One small (but major) nuance: the 80/20 rule applies specifically to the _insurance_ business.

So what's another way to increase profits in addition to letting care spending keep creeping up? Add non-insurance lines of business to the company, i.e. vertically integrate by acquiring some of the middle men you're paying.

Insurers snatching up PBMs[1] (or in some cases, PBMs snatching up insurers) is one insidious example. For those unfamiliar, PBMs are the companies that manage your prescription benefits. Insurers negotiate a predictable rate card with the PBM for the drugs on their formulary, insulating the insurer from market and regional pricing volatility. The PBM then negotiates with all the various pharmacies on actual prices. So when you purchase a prescription:

1. You pay your share (a fixed copay for many plans) 2. If the price the PBM negotiated was more than your copay, the PBM pays the pharmacy the difference 3. The insurer then pays the PBM whatever pre-negotiated rate they have for that prescription

With the PBM deriving their revenue/profit from the spread they're able to generate in the process[2]. But when the insurer and PBM are one-in-the-same, that spread is really just an inter-company accounting transfer that ultimately rolls up to the same P&L. But it's a _magical_ inter-company transfer, as the insurer side of the books count it as a medical cost (part of the 80% spending requirement) and the PBM side of the books (that show it as revenue) aren't subject to the 80/20 requirements. And best of all, the insurers spent so many years letting cost inflation run rampant[3] that such egregious slight-of-hand easily passes the arms length test for transfer pricing[4].

[1] https://www.statnews.com/2018/06/01/mergers-health-insurers-...

[2] They also have other revenue streams, such as squeezing rebates out of drug manufacturers as well. But the simplified scenario above covers the gist of things, and illustrates the primary conflict of interest involved.

[3] As [1] mentioned with the CVS/Aetna example, PBMs can be far more profitable than insurers. CVS generated 2.5x more profit than Aetna when they merged.

[4] https://blog.freedmaxick.com/summing-it-up/got-intercompany-...

Unclear why the downvotes - the system dynamics the parent is describing are valid. Insurers win over time if total costs go up in a predictable way. (Note: Not true for self-insured companies, such which includes essentially all large employers.)

Is 80% really unusual though? I thought most health insurances pay out > 90%.

Sounds like a 100/0 rule might be better, then.

How do you propose to pay for admin costs, then?

Hence employers need to be removed from the equation so everyone ends up on healthcare.gov and there can be a whole bunch of insurance companies competing to keep premiums down so people purchase from them, just like car insurance.

Price transparency wouldn't really do much do change this. One of the key ways that prices are jacked up so high is through unnecessary treatments:

https://www.npr.org/sections/health-shots/2018/02/01/5822161...

and especially through unnecessary (and very, very expensive) tests:

https://www.npr.org/sections/health-shots/2019/12/23/7874035...

The people who decide what treatments and tests are necessary are the doctors, so the marketing for this would have to be "buy our cheap insurance, we deny coverage to more testing and treatments than the other insurers do". Which is obviously not a winning strategy.

If you combine that with the increase in insurer owned clinics and hospitals (which unsurprisingly saw a sharp uptick around the time the ACA came into effect), then the insurance company gets to profit more twice. Once when they jack up the premiums, and a second time when those expenses show up as revenue in their other businesses.

https://www.beckershospitalreview.com/hospital-management-ad...

I'm all for giving more power to consumers, but when you have a regulation that creates such a strong incentive for raising premiums, layering more haphazard regulation on top of it isn't going to help.

This works if there are multiple insurance companies competing for business, which would require everyone to be forced to healthcare.gov so there is a simple marketplace with sufficient number of insurance customers so that bad actors have competition.

And from my experience, the best healthcare is provided by Kaiser Permanente, which offers health insurance and healthcare under one company.

Pricing in medicine is jacked up because of low supply of workers (the grunt work is undesireable and doctors take a long time to license as well as residency funding restrictions), and infinite liability and legal costs that have to be priced in. On top of that, medicine is very complex, so you have to pay two or more very highly qualified people to double and triple check things.

Also, healthcare cost increases have slowed drastically since introduction of ACA:

https://www.healthsystemtracker.org/chart-collection/u-s-spe...

> Health spending growth has slowed, and is now more on pace with economic growth