay their bills? How long would you be in business?

If hospitals can "game the system," then why shouldn't they? If they opt to enter into the marketplace to purchase a product which benefits them, that's America.

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