Disclosure: I've worked in both P&C and Reinsurance for several years. Also on Wall Street for a couple years. Also in Healthcare for a couple years.
Overall I think this is a nice briefing on the state of the insurance market in the modern economic landscape. It is extensively regulated with rates set and various nuances. All of this, of course, comprises part of a grand "data set" that looks quite appealing to modernization.
Unfortunately, I think there should be a strong expectation that the market (industry) will both be openly hostile to "disruption" oriented attitudes a la Uber, but laugh at any ability to raise capital to compete at any meangingful level.
I applaud your interest in perhaps improving a legally sanctioned form of graft (I prefer Mutual Organizations myself). Conversely, my experience leads me to laugh a little because I've seen the numbers and the complexity behind the scenes. I've got no interest in the industry beyond the paycheck it provided, but it is quite fascinating in numerous respects. Just the naming conventions alone once you get to Bermuda is a trip. Good luck.
I agree with you that there are going to be challenges in building these companies, but not all of existing players aren't as openly hostile as I think you expect. I've spoken with a lot of P&C folks at different companies, and they know things will have to change, they're just trying to figure out how.
Some of the more forward thinking companies are actively investing in new models and companies. I think that's going to accelerate.
Even without that, over time, new models and companies will succeed. Some of these are going to look like stock insurance, some will look like Mutuals and reciprocals, and some will solve insurance like problems in new ways.
The ones who aren't openly hostile already have the notion of disruption in development. This summary is, for lack of a better term, a day late and a dollar short.
We certainly agree on the bulk of your points (see my top-level post elsewhere in this thread). There is opportunity, though in my opinion, a really good way to get there is to work with an incumbent on a "modern" strategy. That's really hand-wavy, I know, but you gotta find the guy who's willing to piss off its brokers and start there.
We're doing much that at Neos at the moment. We've taken a series A mostly funded by a couple of big insurance companies who are interested in what we can introduce to the market.
Are you the guys using smart home (is that the right word?) devices to try and mitigate homeowners claims by preventing or catching problems as they occur (presumably to respond quickly and limit the extent of damage)? If so, that's a pretty good idea. Carriers already give discounts for things like alarms, sprinklers, etc, but virtually none partner directly with a company that can better assure the quality of monitoring. I'm sure there's a privacy hurdle to work on, but it has to do something to loss activity, right?
We are indeed. Out philosophy is that its better for everyone to prevent a claim before it escalates into one. To that end we provide smoke, flood, motion, and door sensors, along with an (optional) camera. We've got some other cool things in the pipeline capable of not only detecting problems but also responding to them before they become a crisis.
You're definitely right that there are privacy issues to be answered but we try to be as transparent as possible about what we're doing with customer's data, and by being stringent about who has access to sensor data.
As appliances become smarter, there's probably a monitoring play there too - maybe some coverage that blends the concepts in product warranties as well as home warranties.
There are a few unresolved issues with the preventative / home sensor approach.
1. Sensors dramatically increase the acquisition cost for a policy.
2. It is unproven that sensors will mitigate losses. We all see the potential but there just isn't data there to tell us that.
If I could prove #2 then #1 becomes simple math, if the CBA is there then incumbent carriers will adopt it. It's just not there yet to justify doing outside of startups and market tests.
3. When carriers pick a partner and get into the preventative game then there's some liability that opens up if things go wrong. One could argue that the carrier is already covering the risk - this just means the preventative offering has to line up with coverage being bought.
4. Last but not least, the biggest source of losses is CAT related in property. Sensors will get at the second tier water and fire - again loss avoidance has to justify the sensors unless the preventative side is an ongoing fee service.
Sensors definitely increase the acquisition costs, although at least early on there's customers who see them as a benefit they're willing to trade the usual cashback/discounts/etc for, so its not as bad as you might think. We're also looking at ways to reduce the cost of sensors over time.
As for proving that sensors mitigate losses, even in our initial beta period we've seen a couple of potentially large escape of water claims avoided by early detection of a leak, and that's before we start introducing truly preventative measures as opposed to just detection. We're very focused initially on escape of water because those are in fact the largest source of losses in the industry - fire is fairly rare, theft tends to be pretty cheap to handle claims for, but a leaking dishwasher left while someone is at work for the day can easily require replacing everything on the ground floor of a small house.
So I wanted to try Neos after meeting a Zoopla exec who said they had invested.
But when the premium came out at over 4x my existing renewal quote I became less enthused.
And then I saw the Excess Charge (for making a claim) was £1,000 vs the £250 norm, I ran away to the nearest comparison site to find vanilla home insurance.
I think the conversion process might need looking at to make the benefits less nakedly focused on cost.
Give us another go in a few weeks - our initial trials we were partnered with Hiscox, and were bound to only their (really expensive) policies.
We're now in the final stages of rolling out our own policies which are much more competitive - quoting on my own house has our policies coming out cheaper than my current home insurance policy, with much better service.
Thanks for responding. The whole motivation of why I wrote my post was, to paraphrase "You're late to the party, there are already extremely competent experienced players already working hard in what you think is ideal." Seeing your quick input pretty much affirms my impression that yes, improvements can be made but it's hilarious to think a couple years of outside study might reveal some kind of gem.
As in, there are already block-chain based deployments going for portions of the industry. That's some pretty aggressive shit in my opinion. These are also industries with loads and loads of proprietary data that simply can not afford to play fast-and-loose with integrity.
That's why Cyber Insurance now exists. Even the Industry itself knows how to layer risk models.
Hey though, if somebody wants to march into Stalingrad in the Winter and prove me wrong, they can reap the rewards. Full stop.
When I started with Neos I was genuinely surprised at quite how on the ball the insurance industry is. I'd had the same impression that it was a bunch of people stuck in the 90s throwing together spreadsheets and hoping for the best. What I've actually seen is a lot of companies providing some pretty advanced technology (just a single example, a company which given an address can return the projected cost in claims over a year, broken down by types of claim), and a lot of people who's entire job is to take large amounts of data and extract insight into people's behaviour from it, it really wouldn't surprise me if some of these data teams are on a par with Google's ad-targeting teams.
Having said that, there are a great many advantage to doing greenfield development in an industry full of entrenched companies who've been around for a long time, mostly around the level of complexity. We can get away with much simpler solutions because we're currently super focused on home insurance so don't need to deal with all the edge cases around providing fifteen different types of cover.
There's your problem, Fish Bulb. You need to understand that while Insurance and Finance might look like data-oriented issues, they're relationship oriented. That's why the little black book follows the holder.
Think long and hard about your last sentence. Insurance Brokers aren't fucking cab drivers yo. Eat your own goddamn dog food and then write an essay.
Then, once you're done, do a second version about how you're going to take on nation-state funds like Qatar Re, China Re, FM Global, and Chubb. Not once did you mention how the studies of Chubb found a chink in the armor. I might have high standards, but I don't have the bankroll of the Swiss. I just had to get those lazy fuckers to sign their I&Ls within a calendar year.
If you can show me a way to automate getting contracts in on time because of the human element, I'll be the first to call you a genius. If you talk big and have nothing more than "We can make a better Insurance, and it'll be FANTASTIC, much better than your Insurance now" a la platitudes and "Free Ice Cream for everyone" you'll win over a skeptic and probably have merit.
Not trying to be a bastard, but just letting you know that 2 years of outside study don't mean shit compared to 5 years in the fucking trenches. And, as a matter of principle based on my handle, no, you can't afford me. There is no amount of money as a Mercenary that would prompt me to open up what I know.
Since you should know, is TFA's description: "Reinsurer – There are companies that purchase insurance risk from carriers." a conventional way to put this? ISTM a reinsurer is paid to take risk, which is the opposite of how one thinks of purchasing.
The relationship between a carrier and the reinsurer is a bit of an odd one, with the relationship in my experience being more symbiotic than the description gives the impression of.
At least in the case of the company I'm at the details of the policies we write, and what feeds into the pricing, is worked out in conjunction with the reinsurer. They then agree to buy any risk we take based on that model. It is definitely a case of the reinsurer buying that risk from us though, the best way to think of it is that if a reinsurer believes the model is correct they also believe that on average they'll end up making a profit on the risks they buy, and indeed that if we didn't sell the risk to them that we would make that profit directly.
> Insurance carriers set their rates based on actuarial models designed to predict the likelihood of future events.
Sure, until the government says that you are no longer allowed to set rates based on actuarial data; maybe you aren't allowed to charge people appropriately if they have some expensive "pre-existing condition", or because of certain "protected" but statistically relevant characteristics. This throws a big fat spanner into the whole expectation value thing, because you're no longer an insurance company but a weird privatized subsidy pool that isn't allowed to make expectimax decisions anymore.
Your clients aren't allowed to expectimax anymore either; if they catch on to the fact that they're actually subsidizing someone else, they're not allowed to form their own rational insurance pool (because it would violate restrictions on "discrimination", e.g. ACA section 1557) and if they choose to opt out of the irrational "insurance"/subsidy market you hit them with a hefty fine.
I encourage everyone to look up expectation values for payin/payout of medical insurance for different customer types under current regulations (start with https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/ ). TL;DR If you're a reasonably healthy man below retirement age, you're getting screwed hard. Maybe society can collectively agree that this is a good idea, but we should at least be honest and stop referring to it as "insurance". Actual insurance markets without coercion are a net positive for all participants, rather than a convoluted scheme to (effectively) transfer money from one demographic to another.
As far as I know, there is no strong relationship between race and lifetime insurance expenditures. Hypothetically though, yes, insurance companies should be allowed to make optimal decisions based on full actuarial information. Anything else, besides being sub-optimal and confounding the effectiveness of market mechanisms, would amount to the effective intentional transfer of wealth based on race, which is morally much worse than rational actuarial pricing that incidentally involves race as a predictor.
That doesn't mean it makes sense to charge different premiums.
Insurance only works if the group is large and shares the risk. If you break it down on race, gender, age, and the thousands of other physical characteristics that correlate to something medically, you wind up with groups too small for insurance to work.
We don't charge black people lower Social Security and Medicare taxes on account of their lower life expectancy, right?
> you wind up with groups too small for insurance to work.
This is quite simply not true, and I can't help but think that this statement comes from a very fractured rule-of-thumb understanding about how insurance works.
Insurance works by charging you around (naively slightly more than, but actually usually slightly less than) your expected cost to the insurance pool. It doesn't matter if different pool members have different costs; as long as you charge them appropriately, insurance continues to work fine. Why do you think that charging different amounts to different customers would require splitting the pool?
You set the premiums based on the expected risk of an event happening, for any type of actual insurance at all. "Actual insurance" is supposed to be a financial product that people purchase to mitigate financial risks of some future event that may or may not happen. If the bad thing happens, you make a claim and the insurance company pays you a lot of money. This system works most things because most people don't make claims.
What we call "health insurance" in America has gotten away from this model and that's one of the reasons why it is expensive and was horribly broken before 2009. Trying to cram everyone into one giant pool and charge them all the same amount of money in the hopes that the pool will be big enough is not working either, and doesn't solve the underlying problem with that system, which is that people make claims all the time and the insurance company often must pay. Thus, it becomes the customer and the entire transaction is less about serving the patient and more about milking the insurance company for every penny.
> We don't charge black people lower Social Security and Medicare taxes on account of their lower life expectancy, right?
Taxes aren't insurance premiums and those programs don't function as actual insurance; they're "social insurance" e.g. The federal government definitely makes payments to everyone who qualifies, no matter what happens to them. And taxes used to fund the program get spent on everything the government does, not just to fund those programs. So, this really isn't relevant to the question of what an insurance company should be doing.
These points are relevant to health insurance, but in the second footnote of the article, he explicitly states that he is talking about property and casualty insurance.
In a pure sense, what we call health insurance isn't really pure insurance. To give a simple example, in property insurance, I pay let's say 2% of the cost of the item per year to protect something that the insurance companies deem to have a 1.5% chance of getting destroyed. That 0.5% difference is their expected margin.
But in the case of health insurance, I get that coverage for catastrophic events, but I also get discounts on healthcare for being on a plan. Insurance companies negotiate better rates with providers, which makes the market vastly more complex.
So that's why the author of this post says explicitly that he's not talking about health insurance.
Typically premiums are equal to or less than the expected payout for a given policy. Insurance companies make most of their profit off of the float (return on investments made with premiums as the principal).
Health insurance really ought to be separated from a health plan which covers entirely predictable and expected expenses.
> You say "screwed", I say "contributing to society".
How is a coercively collected subsidy for the health expenses of other demographics considered a contribution to society? Is trading one's labour for capital not enough?
> I can't really choose whether or not I get psoriasis or have a heart attack.
There are plenty of places throughout the United States where the only viable means of transportation is the automobile (or a motorcycle, as you point out). The consequences of not having auto insurance is also bankruptcy. Would you characterize the auto insurance market in those locales as similarly coercive?
No? I believe folks in a modern, developed-world society have slightly more obligation to their fellow citizens than that. Some people can't labor, so we have things like SCHIP (kids), SSDI (disabled), etc.
> Would you characterize the auto insurance market in those locales as similarly coercive?
The US focus on private cars is problematic, but the choice to move somewhere with better public transport or closer to a job is generally available (if potentially difficult).
No? Capital is absolutely meaningless in a society. Capital doesn't give society anything. Actual, physical goods do, services do, a healthy population that protects us through the herd effect do. Capital in itself? It is on the brink of being nefarious for society.
>There are plenty of places throughout the United States where the only viable means of transportation is the automobile (or a motorcycle, as you point out). The consequences of not having auto insurance is also bankruptcy. Would you characterize the auto insurance market in those locales as similarly coercive?
Aside from the fact that you will rarely suddenly end up in such a place without warning (which cannot be said when it comes to health), I would say that it's a problem of society. Why is there no public transport that could do most of the job of your car?
I am seriously tired of being seen as nothing more than a bag of blood for society to suck on and then come and insult me by emplying I haven't contributed enough.
Dammit I don't mind paying a fair amount of tax to make society work, but when they also choose to insult me because I haven't contributed enough and then waste what I have contributed.
We contribute more in tax on a raw-numbers level because we've historically benefited more on a raw-numbers level too.
We pay the same health insurance rates as everyone else. If you consider that an insult and a waste, I'm not sure how to constructively discuss this with you.
When you say "we've historically benefitted", what do you mean? Surely you can't be referring to me, because I wasn't around "historically".
> We pay the same health insurance rates as everyone else.
Did you miss everything I said? If it's a flat rate, it's not insurance. It's a mandatory subsidy pool.
And yes, it is an insult and a waste; certain groups are systematically forced to give up the results of their labor for the benefit of other groups. Besides obviously subverting useful market-based societal optimization mechanisms, it's also very similar to certain social institutions we sought to eliminate a while back...
I'd rather not "contribute to society" by having my money taken from me at every conceivable opportunity. I'd rather that everyone in society contribute more or less equally (or, at least, according to their means and nothing else), which is currently not even remotely the case.
> How do you have a coercion-free market when the consequences of not buying in can include "you'll die or be bankrupt"?
This is such a silly argument. Are any changes in your utility function "coercion"? Is the fact that you have to eat food "coercion"?
Coercion-free means that you're free to behave rationally and make decisions that optimize your utility. It doesn't mean that nothing bad will ever happen. I'm really not sure how people get from the former to the latter.
If you're worried about having a heart attack, you should be able to buy an insurance vehicle that charges you commensurately with the risk of that happening. (Unfortunately, you can't; you also have to pay for other people's quadruple-bypasses, geriatric medicine, and 8th child.)
Car and homeowner's insurance only works /because/ insurers have imperfect data /and/ because purchasing it is mandatory in most cases (eg: auto liability is mandated by the government and homeowner's policies are mandated by banks lending against the purchase of a home).
If you had perfect actuarial data it would mean you would charge predicted "losers" the entire cost of their expected claims plus your costs and profit. Conversely you'd charge the expected "winners" almost nothing because their premiums are pure profit. Insurance requires large risk pools to function as insurance. The entire point of it is that everyone in a large group pays in to cover those who suffer a loss.
For healthcare (which is not what this article is about) that means collecting premiums from younger, healthier people to cover older sicker people. Healthcare is also the only kind of insurance where everyone is guaranteed to make claims - very much the opposite of most other kinds of insurance.
The last point I'll make is that everyone gets older eventually. Higher premiums when you're younger are a form of pre-payment for the care that will absolutely be required when you age. Unless the government forces people to pay these premiums the most rational thing for any individual actor to do is cheat and skip paying premiums when young, then force the cost on others by buying in when you're old. It becomes a classic tragedy of the commons situation where only sick people buy policies, resulting in massive losses and sky-high premiums no one can afford to pay.
Your argument basically boils down to "fuck other people" + "I'll never get old, I'm going to be young and healthy forever!". I don't want to live in that world.
As a practical matter I'd also like to make it easier for people to start new businesses so I favor universal baseline healthcare coverage paid for by taxes. Shrinking hospital billing departments, insurance companies, and bill collectors would be a net win for our economy. I don't know why everyone believes scaling up drives efficiency for a startup, yet requiring every individual doctor to employ a bill collector is somehow a net win.
> The last point I'll make is that everyone gets older eventually. Higher premiums when you're younger are a form of pre-payment for the care that will absolutely be required when you age. Unless the government forces people to pay these premiums the most rational thing for any individual actor to do is cheat and skip paying premiums when young, then force the cost on others by buying in when you're old. It becomes a classic tragedy of the commons situation where only sick people buy policies, resulting in massive losses and sky-high premiums no one can afford to pay.
This is not true. People die young, some die quickly when older, with few health costs, others linger with huge costs. I can see an appropriate insurance product that protects against the risk of those varying outcomes.
> I can see an appropriate insurance product that protects against the risk of those varying outcomes.
I can also see millions of people unable to access that insurance product because their health condition or expected health condition makes it impossible for them to obtain insurance at an affordable level.
Of all the places for hardline libertarians to make a stand, the actuarial fairness of the insurance market, which literally is redistribution to the less fortunate which ultimately relies on coercion to function (good luck handling claims in a world where a legal system doesn't have teeth) seems the strangest place.
Car and homeowner's insurance only works /because/ insurers have imperfect data /and/ because purchasing it is mandatory in most cases
This is not true and represents a misunderstanding of the purpose of insurance. Insurance exists to protect against large downside risks.
There is, let's say, a 1% chance that my apartment burns down next year and I lose $50,000 worth of stuff. I would much rather pay $500 to insure against this loss than run the risk. I can easily afford to pay the small insurance premium whether there is a fire or not, but a fire would put a very serious strain on my finances that I am very happy to avoid.
> Car and homeowner's insurance only works /because/ insurers have imperfect data
No, this is wrong. Common misunderstanding about the value of insurance. Even with perfect data, where your cash EV from buying into the insurance pool is guaranteed slightly negative, it's still (usually) a positive utility EV. Losing $100,000 is, for most people, much more than 100 times worse than paying $1,000. So if your $100k house has exactly a 1% chance of burning down, you're happy to pay $1000+ for fire insurance.
Ah, of course, forcing young people, typically with less money, to subsidize older people, typically with more money, is very charitable to you. Are you incapable of telling the difference between "fuck other people" and "don't steal"?
People should pay in according to their expected costs. Anything else amounts to intentionally transferring money from healthy people to unhealthy people. It's true that healthcare gets more expensive as you get older, so if you want to burn $5M keeping yourself alive another 5 years in the geriatric ward, you should be the one to bear that burden, not everyone else. Guaranteed external subsidies + rapidly diminishing returns = horrendously inneficient allocation of resources.
I agree, businesses and doctors shouldn't have to deal with insurance bullshit, so I'm not sure why your proposed solution is to keep the same irrational overregulated "insurance" scheme we have now, which inherently requires a bureaucracy to A) force insurance companies and their customers to comply with imposed pricing rules and B) attempt to prevent people from taking advantage of the obvious economic discrepancies caused by (A).
Unless you start with covering something completely new, I think it makes sense to start as analytics provider for insurance. Becoming a carrier is expensive, and MGA can only sell existing policies already created by a carrier.
If you sell existing policy you are at severe data disadvantage comparing to existing insurance companies, even with superior tech.
Shameless plug: At https://tensorflight.com we are working on P&C insurance and we focus on analytics for commercial properties mentioned in the article. Please get in touch at ( kozikow [at] tensorflight.com ) if you are interested in the subject.
This is not really related to your post, but you mentioned MGAs, which reminded me of something -
If you are getting into this business and are looking to write in most/all 50 states, one of the more cost-effective ways to acquire the licensing and company structure is to purchase a struggling/defunct carrier or MGA (depending on what your needs are). I didn't say cheap, but it's often cheaper than structuring and licensing yourself from nothing.
Lemonade probably should ramp up slowly until they have more experience data to look at (my opinion only of course), so it's probably not too disadvantageous.
Plus, if you're going the route of getting licenses via acquisition, you need the money to make that investment. It can be cost effective to go that way, but not cheap, so if you're not trying to blow all of your cash at once and can benefit from a slow roll to 50 states, the traditional route will be fine.
We're working on the modern commercial insurance brokerage at Abe (https://www.hiabe.com/).
Aaron's right that too much of the industry runs on pen and paper. It's confusing for the buyer and a massive headache for brokers.
Most of what we're building is behind the scenes to make the brokerage way more efficient. If you're an insurance expert with ideas to leverage tech or engineer interested in man+machine symbiosis, I'd love to chat (gordon [at] hiabe.com)!
I've always wondered about US health insurance -- why can't the physician give me quotes about my personal obligation for various treatment options? It's frustrating that as soon as it's time to come up with a bill, poof there it is but prior to the bill being generated all I get is shrugs?
Is it because the insurance coverage algorithms are too complicated? Because the different entities involved in a single treatment plan is too complicated to navigate? Because physicians feel that cost is orthogonal to medicine and they prefer not to be involved/prefer to recommend the ideal treatment based on a predicted outcome? All of the above?
It feels like if there were a particular hospital group / physician group that had this feature, they would attract a lot of attention. Just imagine, "Your initial differential diagnosis will not exceed $150 and we'll discuss treatment options or more conclusive diagnostic tests afterwards."
All I've heard so far are physicians who don't accept insurance but instead have a straightforward "menu" for common items, which is interesting but not what I think most people want.
I think what's happening is that your doctor will attempt to get as much money from the insurance company as he/she can.
My wife has experience of the doctor's office asking insurance company for $X, and the insurance company comes back and say "no, max $Y". So then the final "cost" all of a sudden becomes $Y. Pay attention to the claims that your doctors send to insurance company and you might be able to see that.
So instead of telling you, yes, whatever procedure is definitely just going to cost $Y. They can't tell you how much things are. It depends on maneuvers with other players in the industry.
This is very different than say in Canada. If I want to get a teeth filling in Canada, my dentist straight up tells me how much before the procedure. If I want to price shop that, I can. In the US, nobody is willing to say how much, because "it depends".
It's not because intrinsically there can't be price transparency. It's because of all the messed up incentives that the industry has that causes US health care to be as such.
That's actually a response to the insurance company performing a type of information arbitrage with multiple other parties.
You could have health insurance with transparency, but there is too much profit potential in forcing information asymmetry between all of the parties involved in the system.
Every time that you think...doctors...hospitals...nurses...are up to something, most of the time it can be tracked back to insurance companies and the sway that they hold over congress with their money. I'm not saying that there aren't doctors, nurses, hospitals trying to gouge people. I'm just saying that insurance companies are worse. (With some very rare and egregious exceptions.)
Even with that I still don't give doctors an excuse. There are a bunch messed up incentives there too. Such as doctors recommending more expensive drugs, or giving me coupons to buy said drug. I'm assuming there's money exchanging hands there too. Not sure if it's with doctors directly.
But the end result is that I simply cannot 100% trust any advice I'm given.
These days there's not going to be money - but there might be steak dinners. But there are lots and lots of doctors who's ethics say that steak dinners with drug reps are off limits.
But no steak dinners still doesn't mean you won't get this happening, because some docs look at your insurance and figure that for you, your out of pocket will be lower with a coupon than with a generic. Sure the insurance company might pay an arm and a leg - but by and large docs don't care about insurance company profits, and do care about the person in front of them. And thus waste.
Other docs think all generics all the time -- even if the cost to the patient is massively higher. On the opposite side sometimes the expensive drugs just are better (even if just marginally) and most docs don't think about costs at all - as it's very very complex and their lives are busy enough.
It's messed up for a thousand reasons, not for one reason.
>But there are lots and lots of doctors who's ethics say that steak dinners with drug reps are off limits.
There are a lot more that think it's not their job to care about those things. They think they are only responsible for curing the sick regardless of time or money constraints or conflicts of interest.
They say they don't do this, especially in regards to money, but talk to all sorts of docs about how much of their patients' time they waste every day and they get real defensive. They think they are owed anything and everything and fuck running an efficient practice, fuck your time because they're a doctor and they are over in a different room performing miracles.
I personally know a bunch of doctors and you are right, they are pretty arrogant. Each one of them is also brilliant. I'm actually pretty close to some of them so in one or two cases I'm biased.
They actually have a hard time being "efficient" in the sense that you use the word, because if they don't run every possible test when they miss something and get sued they will have to answer for it.
Why are there so many lawsuits? Because the first thing that insurance companies do is lawyer up.
I'm not saying that doctors aren't also bastards sometimes, but Americans also think that doctors should deliver healthcare like a retail service and that's just stupid.
Your whole "in a different room performing miracles" might actually be running late because they are double booked and behind schedule due to trying to be thorough with an old woman who has compounded issues related to multiple diseases. That woman is also a person, just like you and the doctor might be trying to spend some time trying to help them even though insurance and the shitty clinic they work in only want them to spend 10 minutes with any one patient. That may sound efficient until you need to spend 20 minutes to do something right. Then the schedule is effed the rest of the day and people will act like you are trying to do something to them by being late.
Its hard for me to say this, because generally I hate people, but not everything is intended as a slight against you.
Its not with doctors directly in almost all situations. Not saying that they aren't also cocks sometimes but there's a lot of the iceberg that you can't see. I'm telling you, the more you look the more you will see its middle men like insurance companies that are screwing every party in a multiparty transaction.
Dental insurance in the US is a bad example, because they generally pay for (in a year) 2 routine cleanings, silver fillings, and a percent of anything else, up to some ridiculously small maximum of $2k or something. You very much can get price quotes for dentistry.
And really, they should NOT be paying for 2 routine cleanings, because those costs are both modest and predictable and that's not the point of insurance.
The reason they do pay for the cleanings is that it's probably cheaper than paying for the increased fillings and root canals that they would incur if people skipped the routine cleanings. So they want to incentivize that, even though it's not really the sort of unexpected ruinous expense risk that insurance is really meant to assume.
They could achieve the same goal by providing a discounted premium with proof of routine cleanings, but that's probably more complicated for both them and their customers.
> The reason they do pay for the cleanings is that it's probably cheaper than paying for the increased fillings and root canals that they would incur if people skipped the routine cleanings.
Actually, no, they reason they do is because they're usually subsidized by employers providing the plans. In other words, it'd be equivalent to the employer reimbursing a portion of your regular dental care that you pay for out-of-pocket. The expected reduction in cost for the insurer due to routine cleanings is negligible from their perspective.
If you purchase dental insurance individually, these treatments are very rarely covered, or if they are, the price under insurance is usually about the same as the price without insurance. Which makes sense from a risk model - when there is literally no risk at hand, the price under insurance should actually be higher than the uninsured price, by a tiny amount.
This is a great example of why most "health insurance" (or dental or vision "insurance") isn't really insurance.
It's a bundled prepayment model, similar to selling gift certificates/cards or the like. Basically making money on breakage / float.
Real casualty insurance wants to reduce the number/magnitude of casualty losses. So the theft insurer wants you to get good locks and an alarm, the fire insurer wants you to get sprinklers, and they all want nice orderly public services with good response times and suitable building codes. Win-win-win.
Nobody would ever be unhappy if they paid their whole life for fire insurance and their house never burned down.
But health "insurance" can't really reduce the amount they pay out (the "medical losses") because the customer is expecting to consume healthcare. It's also more complicated because one of the best ways to reduce medium term healthcare costs is to spend more on short term healthcare costs.
Can you imagine if the best way to prevent a house fire was to have a little house fire every year? (Well, that's not so crazy in terms of wildfires, perhaps.)
Then, there's the fact that in the very long term, everyone will die and many will get really sick just before that. And the private health "insurance" companies do their damnedest to avoid that group entirely, having effectively shunted them all off onto the commonwealth (Medicare).
Health insurance is not like other insurance and we need a new word for what it really is.
Actually, dental care is like that in the US - your dentist can tell you the price, and you can price shop it. If you happen to have dental insurance, they may not know how much of that bill will be covered, but you can absolutely get costs from them.
Other healthcare on the other hand is often a mess, although it is getting better. I've found recently (an MRI in this instance) that I was able to get costs beforehand, and even compare prices. I think the prevalence of HDHP (high deductible health plans) has steered people towards expecting to pay out-of-pocket for care, which has led to a positive change in this area.
Got it. I only used dental as an example in Canada because majority of everything else is already covered by universal health care, so I don't have experience dealing with pricing for other things in Canada.
Is this because dentists can tell patients who forgot their wallets to take a hike, hospitals can't, and for the most part hospitals don't do emergency dentistry? [0] That is, if dentists were more "ethical", we might see the same problems with cost and payment in dentistry that we see in health care in general?
[0] Sure, there are extreme exceptions, since most hospitals have a dentist they can call when an emergency patient is admitted because an abscessed tooth has destroyed their entire body... It takes commitment and/or great misfortune to get to that point.
To be fair to doctors offices, this is in part because some insurance plans (Medicare's the biggest offender, but then again Medicare's the biggest everything) pay doctors below cost for certain procedures. Doctors cope with this by systematically overcharging other patients' insurance companies when they're reasonably sure the patient has already hit their copay for the procedure.
Essentially, health insurance for the poor isn't formally subsidized well enough to make it actually workable, but doctors have professional ethics that disincentivize them from refusing care. So the system has evolved a clumsy, ad-hoc mechanism for wealthy patients to cross-subsidize poorer ones.
In other words, if a practice can purchase a vaccine or supplies for a lab test at $100/unit wholesale, Medicare pays the doctor (in the aggregate) $93 for it. That doesn't take into account any overhead or costs of running a practice, of course, such as wages for nurses and administrative staff.
Providers typically make a loss on Medicare patients and then make up the difference by charging private insurers (who are, by law, required to pay more than Medicare does).
Medicare's rates are so notoriously low that for doctors who can't do this - doctors who treat a disproportionate number of Medicare patients - they actually have a separate stipend program to pay them enough to stay in business.
...but I apparently don't know the proper incantation to get that to work. It would also be interesting is someone had concrete side-by-side examples of what Medicare/Medicaid pay vs. what everyone else pays for several different "common" items.
> It would also be interesting is someone had concrete side-by-side examples of what Medicare/Medicaid pay vs. what everyone else pays for several different "common" items
No payer (including Medicare) pays a single price across the board - even Medicare pays different amounts to different providers in different regions, etc. So there is no one single price for each payer that we could compare, and it'd be hard to find true apples-to-apples comparisons between them, short of polling individual practices and asking them what they received last month (which is hardly rigorous).
Remember that these are often treated as closely guarded secrets - if they were truly public, the AMA couldn't charge for access to CPT codes, and it would be harder for Medicare and private payers to negotiate the minimum rate for each provider. It's the same reason you'd be hard-pressed to ask most companies to make all of their individual salary data public.
The reason we know that Medicare pays so little, though, is that (a) it's no secret - even Medicare doesn't really try to hide it, (b) Medicare has to publish aggregate data, and we know from the aggregate data that they reimburse 7% less than COGS on average, and (c) it's statutorily mandated.
> Are you saying that Medicare/Medicaid reimbursement rates aren't public information?
Private insurer rates are definitely not public information, for any definition of "public".
Medicare reimbursement rates are sort of public, but not at the level of granularity you want. And a portion of that is because the question is not easily defined. For a given CPT code, Medicare might pay one of many different rates, depending on factors such as the geographic region, whether the provider operates in a CAH, whether the provider qualifies as a DSH, etc. That level of granularity is not easily accessible, and without it, there's no way to give meaningful example individual comparisons without running the risk of cherry-picking non-representative examples simply due to availability bias.
(Also, Medicare and Medicaid can't be lumped together. Medicare is a single, federal program that is administrated in four parts. Medicaid is a set of 50 different programs run at the state level, each of which can be administrated in more ways than I can count. The one thing that they all have in common here is that, like Medicare, they pay abysmal rates to providers, but the relationships that they have are even more complex - even in a single state, like New York, there are literally hundreds of different ways that Medicaid services can be provided, depending on the type of plan chosen.
Source: founded a company that had to abstract all of this complexity for patients, who were disproportionately on Medicare or Medicaid)
Yes, I'm willing to give up on the comparison to private insurance/transactions. So now I'm just wondering how to get a hold of Medicare reimbursement rates. We know that they vary by location, and other factors. But it must boil down somewhere, to a lookup table or a formula or the guy processing the forms who rolls a dice and multiplies by the last 3 digits of the medical code to come up with the reimbursement, etc.. Or is it all based on trust, and Medicare just pays 70% of any invoice that gets submitted to them? (And they send auditors out every once in a while in order to keep up appearances)
The first column are the number of points a given service is assessed for, the second is what the publicly-mandated insurances that most Germans are covered by will pay, and the third is the private rate: private insurance or straight-up cash. Doctors and other providers can choose to charge higher than the usual 2.3 multiplier for private patients, and they can choose to only accept private patients, but most accept the public insurances, too.
I can confirm that these are the current prices - I'm privately insured with the highest legal annual deductible (1200 EUR) and pay those bills out of pocket.
Result: Visits to my Hausärztin (primary care doctor) are somewhere in the 30-70 EUR range, full price. Just about everything in healthcare is startlingly cheap in Germany compared to the US (dentistry is only somewhat less expensive than in the US). About 10 years ago, I paid less for the same procedure without participation from my insurer than a friend did in the US after her insurance paid its portion - and I had a night in the hospital, while she was an outpatient!
> Does anyone know how to look up what Medicare/Medicaid pays for particular procedures
Medicaid is separate state-run programs with different reimbursement policies in each state, and othe common federal rules governing the state programs include provider-specific (both cost and charges to the general public) limits, so, there is no simple “what rate Medicaid pays” for any service.
(And that's even before considering that in some states, a substantial portion of Medicaid is provided by private insurers who are paid capitated rates, not fee-for-sercice, by the states.)
I am familiar with NY medicaid. They do publish a way to calculate the Medicaid default rate. Insurers do not have to pay exactly this but it provides a decent base line. Here is a basic description of how inpatient pricing works.
Each year the state publishes the set of hospital rates and intensity weights for each DRG (Diagnosis-Related Group) and severity combo (currently using weights developed in 2014). So a DRG of 460 (Renal Failure) with a severity 2 has a weight of 0.7393. Now the actual cost will depend on which hospital you go to since each hospital has a different base rate. For example each Mount Sinai hospital has a base rate of $8,743.45 while Niagara Falls memorial hospital has a base rate of $5,558.99. Each hospital also has a per discharge rate. To calculate the default rate take the hospital base rate x DRG intensity weight + per discharge rate.
Forgive me, but I'm deeply skeptical of unsourced claims about any government program on forums where there are a lot of IT folks. Do you have references or suggestions for specific things to search for to support these statements?
Below operating costs. Rent plus utilities plus relevant salaries plus amortized cost of equipment.
This is confounded a bit because a lot of medicine involves lots of expensive equipment and staff with huge student loans to pay down but low day-to-day operating costs, but for a lot of specialties there exists no set of insurance-independent prices that allow a normal clinic following industry standard practices to operate without losing money.
> Below operating costs. Rent plus utilities plus relevant salaries plus amortized cost of equipment.
It's worse than that - it's below COGS (direct materials). So even before you account for rent/utilities/salaries/amortized costs, they're still making a loss, unless they operate in a CAH.
The bill shows they asked for $X, but the doctor already has a negotiated agreement with the insurance company that says they will accept $Y for the service.
Additionally, if you inform the office you are paying the bill yourself (without insurance) they usually give you a discounted price somewhere between $X and $Y.
In other words, almost nobody is paying the list price of $X. It's not really a meaningful number.
(And, as others have pointed out, the weak US dental insurance market means that actually dentists are pretty up-front about pricing in my experience.)
I have Kaiser insurance which is an HMO with straightforward pricing for most things. One fixed copay for doctor visit, one for specialist visit, one for outpatient care, etc. The problem is you are stuck using only Kaiser facilities and doctors.
There are benefits to continuity of facilities, though.
Anecdotally, my wife went to her regular doctor for a nominal fee at her yearly checkup. They drew blood, then asked her what hospital she wanted a follow-up diagnostic procedure to be scheduled at. She gave the one closest to us. She showed up, did the procedure, then almost a month later, we get 2 bills. One is for the blood ($1800) which, surprise, didn't go to an in-network lab despite all of our previous years' work being covered. The other bill was for the procedure ($800 if I remember correctly). If you go to the insurance website, enter her plan, enter the hospital and the procedure, it will tell you it costs something like $40. The whole system is broken, but at least these issues wouldn't have happened in a system like Kaiser.
Also anecdotally, my sister is on Kaiser in Colorado, and she has a chronic disease along with her pregnancy. They are taking very good care of her, and nothing seems to be dropped despite her having 3 physicians whom she sees regularly. I have almost no faith that if my wife gets pregnant, we'd have the same continuity in our current setup.
If an HMO got stupid amounts of marketshare it would probably fix the system naturally. It would also improve stuff like allowing HMOs to be able to better take advantage of medical data and provide better care through understanding the patient. The problem is there is too many HMOs, which makes HMOs in general less convenient.
I agree, to me the second biggest industry acceptance that is counter intuitive is that insurers need to make money off of the float. Why can't an insurer come along who charges a fee for the service of ACTUALLY BEING ACCESSIBLE TO THE CUSTOMER. Intead of fax me this paper and wait two months. I am paying the insurer on the basis that they want to draw out any claim I have.
"All I've heard so far are physicians who don't accept insurance but instead have a straightforward "menu" for common items, which is interesting but not what I think most people want." - I think people want this but they are scared of going off of insurance in the event they need to see someone who doesn't offer this (chance occurance, expensive disease).
We are actually setting up an insurer in the UK which is doing exactly that by changing the business model to taking fees on settled insurance claims instead of betting on an underwriting/investment profit.
For routine things, your responsibility is a flat amount, usually printed on your insurance card. So you know, for example, if you go to your general physician, you pay this much. Go to a specialist, pay this much. Go to emergency room, pay this much.
For more complex things, it's usually:
1. Not possible to know in advance everything that will need to be done. Many medical procedures are not things that just go identically every single time, and complications can occur during the procedure. Having to call it off, re-quote, re-schedule, etc. is not optimal.
2. The doctor likely doesn't actually know how the procedure will be billed. Medical billing is done using standardized codes to describe procedures, and the doctor will have someone who knows how to do that, but that person may not even work in the same building as the doctor. And the sets of allowed codes and how to use them can change quarterly, and that's without getting into the arms race of doctors trying to "up-code" (rather than the most obvious code for a procedure, find a way to bill it as multiple procedures or as a plausible but higher-paying code, since doctors and insurance companies are locked in an eternal battle of doctors trying to make as much money as they'd like and insurance companies trying to pay as little money as they'd like).
On your first point, even if they know exactly what will be done, they can't answer. I can't look for it at the moment, but there was a Vox video maybe last year about a man who wanted to find out the cost to deliver his and his wife's baby. He called a bunch of hospitals in the area, gave them his insurance information, and he asked them the cost assuming everything goes to plan, just the cost of delivery. I don't remember exactly how long it took, but he got a number after hours on the phone. Then the bill came, and it was still a different number. The whole thing couldn't be more opaque.
It's worth noting that this isn't always a "don't know". Often it may literally be a "can't say". The problem is that even if you call them up and say "sure, I know it could be more complex, I just want to know what it would be for a perfectly normal delivery", and then you go there and get a bigger bill due to complications, what happens? Do you have a case against them for misleading you into thinking it would be cheap? Do they have written evidence that you understood their quote was only for a no-complications scenario?
The safest thing is to refuse to give an answer.
To elaborate on this, I work for a company that offers health insurance. One of the nice features of our plans is that although it's PPO with a network of contracted providers, the co-pay for someone on the plan is the same whether a doctor is in- or out-of-network. But how do you advertise that? Saying "see any doctor you want" is a non-starter, because someone might take it to mean "doctors are required to see you even if they don't want to" and then claim we misled them with the "any doctor" line. It ended up taking quite a while to work out a way to advertise that benefit without tripping over anything that might be claimed to confuse or mislead.
Health insurance is a very different business than P&C and one that I've spent a lot less time researching. Each customer interaction at least 3 participating actors (patient, provider, payer), each of which have different incentives, rules, and understanding of those rules.
I think there are great companies being built in the space (take a look at what Clover Health is doing https://www.cloverhealth.com/en/), but it's not an area I'm focusing on.
A lot of good answers here. A few straightforward ones:
- Because healthcare providers negotiate different rates with providers, so the "list price" differs by your provider and plan.
- Because your personal cost is unknown to the doctor, as it would depend on factors between you and your insurance company (like deductible met), coverage types, etc.
Now, these are both solvable problems. And I agree with the sentiment of other posters here that it's predatory that medicine is one of the few fields where you simply don't know how much something will cost until you get the invoice.
> - Because your personal cost is unknown to the doctor, as it would depend on factors between you and your insurance company (like deductible met), coverage types, etc.
This one CAN be known to the doctor, the full details of your coverage, current deductible met, copay amounts, etc are an X12 270 transaction away. Almost nobody does this though, unless you are planning on billing an expensive claim (outpatient surgery, post-acute care, etc) where non-payment can mean a significant monetary loss the time and money doing these checks isn't worth it for the provider. This is further exacerbated by most (all?) clearinghouse's charging to run these transactions, and a really slow adoption of CORE Phase II connectivity standards by payers (which would bypass the clearinghouses completely and allow providers to directly submit eligibility requests to payers over a standard interface).
Oh 100%. There's no technical excuse not to have that. As others have pointed out, there's a pessimistic line of reasoning as to why doctors and insurance companies don't want you to know what things are going to cost. The sad part is that we've allowed that to become an acceptable way of doing business.
But imagine if your mechanic did that. "Hi, thanks for bringing your car in. We investigated that noise, ran a bunch of tests, and everything looks fine to us. That will be $5,000."
(Fun story: many years ago, Jiffy Lube topped up my dad's transmission fluid without telling him there was an associated cost. When they tried to charge him the $25 or whatever it was, he told them to suck it back out.)
Mostly due to all of the variables that go into pricing a claim. And that logic on lives in the insurer's claim processing system.
Pieces that can impact the price. Your insurer and what product you have. These will affect who is considered in-network and the fee schedule to use. Different insures will have different arrangements. Depending on the product if you have a narrow network product they may or may not be in-network. It could also depend on the location. A provider can be in-network in one location but not in another.
Also the procedure that is actually performed may be slightly different from what was planned due to unforeseen circumstances.
This is assuming the provider is aware of what the actual costs are. In many cases they don't even know the ballpark price since that is not the portion that they deal with.
Of course. We know it can be done since it happens with alacrity at bill time. Why not do it in advance? It could could save the insurers money as well as the patient if the patient chooses the less expensive option.
The problem is there is a bunch of hidden complexity in medical coding and billing. There's 5 Evaluation & Maintenance (E&M) codes that may apply to an office visit, another 5 for ER visits, 4 for tele-medicine consults - which one is used depends on multiple factors that you can only know after the fact, and which one is applicable to the visit determines the expense. This doesn't factor in other procedures such as labs, and whether such charges are required to be bundled into the E&M fee by a specific payer or not - plus differing allowables from each payer. Add in the fact that nearly nobody bothers doing pre-authorizations except surgery centers and other outpatient services that payers require prior authorization for anyway and the whole situation turns into a giant clusterfuck.
Is it POSSIBLE to do all of this and give you a proper quote before a visit? Sure, but it requires some fairly complex software to do so and manual input of tons of different data specific to your insurance contract that almost nobody wants to do it (ironically, the billing company I work for DOES this - but since we aren't involved in patient care it's only utilized to ensure we get paid properly by insurance companies).
Even with a line item precoded estimate, it would require some negotiation between what the doctor/lab thinks it costs versus what the insurance thinks.
Doctors/Labs are often surprised after the fact by what the insurance company allows, thinks is miscoded, will pay, etc.
However, most hospitals don't enforce any requirements of "codes" or there are bunch of inter-changeable codes.
If you get a bill from hospital, you can call billing department, ask them if they can try a different code to bill insurance company. And it is possible new code will lower your out of pocket cost. On few occasions I did this, I end up owing nothing out of pocket.
>Sure, but it requires some fairly complex software to do so and manual input of tons of different data specific to your insurance contract that almost nobody wants to do it
Can someone quantify the value added by having this complexity baked into the system? Is there any advantage besides the "confusopoly" aspect?
Who is the main benefactor (in $$$) behind the drive for complication of medical billing? Doctors? Medical Office Receptionists? Insurance companies? Other third parties that doctors hire to handle paperwork?
What are the benefits supposed to be over whatever we were using in 1975? If you were founding a clinic on Mars for the first colony, would anyone duplicate our current system of medical billing?
Theres no main benefactor. It was Medicare/Medicaid that initiated code based payment and because they are the largest payor, everyone else was forced to go along.
What they get out of it now are public health statistics. Doctors dont get anything out of this.
Ultimately treating medical coding as the price determination mechanism is the cancer behind all our problems.
> What they get out of it now are public health statistics.
We actually don't really get those out of the medical billing situation either.
ICD codes are what's used for public health statistics, whereas CPT codes are used for billing. I mean, we could use that data for public health statistics, but we don't really. And we could still have gotten it without the rest of the sacrifices that have come along with the code-based payment systems that have turned practices into offices for billing, with a marginal medical practice on the side.
Unfortunately, as you said, because Medicare is 40% of the payer market, once they switched to this model, it created the vicious cycle we're now in.
> ICD codes are what's used for public health statistics, whereas CPT codes are used for billing.
Very roughly (it's more complex, but not worth more detail here) ICD-10-CM diagnosis codes are used for billing, and ICD-10-PCS procedure codes are used for institutional billing, as well. HCPCS (which include CPT) procedure codes are used for professional services billing.
> Very roughly (it's more complex, but not worth more detail here) ICD-10-CM diagnosis codes are used for billing, and ICD-10-PCS procedure codes are used for institutional billing, as well. HCPCS (which include CPT) procedure codes are used for professional services billing.
Yeah, this is the rabbit hole I was hoping not to have to go down. :)
All I wanted to illustrate was that the desire for public health statistics could be satisfied without requiring a move to the flaws of the current billing model - they're different systems.
(And historically, the move to the current billing model came about primarily for reasons other than a desire for public health statistics).
The complexity in reimbursement policies is always in favor of the insurance companies, the complexity isn't necessarily in coding the charts - that's pretty straightforward, it's all in insurance contracts and the individually contracted rates.
Can someone quantify the value added by having this complexity baked into the system?
The value added is relatively little, and past comparisons of the cost of healthcare between the US and Canada have identified paperwork as being most of the difference.
But the cost to the one insurer or hospital which DOESN'T participate in adding to the mess is very high. So everyone puts in a lot of energy to wind up in approximately the same place, only with more paperwork. After a few decades of this, well...
Sometimes when working with legacy software you just start wrapping legacy crap in added layers of complication, hoping to to create a sane interface to the underlying insanity. I think the same thing might be happening with auxiliary healthcare companies. I say this because I've worked at a couple such companies, and I see some mentioned on Hacker News from time to time.
A new company will look at healthcare in America and say, "I'll start a company, and we'll fix part of this." And to some extend they succeed, they deal with some of the underlying insanity, and stick a nice API in front of it. But ultimately what they really do is bring in a bunch of people to sap more money out of the healthcare industry. I used to be one of them when I worked for such companies as a developer. Ultimately a small part of your high medical bill ended up in my pocket. One of the companies I worked for had hundreds of employees and could have been entirely replaced with a 50 line Python script and a cron job if only the government would pick a standard CSV format and require states to use it. (There was no patient data we were dealing with.)
It seems to me, that to make healthcare affordable in America a lot of these auxiliary workers are going to have to lose their jobs. They system must be made much smaller.
Even ignoring insurance, it can be impossible to get an accurate cash price depending upon the physician. And if they can't figure out the cash price, there is no way in hell they will figure out the insured price.
We recently went to a physician who works in an area that regularly isn't covered by insurance. For all procedures, the cash pricing was upfront and understandable.
In comparison, we tried to deal with another physician for a different procedure we knew our insurance didn't cover. Literally days worth of time was spent on the phone to try to figure it out and the day of the procedure we were told the prices were wrong and didn't account for some stuff.
You might be interested in something like the Surgery Center of Oklahoma which has an upfront pricing page for their surgery procedures: https://surgerycenterok.com/pricing/
Even though the ycombinator blog post is discussing innovation etc with regard to insurance, I like the idea of innovation on the side of service providers. And it is somewhat sad that a list of prices is innovative.
Nobody can tell you because nobody knows. And nobody can know.
Here is a simple example that my sister (a nurse) gave me yesterday. Suppose that you go in for an operation at the hospital, spend a week recovering, and develop diarrhea on day 2 while you are there. That diarrhea is a "hospital acquired infection" and insurance won't pay a dime for your operation. Therefore until you've been through the hospital, nobody knows whether you'll get paid.
Oh right, and the possibility of this happening is a reason for the hospital to kick you out of the hospital as quickly as possible. Average patient outcomes may be better if you stay a week, but their odds of getting paid are better if you're kicked out within 48 hours.
This is just the tip of the iceberg. She went on about how broken health care is for an hour...
> Nobody can tell you because nobody knows. And nobody can know.
That's definitely not the case, because they have to know in order to bill you. To get us back on the same page, let's rescope and consider only elective procedures and primary care.
Your example is extraordinary and could be specifically excluded. Even if I got a treatment plan with equivocating language about "risk of procedures / changes / infections / etc" and all that noise at least I could make an informed decision about which treatment plan I think is appropriate.
The guff I was sold when we were shoved to high deductible plans a ~decade or so ago was that we could make decisions about our healthcare. They come up with BS estimates or treatment calculators that are from the insurer and not the provider.
If you read the very next paragraph, you'll note that they meant that nobody can now know the total costs beforehand. I.e., the total costs often include events that they are unable to reliable predict in advance, so they are unable to give you a reliable or accurate estimate of costs until its all done (which is when billing occurs)
Nobody can know your restaurant bill beforehand, since who knows what you will order for dessert, right? The hospital should still be able to give estimates for individual items beforehand. If they are not flying completely blind, someone must already know these numbers, it would just be a matter of making them public.
To me, the actual problem seems to be that they would like to make up the price after the fact, when they have a better idea how much they can charge and get away with. This gives them the unfair advantage of setting their own prices unchecked by market forces, and is frankly a reprehensible business practice.
That's definitely not the case, because they have to know in order to bill you.
They bill you after the fact, after they know what they did and what insurance paid for. At that point it is easy. But before the operation, nobody knows what they will find or what insurance will decide.
Your example is extraordinary and could be specifically excluded.
On what evidence do you conclude that it is extraordinary?
All evidence that I have, including my conversation last night with a retired head nurse, is that confusion and uncertainty about what will be covered by insurance and what negotiated limits there might be on what can be charged are more the rule than the exception. And if my impression is correct, then what you want is impossible. Because before the fact, nobody really knows.
But this weirdness still happens when you have a combined entity like Kaiser.
I went for a routine visit, and paid the $30 copay before the visit.
After the visit, I get a bill for Ridiculous_Number_X - Ridiculous_Number_Y = $30.
The "actual cost" of the visit and the "negotiated discount" are numbers that are obviously pulled out of someone's ass because they magically align so that I have to pay $30.
And since everything was handled by Kaiser, how the hell could they not know before my visit that they would want $30 extra and just charge me $60 beforehand and be done with it?
Here's a great video that I think is related to this topic about the near-impossibility of finding out the cost of giving birth: https://www.youtube.com/watch?v=Tct38KwROdw
I'd imagine the reasons for the complexity are the same as an injury.
Edit: Just a thought...
What if enough consumers went line-by-line AFTER the fact and shared what the specific breakdown of every item cost? So then you'd be able to say, okay, at this hospital them giving us an Advil cost $X and them doing this procedure cost $Y.
Some way of making the master price list for how much individual items cost public and grouping together ones that generally appear together...
Me and a friend were talking that idea a few weeks ago. You'd need to further include what insurance plan that consumer was on as well, so know what the hospital would charge knowing that information.
Crowdsourcing it would make it significantly more transparent, but the problem (to me, at least) is more that submitting that information somewhere is more of a privacy/HIPAA thing than most consumers and companies are willing to handle.
I could definitely envision a government system, like medicare, would hire people to do this, and make the prices more transparent to consumers, but this is the same medicare whose part D cannot negotiate drug prices due to lobbying efforts.
Because it's sort of like hotels. There's a "rack rate" which is a high price that nobody pays, and a price floor is whatever Medicare pays. (With Hotels, GSA is the "normal" price floor, and cheaper rates are usually wholesale) If you price cheaper than Medicare, you get sued for fraud unless you charge that low cost to Medicare.
Everyone else has a bewildering discount scheme. The doctor literally has no idea what you pay.
In other cases you have HMOs, where primary care doctors get a monthly nut to take care of you and don't get a fee for service in most cases.
Great example. Ever checkout without an idea of what your hotel bill is going to be?
> The doctor literally has no idea what you pay.
But if it matters to me, then it should matter to my physician. Most of them will come up with a reasonable response if I tell them "doc, I checked at the pharmacist but I couldn't afford those drugs you prescribed, what else can we do?" Most of them empathize with their patients and come up with an alternate treatment plan if one exists.
I don't think it's good enough to say "well gee discounts and providers and algorithms -- math is hard let's surprise you" because somehow they can figure it out at bill-generation time. At the very least, hospitals/physician's offices could produce a "given your insurance + the nature of your chief complaint, this visit will cost $x, these common diagnostics cost $y/z/w."
It's funny that I can take my car to a mechanic and get a free and pretty accurate diagnosis. But you go to a hospital, and you need pay for the diagnosis and it may not be accurate.
Even for a checkup, after the procedures are done, the office can't tell me the bill.
...yet we we call mechanics "wrench monkey" in a demeaning manor.
BTW, this is probably why services like Minute Clinic are getting popular...go in, get something done, pay a flat/low fee.
Disclaimer: You may not agree with this. A downvote does not change that. A comment and intellectual conversation goes much further, however.
A quote from the article: The insurance industry is built on mitigating downside risk.
Maybe they should have everyone agree to use computers with sensors which can create accurate maps of everything people have ever done, might do, or should do. Citizens will be so much better off with this new system of fairness. We'll call it insurance instead of goverment.
I don't know why you're getting downvoted, but for there being a lot of money to be made by not understanding where commercial surveillance is ultimately headed.
The threat of government surveillance pales in comparison to the means of control that "private" industry will eventually "innovate" for the goal of "reducing risk". Drinks at dinner in the middle of the week, paid for with your surveillance card -> higher auto insurance. Not enough physical activity recorded on your wrist/chest surveillance device -> higher health "insurance". Fixing something around your house instead of hiring a manufacturer approved service company -> higher homeowners insurance. Taking a job with a startup instead of sticking with your predictable job at bigco -> higher mortgage insurance.
Which could be fine if such risks were priced accurately, but the centralizers' prescriptive models of the world can never actually capture reality (eg the difference between a qualified/uncredentialed repairman and a credentialed/unqualified one). Instead, it will mainly be used for price discrimination to gouge those who'd like to deviate. As more people fall into line (eg sign up for the current ruse of adding a driving surveillance device to save on auto insurance), the ability to even opt out of the surveillance ("no signal") will vanish!
Throw in the fact that many insurances are de facto or even de jure mandatory, and we've bootstrapped a system of mandatory restrictions (ie "laws") which are not even token-responsive to the governed. And similar to all teeth of the totalitarian ratchet, such developments will be cheered on by moralizing useful idiots gleeful that the "other" will get their comeuppance - blissfully ignorant that after the initial discount period, their rates will go right back up.
Effectively if you take any kind of risk it involves insurance. A concrete example is starting a company and quitting your job. Health insurance is currently heavily tied to employment, so the incentive is not to start a company under those circumstances.
One example - startups that are looking to sign large enterprise contracts are often prevented from doing so because they don't carry a sufficient level of errors and commissions (E&O) insurance to satisfy customer requirements.
Getting that level of coverage can be difficult because the few people on the insurance side really understand how to price software/security risk, and because the size of contract isn't meaningful to the seller of the policy, though it is critical to the startup in question.
That seems straight-forward to do (although difficult finding great developers to assess this stuff):
- Development process (Agile, Scrum, Waterfall, Panic, etc.)
- Architecture
- Testing processes
- Pentesting
- Credentials of all of the developers
- Credentials of the managers
- Even the presence of physical security
There's already "cybersecurity" insurance and surely someone from that industry could join and tell you how to price security features and processes: https://www.dhs.gov/cybersecurity-insurance
I can't really speak against it not being worth it for the insurance company though. How do you build a cheap but high coverage insurance product for startups that have limited cash?
Not just startups, consumer facing and b2b services as well.
"These tires are going to travel places other than roads and the sidewalls will be shredded by the terrain long before they fail from dry rot, I don't care if they're too old to have a date code, just mount the damn things."
"Our insurance policy prevents us from mounting anything over 10yo"
And that level of BS is nothing compared to overhead lifting.
That is not a solution. That's like saying "Prices of McDonalds burgers are really high, the solution to that is to give a fixed $15 tax credit for every burger people buy".
A single actuarial pool is like not having a pool at all. If you want to support a single payer healthcare system, then say so, don't call it a 'single actuarial pool' because then the word 'actuarial' doesn't mean anything and at that point it stops being an 'insurance'.
Having a single pool doesn't kill the 'actuarial' part. Fixing premiums by law does. As does the fact that health insurance is more "prepaid medical care" than "insurance".
After having spent the last 3 years in insurance with Allay trying to take on employer health insurance costs by making it easier for smaller groups to become self insured, I have found that the regulations are cumbersome but not huge blockers. The regulations are there to protect people and for the most part do that job correctly.
The hard part about this industry is that there is no single incumbent to disrupt, but thousand of very small businesses who have personal relationships with their clients. Also whereever you jump into the process, you have to deal with companies who do not value technology as much as the HN crowd would. These companies still print out PDFs and have automated very little of their business. No matter how fast you make your software, you are the behest of the companies below and above you in the chain.
If anybody wants to nerd out on the insurance industry, my contact is in my profile.
> The hard part about this industry is that there is no single incumbent to disrupt, but thousand of very small businesses who have personal relationships with their clients. Also whereever you jump into the process, you have to deal with companies who do not value technology as much as the HN crowd would. These companies still print out PDFs and have automated very little of their business. No matter how fast you make your software, you are the behest of the companies below and above you in the chain.
Quoted for truth, as we used to say in forums long ago. This represents a non-trivial issue in delivering solutions.
Healthcare needs to be funded through a non-profit community trust whose first priority is to secure the highest overall health for the population. Insurance is motivated by profit which will always seek to squeeze more money from the system as its first priority.
> After paying for broker commissions, fronting costs, reinsurance, customer service, claims processing, there’s often around 50% of the original premium dollar left to pay claims – which is the primary purpose of an insurance company.
What about shareholders? One of the biggest problem I have with insurance companies as for-profit enterprises is the inherent conflict of interest that comes from trying to service claims and customers as best as possible and turning a profit for shareholders.
I've always felt that insurance companies should be run as not-for-profits, or at the very least co-ops..
Don't get me wrong here, still pay the employees and the executives competitively (you want things to run efficiently and by talented teams so you need to attract top talent), but otherwise the whole enterprise should be working hard to make sure every other dollar goes to helping the customers who pay the premiums, and that's it.
I feel like this is the case for a lot of big industries in the US. Insurance, especially health insurance. Personal banking with credit unions. Maybe even pharmaceutical companies.
Aren't car-insurances sort of co-op's? Atleast I've read verbiage in my California car insurance policy from Farmer's that indicates that the insurance policy is really owned by the pool of users taking insurance and Farmer's is just a manager taking a government controlled percentage for their operating costs + profit.
That's one of the hardest questions to answer. In order to generate profits for shareholders the carriers have to generate return on their float. That was "easy" during the big bull market that started in the 80s, but has become increasingly difficult.
There are a number of very large and successful mutual insurance companies - take a look at USAA. They also happen to enjoy some of the highest customer satisfaction ratings in all of financial services.
USAA is still affected by many of the same forces that affect for-profit insurers. USAA has changed a lot in the last 20 years as they've opened up to more members.
Is generating enough income to give a profit to investors so different from generating enough income to meet operating expenses. Even without investors, if I was working at an insurance operation I'd feel a conflict between trying to be good to customers and trying to keep the lights on.
A lot of life insurance companies (e.g. the Prudential) started as mutuals. In the UK in the 90s there was a wave of "demutualisation" where the customers decided they'd take a one-off payment in return for handing control over to shareholders.
I don't know if it was done similarly in every case in every country, but my experience is that the customers became shareholders (with an option to sell the shares immediately, which I guess almost everyone exercised).
Came here to say this. Probably most of the insurance companies were mutuals prior to demutualization.
Probably the biggest consumer-owned business we have today would be Vanguard, when it comes to investment funds, but for a variety of reasons most industries have shifted to the corporate model.
In CA there is heavy competition between not-for-profits and for-profit. Kaiser and Blue Shield are both not-for-profits. I'm not sure why you would pick a for-profit here given those options
They lost their ca tax exempt not for profit status but they are still not for profit... which means they pay normal taxes and still operate as a non profit, which is actually pretty amazing in my opinion.
They also limit net income to 2% of revenue and refund anything more.
How is that still a thing? The LA Times article mentioned that they've never had status with the IRS and that they lost status with the California taxmen.
Not for profit doesn't mean that the people doing the work don't get paid. It means that the entity doesn't exist to payback a financial return to its investors.
Think of it this way, a not-for-profit insurance company has to pay its executives, staff, and so forth, while a for-profit insurance company has to do all of that and show a return for its investors.
When an exec makes 22 million at a for-profit company which produces dividends that might make its way into your 401k people have a hissy fit.
When a not-for-profit company pays their execs that much, those same people don't even know, because it's "not-for-profit" they assume it's more charitable somehow.
I don't think it was the reality that the prior comment lamented, but people's perception of it.
There have been moments in my life where I've wanted to smack smug idiots who, when asked what the do, say "I work for a non-profit doing X." As if that makes them better than the rest of us.
#1 As described in the article, between the premium and the actual claims pool there's 50% lost to all the entities involved -- from brokers up through reinsurance companies and back down to the entity that actually cuts the claim check. But further suppose that all these companies happen to be co-ops and so no dollars are lost to passive investors.
#2 There's a vertically integrated insurance company that is highly efficient. It only sells directly and doesn't use commissioned salespeople. It has overhead of only 25% and pays a 10% of revenue dividend to its shareholders, leaving 65% of premiums to pay claims. This enables the company to offer lower premiums for the same coverage.
Is #1 somehow morally superior to #2? Do you think it is impossible for #2 to exist?
not the OP but, in the long term, yes, I do believe a for profit entity is at odds with that. Shareholders clamor for more profit and will not be content with no growth.
Shouldn't we expect plenty of revenue growth since the efficiency edge over competitors means they can charge lower prices? 10% of a growing revenue stream looks like a recipe for pretty happy shareholders.
I think Sebastian is introducing an orthogonal perspective, which has nothing to do with morals. The theoretical ideal is that an insurance company nets zero profit while operating at maximal efficiency. Introducing a third-party (investors) that benefit from extracting revenue is a form of overhead that decreases that potential efficiency. This isn't all bad though. Likely, if it were not for the investors, the company would never exist, so they should have rights to a piece of the pie. Unfortunately, the trade-off introduced is conflict of interest.
Investors reward behaviors that maximize revenues be it through cost-cutting, premium hikes, or benefit reductions (or potentially the opposite assuming sales increase enough.) Granted, some of the more negative actions might cause customers to move from one provider to the next because of free markets and whatnot, and theoretically, the market should reward the company that provides the best balance for customers... except that almost all insurance companies are owned by investors, and over the long run, these investors incentivized to maximize revenue in prisoner's-dilemma-like fashion.[0]
So... I'd argue introducing investors over the short term is a fantastic idea, but at some point, it's probably wisest give them a heap of profits, and turn off the tap. Otherwise, the company will turn into yet another publicly-traded monstrosity with a mechanical conscience.
I think your example is overly simplistic, but I understand what you're saying...
To stay at that level, I would say that while there's nothing inherently bad about #2 it would be better if 75% remained to pay claims, and then they would not only offer lower premiums but better coverage.
And as someone else said, this isn't about morals, it's about priorities.. An insurance company should exist primarily to protect it's customers.
That said, if investors were contractually bound to accept only a fixed return over a period of time (almost like a bond or a GIC or something?) and had no voting power or influence in the direction of the company, that could work?
My issue is less about "investors" and more about focus and priorities I suppose..
I once read an interesting story about the host* business. Apparently the dominant player is a for-profit business.
The competition is convents around the country that have traditionally supplied them to parish churches. Here you have organizations that are as non-profit as they come -- convents aren't like many hospitals where the CEO and other high level employees are raking off a huge salaries as quasi-profit. And the motives and priorities couldn't be any purer, their work is essentially in the service of what they consider the glorification of God.
Yet they are being out-competed by a for-profit company that explicitly tries to make on every sale in order to compensate the owners.
How do you explain this if you view profit as deadweight loss that can only be at the expense of customers?
So first off, you're adding additional meaning to my statements by saying things like "you view profit as deadweight loss", which is not what I said at all (or if that's what you understood, then my apologies).
Secondly, I don't really think I need to disprove your anecdotal scenarios (which aren't really apples to apples anyways) in order to stand behind my statements..
I will say this: I did originally say that executives and employees should be well-compensated and that the company, while not profit-driven, should still be making enough money to attract top talent and be competitive in the market.
My idea was never about running an insurance company like a charity or a tiny unsophisticated business (as in your host example), it was just about not prioritizing shareholder profits over the core business service provided to the customer (i.e. providing coverage and paying claims), which is what many publicly-traded insurance companies do today.
Something this article did not cover and which is often overlooked is that insurance companies invest the premiums they receive in order to help defray the cost of claims. Companies that are both talented and ethical will get a good rate of return on the investments, thus serving as good stewards for the money.
I am not a fan of general health insurance. I think the government should provide universal basic health care and there should be health insurance for emergencies and the like.
I don't think it matters so much whether it is a for profit business or a not-for-profit or a co-op. It will basically come down to: Are they actually ethical? Are they actually talented at what they do? Is the model of policy any good?
Those will be problems regardless of the form of the organization.
(Background: I worked for a big insurance company for over 5 years. As an employee there, I was sent by my employer to a local technical college to get training to do my entry level job. At least while there, this training entitled me to the spiffy title of "Certified Life and Health Insurance Specialist.")
This is one of biggest misnomers when we talk about health insurance. We buy life insurance but don't plan to die once a month. We buy car insurance but don't plan to crash once a month. We buy health insurance and although we don't plan to go to the ER once a month, we may plan on seeing a primary care physician once a month whether for a chronic condition or maintenance or mental health or... Insurance is intended for unexpected things not expected things.
I think the way to fix this is similar to what you said. Primary care should be provided for everyone and the way you drive that cost down is by using more PAs, CRNP/other nurses and having only one actual Dr. for oversight and tougher cases. There are huge system costs that can be removed just by focusing on things like treatment compliance, pre-habilitation, healthy lifestyle, good mental health, etc.
Direct Primary Care is on the rise in the U.S. It is a saner solution than Obamacare, which forces premiums up crazily for everyone and is a terrible model. If we, as a nation, want to insist on market based solutions instead of the government playing a more central role, then Direct Primary Care is a far saner answer. You pay for basic care out of pocket in a way that helps keep costs down and you get insurance for actual unexpected emergencies and major health events.
The other problem with health insurance is that it doesn't serve the preventive role that car insurance serves. Car insurance is required by the state you live in and the details vary by state, but if you get too many tickets or have too many accidents, your premiums go up. So, it serves as a deterrent to bad driving behaviors. Furthermore, it doesn't just cover your losses. It covers damages done to other people. If you get in an accident and are found to be at fault, your insurance pays for their repairs.
Unlike car insurance, health insurance does not play a real role in pressuring people to behave more responsibly. So far, we have found no means to really do that effectively. Health issues are far more complicated than safe driving issues. You don't drive 24/7, but being alive 24/7 impacts our health for good for ill and in ways we don't completely understand. So it is a very hard problem to solve.
What we do know is that when people do not have access to basic health care in an affordable manner, health outcomes are worse and, thus, more expensive. So we need to find a means to get health access to more people in a way that is preventative. Direct Primary Care and government funded services seem to do that. Health insurance really does not.
It is interesting and that is one thing that I didn't mention. You can do primary care as free or a HSA path. I think the states should offer an HSA so it isn't dependent on your job. Then you can use it for dental or checkups or whatever.
I think the only way to handle the the deterrent/incentive piece is to find a metric that can be used. BMI is worthless as people vary too much. The best thing in my opinion is HA1C levels, but use it as a discount on your premium. You can't cheat A1C and most of our chronic diseases and inflammation causes are caused by poor diet. This forces people away from that if they want the discount. The only problem is high carb diets are cheap (rice/pasta) and healthy diets are expensive (lean protein/vegetables).
The biggest thing we need to change is to remove all the middlemen from the system. Each takes a cut and adds to the cost without having value. The biggest problem with health insurance is it isn't event driven like death or a crash. How do we stop everyone from being on the cheap plan for emergencies and then switching to the best if they get cancer? (Although one piece may be in the incentivizing better diet reducing cancer risk). I do keep wondering if it makes sense to flip it and make that the emergency part is tax based and mostly free to the person. You can then make the deductible based on the person maintaining healthy stats. Never go to the doctor and eat junk? You pay 25% of the total cost. Eat healthy and go for routine check ups? You pay 5% of the cost. Tough to know without running numbers.
Imagine if you paid for gas by using your auto insurance card? And also used insurance to cover normal car maintenance such as brakes, tires and oil changes. Now the co-pay on a tank of gas would be about 40 bucks, and if you tried to buy gas without insurance it would cost a couple thousand to fill the tank. But the insurance companies get a discount, and only end up paying 5 dollars per tank.
Insurance companies used to run as mutual companies. Part of insurance is investing all that money.
A lot of mutual companies become pseudo public companies so they could access cheap capital then grow faster. Of course once nationwide grew as big as they did they went private.
In a for-profit company, there's a group of people at the top who are paid handsomely for cutting costs (i.e. stock-based compensation). This doesn't exist in NGO's, and so for large organizations with lots of cash flow, bloat balloons exponentially (because the default, human loyalty of an employer is to their employees, not their customer)
NGO are trying to cut cost down. They tray to focus to their mission as efficient that they can. Doctor without Border is faster in some case than public emergency service.
The difference is that what is seen as cost, private company often see the product they deliver as a cost.
Lemonade is a NYC based insurance start-up that is doing this idea but one better. They are building two halves of the business: a for-benefit corporation that is the insurance carrier, and a for-profit, broker side that takes a flat 10% commission on premiums. They are getting great traction in the few states where they currently sell insurance
If there are outliers and the premium would skyrocket we cap your premium at market rate through an agreement with a reinsurer. It's a standard financial tool insurers are using as well and costs us next to nothing.
Is there a practical difference in cost though? A Dutch insurer (Univé) used to do the same, but in practice there turned out to be no significant different in total amount of money spent by customers. Even though they gave their profit back to their customers at the end of the year, they couldn't compete on price.
There has to be since no shareholders are involved assuming the rest of the setup is the same. If they are not cheaper then it's more likely that the coop is badly run which sadly is not uncommon.
There's at least one other alternative. The NFP uses the excess to pay better wages across the board. Thus benefiting every community those wages are spent in, which will usually be local (both to the business and it's clients).
Monies move toward local, low cost and essential spending as opposed to remote, high cost and luxury spending that one would expect to dominate with dividends paid out by for profit businesses.
I pay 758 SEK per month now and with Länsförsäkringar I'd end up paying 968 SEK for the same coverage. I do have a 10% discount on my current insurance due to having several policies at the same company. That's still less than the difference though, so Länsförsäkringar would have to refund me around 1200 SEK per year to break even.
That would be around 10-15% of the entire yearly cost, and I don't think they can promise those kinds of refunds year over year.
One big non-profit player will drive all the prices down thanks to competition.
There is no reason for private insurance to be more expensive if they have non-profit competitor. If this competitor was to disappear, on the other hand, the costs would probably sky-rocket.
This is popular wisdom but experience show the opposite: for profit insurance companies tend to be less efficient. I am not sure what the reason behind is.
For me getting a home insurance for my rental apartment in Sweden, Länsförsäkringar in my region (They're split up in regions) was the cheapest one at the time I was looking.
I think in insurance, there should be two separate pools of money, one for the insurance fund itself, and the other for managing the fund (management of the risk model) and making profits for the owners of the insurance company. These should be separate items on your insurance bill, and no money should ever cross the line from one pool to another.
While much of what Aaron wrote is spot on, one thing missing is the importance of distribution. This a challenge for any startup, but is more pronounced in a regulated industry like insurance with largely homogenized products and with serious restrictions on how you can legally distribute your product (see Zenefits).
If you consider how most people and small businesses buy insurance, they typically make purchasing decisions one a year at most. As such, you need to get in front of them at the exact moment they want to purchase. GEICO and Progressive have done this really well, but have effectively bid up the cost of online advertising to make it prohibitively expensive. This is also why agents are such a powerful force in the industry (and because they effectively provide carriers with an initial underwriting screen which they don't need to file publicly).
It's important to get the product right, and there are many flaws with most P&C insurance today (chief among them that the forms haven't really changed in the past few decades), but I'd encourage any entrepreneurs to make sure they have an answer on distribution before spending time on product.
Disclosure: I've spent a lot of time looking at this as founder of a P&C insurance startup a few years ago.
I work in marketing for a specialty P&C MGA and can attest to distribution challenges, at least compared to other industries, but Zenefits could have (and currently does) operate legally, they just chose not to.
Zenefits was allowing unlicensed agents sell insurance and for those in the company that were licensed, they found a browser hack that allowed them to not sit through the training required by the state (I'm assuming California) to be licensed. In the first case, you should know better but there can be gray areas. In the second case, it's 100% clear they knew they shouldn't be doing it, which makes the first case more likely to have been done knowingly and purposefully.
Yes, having to license people is a pain and presents onboarding and scaling issues, but they could have survived if they didn't "need" to grow at such an insane pace.
Nice writeup. Certainly scratches the surface a bit (and I think that was the intent). I've spent the bulk of my career in the industry, both in P&C and A&H, and there is a ton of opportunity. You correctly conclude that it's not because we're idiots, even though some days I'm kind of an idiot.
Again, tons of opportunity, with some barriers that aren't unique to the industry but maybe unique to what the tech community might encounter (and this is by no means an exhaustive list) -
1. Capital requirements: You need a dumptruck full of money to do much in this industry, at least if your intent is to write or reinsure business, but even to a lesser degree if you're working in ancillary services.
2. Regulatory environment: Assuming US operations, 50 states with 50 different sets of regs need to be okay with what you're doing. In addition, federal law comes into play in certain spaces (GLB, HIPAA, etc).
3. Distribution: The current model compensates every layer of the distribution model very well. It's not as easy as you might imagine to disrupt when entrenched interests are all making a ton of money AND are interdependent upon their neighbors in the value chain to continue to do that. You can't just hack a piece off because that bothers their neighbor, who in other circumstances might otherwise be a competitor, but has a shared interest. The relationships get complex.
None of this is fatal, but you must navigate it and play by many of the rules, particularly with #2. As Zenefits learned very publicly, the insurance industry and its regulators weren't going to let someone do what Uber did to the taxi industry - which was essentially to operate in the grey/black and just ignore the calls to stop. Insurance is a subset of financial services, and financial services is a powerful industry. For any startup, my advice is to build compliance and regulatory relations in from day 1. It's the least exciting thing you'll ever do, but is extremely important. Anyhow, I'm rambling. By no means do I want to discourage anyone from trying, I'm just trying to highlight some of the big things that are "different" in our space.
I'm particularly interested in the data piece because that's what I've done and built a career on in this industry, but it never struck me as sexy enough for YC. Appreciate the article.
The article spends many paragraphs on the complexities of the B2B and B2C players in insurance, their distribution channels, and how they get paid. It spends one sentence on noting how the pricing of risk is based on actuarial models, and then moves on. The pricing of risk is absolutely key to the entire industry, and it is stone age! It's all done in spreadsheets.
> The article spends many paragraphs on the complexities of the B2B and B2C players in insurance, their distribution channels, and how they get paid.
The article is primarily focused on commercial lines - primarily P&C, but there are similarities in A&H. The distribution stack is complex and is a natural starting point to start looking at opportunities. The general tech community probably isn't going to look at risk pricing and the ancillary services associated with that - there's a whole discipline built around it and I don't know how many in YC's catchment would be FSA/ASAs or excited by that particular aspect. Plus, for traditional products in P&C and the Disability side of A&H, the industry is pretty good at pricing the risk. Nobody's squeezing growth from their underwriting ratio, they're doing it through products and distribution.
Anyhow, not trying to give you a hard time, just another angle.
The biggest thing I can say is don't underestimate underwriting. There's a reason a lot of carriers focus on specific areas. There's a hidden customer acquisition cost in that a group of new customers that has a bunch of bad business that needs to be weeded out.
If you think about it a customer knows their own risk better than anyone. So, you're betting that you can judge their risk better than them and your competitors over and above your cost to manage paperwork, regulations, money and fraud.
This is also why carriers like agents so much. Agents effectively act as a first screen for carriers that allows carriers to turn away customers in a way that they can't legally do through their policies. Ie "encouraging" agents to send business from certain neighborhoods to other carriers or agents.
This is a discriminatory practice but every carrier does it because it's a way to circumvent the public nature of their filings, and it's another hurdle that startups will need to overcome, particularly if they're doing online distribution where adverse selection is a more pronounced risk.
Re the comments on Data in this piece: Yes, insurance is an industry suffering from perpetual information overload. I worked at a large insurance company for 5.25 years. I processed claims and we relied heavily on systems for looking up endless information. They would totally overhaul the system for doing that every few years. I think it occurred two or three times in the time I was there and I heard from other people that, yes, this seemed to happen every two to three years. It had all kinds of problems. What was supposed to be a new and improved, more user-friendly system meant that all the old timers who had figured out how to find everything were now lost, even with training. It also meant that some things were not compatible and not findable anymore. It was truly bad.
I have a certificate in GIS. As a claims processor, I worked with multiple databases all day long. This included such things as looking up names and addresses for providers (doctors, hospitals, etc -- the people providing medical care). I suggested we create a GIS based system to make this easier. The idea did not fly.
But if you want an area of opportunity in insurance tech, try finding solutions to some of their back end problems. Managing information overload is a serious and ongoing problem in the insurance world. I was there 5.25 years and I only know a thimbleful of information about the industry. Laws and regulations vary by state. In order to sell in all 50 states, you need to get licensed in every state individually and we had to be able to look up "state exceptions" which were laws that impacted how claims were paid in each state and on and on.
People in insurance are absolutely not stupid. It is just overwhelmingly complicated and no one can keep up with all of it. And, yes, it is very fragmented. But if you want a good business opportunity in this space, consider trying to build back end solutions to help them better manage the information in which insurance companies are simply drowning.
Americans pay 2.5x more than the average first-world single-payer system.
2.5x...
This funds demonstrably and starkly worse outcomes on the metrics we should collectively care about: life expectancy. Incidence of chronic disease. Infant morality.
The reason we pay much more for much less is simple: for-profit health care optimizes for profits, not outcomes. That is exactly what it has done; exactly what it will do.
The public sector already does single-payer in this country with an order of magnitude less overhead cost than the private sector.
When I discuss these facts with conservatives and libertarians, I usually discover that most of this is decreed "fine," because we disagree about whether or not health care is a right.
For that reason, I've stopped suggesting that it is, and focused on another stark fact:
Failure to provide basic health care to all, through straightforward means, merely means that it is provided through partially hidden means (like ER rooms) at vastly greater cost, not least because emergency care cannot perform preventive and chronic care, which in many cases would provide better outcomes for two orders of magnitude less cost.
Morality is a matter of instinct and choice. The costs of the existing broken system are however obvious, and render any defense IMO irrational.
The healthcare services paid for by the government is (i) provided by profit-motivated companies with all the private sector incentives to overdiagnose and (ii) typically performed at lower rates than those paid by private insurers, and much lower rates than those paid by individuals without the relevant insurance cover.
Well plenty of health care providers refused to service Medicaid patients because the rates are so low. That would infer that they aren't getting what they want from the gov't.
The fantastically under-reported reason that the GOP is struggling to find traction or indeed direction viz. undoing Obamacare, is that Obamacare as delivered represented a mostly fulfilled GOP wish list.
As a progressive, I would say: concessions to essentially print money were extracted at gun point from Dems willing to sacrifice much to pass a bill achieving specific key planks (namely the removal of 'preexisting conditions' and a strong step towards universal coverage).
The GOP walked with a bill they largely wrote. There is little left to want, other than yet more consolidation of wealth... and the roll-back of extremely popular benefits.
Watching this break into the open provides very cold comfort.
> For most of the insurance world, the hardest and most important thing to find is effective distribution and customer acquisition.
This is absolutely true. If you look at how regional, family-owned P&C carriers got their start, you'll find they started as brokers. These brokers found a profitable niche (call it motorcycles in California, or non-standard auto in Texas) that they wanted to own, moved on to become MGAs, and then admitted carriers offering multiple lines of business.
If you can find a way to own the customer as a distributor, you own the life-blood of the entire business downstream. As a result, P&C insurance companies are huge spenders on marketing (GEICO, spends $1.7B/year). It would be game-changing if this cash was used to provide utility to their customers above and beyond the insurance transaction.
I'm of the opinion that insurance premiums could be the new ad dollars - used to create products that promote lock-in, and much more consumer-centric insurance companies.
If you're going to innovate on the software side in P&C you would need to figure out what they're not doing or could not do that would allow you to get ahead of them.
It seems like for health insurance at least, the problem of trying to optimize insurance premiums based on any risk factor you're legally allowed to discriminate on is a problem that just sort of goes away in a medicare-for-all style single-payer insurance system. Everyone pays taxes and receives health care services -- you just have to make sure your taxes rate is set properly to cover the costs incurred.
(I think governments are sometimes unfairly criticized for inefficiency because they incur higher costs simply by not having the option to cherry-pick their customers the way private companies usually can. There are of course cases where the criticism is justified.)
Any options for renting vintage furniture by owner? I'd like to pick up more nice mid-century pieces when I see them cheap at estate sales, but won't have the space for them for a while...
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[ 3.3 ms ] story [ 249 ms ] threadOverall I think this is a nice briefing on the state of the insurance market in the modern economic landscape. It is extensively regulated with rates set and various nuances. All of this, of course, comprises part of a grand "data set" that looks quite appealing to modernization.
Unfortunately, I think there should be a strong expectation that the market (industry) will both be openly hostile to "disruption" oriented attitudes a la Uber, but laugh at any ability to raise capital to compete at any meangingful level.
I applaud your interest in perhaps improving a legally sanctioned form of graft (I prefer Mutual Organizations myself). Conversely, my experience leads me to laugh a little because I've seen the numbers and the complexity behind the scenes. I've got no interest in the industry beyond the paycheck it provided, but it is quite fascinating in numerous respects. Just the naming conventions alone once you get to Bermuda is a trip. Good luck.
Some of the more forward thinking companies are actively investing in new models and companies. I think that's going to accelerate.
Even without that, over time, new models and companies will succeed. Some of these are going to look like stock insurance, some will look like Mutuals and reciprocals, and some will solve insurance like problems in new ways.
Best of luck!
You're definitely right that there are privacy issues to be answered but we try to be as transparent as possible about what we're doing with customer's data, and by being stringent about who has access to sensor data.
1. Sensors dramatically increase the acquisition cost for a policy.
2. It is unproven that sensors will mitigate losses. We all see the potential but there just isn't data there to tell us that.
If I could prove #2 then #1 becomes simple math, if the CBA is there then incumbent carriers will adopt it. It's just not there yet to justify doing outside of startups and market tests.
3. When carriers pick a partner and get into the preventative game then there's some liability that opens up if things go wrong. One could argue that the carrier is already covering the risk - this just means the preventative offering has to line up with coverage being bought.
4. Last but not least, the biggest source of losses is CAT related in property. Sensors will get at the second tier water and fire - again loss avoidance has to justify the sensors unless the preventative side is an ongoing fee service.
As for proving that sensors mitigate losses, even in our initial beta period we've seen a couple of potentially large escape of water claims avoided by early detection of a leak, and that's before we start introducing truly preventative measures as opposed to just detection. We're very focused initially on escape of water because those are in fact the largest source of losses in the industry - fire is fairly rare, theft tends to be pretty cheap to handle claims for, but a leaking dishwasher left while someone is at work for the day can easily require replacing everything on the ground floor of a small house.
But when the premium came out at over 4x my existing renewal quote I became less enthused.
And then I saw the Excess Charge (for making a claim) was £1,000 vs the £250 norm, I ran away to the nearest comparison site to find vanilla home insurance.
I think the conversion process might need looking at to make the benefits less nakedly focused on cost.
We're now in the final stages of rolling out our own policies which are much more competitive - quoting on my own house has our policies coming out cheaper than my current home insurance policy, with much better service.
Do actually observe a different risk profile in the type of customer willing to pay for a proactive service?
As in, there are already block-chain based deployments going for portions of the industry. That's some pretty aggressive shit in my opinion. These are also industries with loads and loads of proprietary data that simply can not afford to play fast-and-loose with integrity.
That's why Cyber Insurance now exists. Even the Industry itself knows how to layer risk models.
Hey though, if somebody wants to march into Stalingrad in the Winter and prove me wrong, they can reap the rewards. Full stop.
Having said that, there are a great many advantage to doing greenfield development in an industry full of entrenched companies who've been around for a long time, mostly around the level of complexity. We can get away with much simpler solutions because we're currently super focused on home insurance so don't need to deal with all the edge cases around providing fifteen different types of cover.
Think long and hard about your last sentence. Insurance Brokers aren't fucking cab drivers yo. Eat your own goddamn dog food and then write an essay.
Then, once you're done, do a second version about how you're going to take on nation-state funds like Qatar Re, China Re, FM Global, and Chubb. Not once did you mention how the studies of Chubb found a chink in the armor. I might have high standards, but I don't have the bankroll of the Swiss. I just had to get those lazy fuckers to sign their I&Ls within a calendar year.
If you can show me a way to automate getting contracts in on time because of the human element, I'll be the first to call you a genius. If you talk big and have nothing more than "We can make a better Insurance, and it'll be FANTASTIC, much better than your Insurance now" a la platitudes and "Free Ice Cream for everyone" you'll win over a skeptic and probably have merit.
Not trying to be a bastard, but just letting you know that 2 years of outside study don't mean shit compared to 5 years in the fucking trenches. And, as a matter of principle based on my handle, no, you can't afford me. There is no amount of money as a Mercenary that would prompt me to open up what I know.
Sucks donut.
At least in the case of the company I'm at the details of the policies we write, and what feeds into the pricing, is worked out in conjunction with the reinsurer. They then agree to buy any risk we take based on that model. It is definitely a case of the reinsurer buying that risk from us though, the best way to think of it is that if a reinsurer believes the model is correct they also believe that on average they'll end up making a profit on the risks they buy, and indeed that if we didn't sell the risk to them that we would make that profit directly.
Sure, until the government says that you are no longer allowed to set rates based on actuarial data; maybe you aren't allowed to charge people appropriately if they have some expensive "pre-existing condition", or because of certain "protected" but statistically relevant characteristics. This throws a big fat spanner into the whole expectation value thing, because you're no longer an insurance company but a weird privatized subsidy pool that isn't allowed to make expectimax decisions anymore.
Your clients aren't allowed to expectimax anymore either; if they catch on to the fact that they're actually subsidizing someone else, they're not allowed to form their own rational insurance pool (because it would violate restrictions on "discrimination", e.g. ACA section 1557) and if they choose to opt out of the irrational "insurance"/subsidy market you hit them with a hefty fine.
I encourage everyone to look up expectation values for payin/payout of medical insurance for different customer types under current regulations (start with https://www.ncbi.nlm.nih.gov/pmc/articles/PMC1361028/ ). TL;DR If you're a reasonably healthy man below retirement age, you're getting screwed hard. Maybe society can collectively agree that this is a good idea, but we should at least be honest and stop referring to it as "insurance". Actual insurance markets without coercion are a net positive for all participants, rather than a convoluted scheme to (effectively) transfer money from one demographic to another.
See: https://en.wikipedia.org/wiki/Redlining
Insurance only works if the group is large and shares the risk. If you break it down on race, gender, age, and the thousands of other physical characteristics that correlate to something medically, you wind up with groups too small for insurance to work.
We don't charge black people lower Social Security and Medicare taxes on account of their lower life expectancy, right?
This is quite simply not true, and I can't help but think that this statement comes from a very fractured rule-of-thumb understanding about how insurance works.
Insurance works by charging you around (naively slightly more than, but actually usually slightly less than) your expected cost to the insurance pool. It doesn't matter if different pool members have different costs; as long as you charge them appropriately, insurance continues to work fine. Why do you think that charging different amounts to different customers would require splitting the pool?
What we call "health insurance" in America has gotten away from this model and that's one of the reasons why it is expensive and was horribly broken before 2009. Trying to cram everyone into one giant pool and charge them all the same amount of money in the hopes that the pool will be big enough is not working either, and doesn't solve the underlying problem with that system, which is that people make claims all the time and the insurance company often must pay. Thus, it becomes the customer and the entire transaction is less about serving the patient and more about milking the insurance company for every penny.
> We don't charge black people lower Social Security and Medicare taxes on account of their lower life expectancy, right?
Taxes aren't insurance premiums and those programs don't function as actual insurance; they're "social insurance" e.g. The federal government definitely makes payments to everyone who qualifies, no matter what happens to them. And taxes used to fund the program get spent on everything the government does, not just to fund those programs. So, this really isn't relevant to the question of what an insurance company should be doing.
In a pure sense, what we call health insurance isn't really pure insurance. To give a simple example, in property insurance, I pay let's say 2% of the cost of the item per year to protect something that the insurance companies deem to have a 1.5% chance of getting destroyed. That 0.5% difference is their expected margin.
But in the case of health insurance, I get that coverage for catastrophic events, but I also get discounts on healthcare for being on a plan. Insurance companies negotiate better rates with providers, which makes the market vastly more complex.
So that's why the author of this post says explicitly that he's not talking about health insurance.
Health insurance really ought to be separated from a health plan which covers entirely predictable and expected expenses.
You say "screwed", I say "contributing to society".
> Actual insurance markets without coercion are a net positive for all participants
How do you have a coercion-free market when the consequences of not buying in can include "you'll die or be bankrupt"?
I can choose not to own a boat, or a motorcycle, or a home. I can't really choose whether or not I get psoriasis or have a heart attack.
Because being overweight can lead to adult onset diabetes, I'm choosing to slim down so as to have a better chance at living.
Not every health condition is preventable.
How is a coercively collected subsidy for the health expenses of other demographics considered a contribution to society? Is trading one's labour for capital not enough?
> I can't really choose whether or not I get psoriasis or have a heart attack.
There are plenty of places throughout the United States where the only viable means of transportation is the automobile (or a motorcycle, as you point out). The consequences of not having auto insurance is also bankruptcy. Would you characterize the auto insurance market in those locales as similarly coercive?
No? I believe folks in a modern, developed-world society have slightly more obligation to their fellow citizens than that. Some people can't labor, so we have things like SCHIP (kids), SSDI (disabled), etc.
> Would you characterize the auto insurance market in those locales as similarly coercive?
The US focus on private cars is problematic, but the choice to move somewhere with better public transport or closer to a job is generally available (if potentially difficult).
No? Capital is absolutely meaningless in a society. Capital doesn't give society anything. Actual, physical goods do, services do, a healthy population that protects us through the herd effect do. Capital in itself? It is on the brink of being nefarious for society.
>There are plenty of places throughout the United States where the only viable means of transportation is the automobile (or a motorcycle, as you point out). The consequences of not having auto insurance is also bankruptcy. Would you characterize the auto insurance market in those locales as similarly coercive?
Aside from the fact that you will rarely suddenly end up in such a place without warning (which cannot be said when it comes to health), I would say that it's a problem of society. Why is there no public transport that could do most of the job of your car?
I am seriously tired of being seen as nothing more than a bag of blood for society to suck on and then come and insult me by emplying I haven't contributed enough.
Dammit I don't mind paying a fair amount of tax to make society work, but when they also choose to insult me because I haven't contributed enough and then waste what I have contributed.
We pay the same health insurance rates as everyone else. If you consider that an insult and a waste, I'm not sure how to constructively discuss this with you.
> We pay the same health insurance rates as everyone else.
Did you miss everything I said? If it's a flat rate, it's not insurance. It's a mandatory subsidy pool.
And yes, it is an insult and a waste; certain groups are systematically forced to give up the results of their labor for the benefit of other groups. Besides obviously subverting useful market-based societal optimization mechanisms, it's also very similar to certain social institutions we sought to eliminate a while back...
> How do you have a coercion-free market when the consequences of not buying in can include "you'll die or be bankrupt"?
This is such a silly argument. Are any changes in your utility function "coercion"? Is the fact that you have to eat food "coercion"?
Coercion-free means that you're free to behave rationally and make decisions that optimize your utility. It doesn't mean that nothing bad will ever happen. I'm really not sure how people get from the former to the latter.
If you're worried about having a heart attack, you should be able to buy an insurance vehicle that charges you commensurately with the risk of that happening. (Unfortunately, you can't; you also have to pay for other people's quadruple-bypasses, geriatric medicine, and 8th child.)
If you had perfect actuarial data it would mean you would charge predicted "losers" the entire cost of their expected claims plus your costs and profit. Conversely you'd charge the expected "winners" almost nothing because their premiums are pure profit. Insurance requires large risk pools to function as insurance. The entire point of it is that everyone in a large group pays in to cover those who suffer a loss.
For healthcare (which is not what this article is about) that means collecting premiums from younger, healthier people to cover older sicker people. Healthcare is also the only kind of insurance where everyone is guaranteed to make claims - very much the opposite of most other kinds of insurance.
The last point I'll make is that everyone gets older eventually. Higher premiums when you're younger are a form of pre-payment for the care that will absolutely be required when you age. Unless the government forces people to pay these premiums the most rational thing for any individual actor to do is cheat and skip paying premiums when young, then force the cost on others by buying in when you're old. It becomes a classic tragedy of the commons situation where only sick people buy policies, resulting in massive losses and sky-high premiums no one can afford to pay.
Your argument basically boils down to "fuck other people" + "I'll never get old, I'm going to be young and healthy forever!". I don't want to live in that world.
As a practical matter I'd also like to make it easier for people to start new businesses so I favor universal baseline healthcare coverage paid for by taxes. Shrinking hospital billing departments, insurance companies, and bill collectors would be a net win for our economy. I don't know why everyone believes scaling up drives efficiency for a startup, yet requiring every individual doctor to employ a bill collector is somehow a net win.
This is not true. People die young, some die quickly when older, with few health costs, others linger with huge costs. I can see an appropriate insurance product that protects against the risk of those varying outcomes.
I can also see millions of people unable to access that insurance product because their health condition or expected health condition makes it impossible for them to obtain insurance at an affordable level.
Of all the places for hardline libertarians to make a stand, the actuarial fairness of the insurance market, which literally is redistribution to the less fortunate which ultimately relies on coercion to function (good luck handling claims in a world where a legal system doesn't have teeth) seems the strangest place.
This is not true and represents a misunderstanding of the purpose of insurance. Insurance exists to protect against large downside risks.
There is, let's say, a 1% chance that my apartment burns down next year and I lose $50,000 worth of stuff. I would much rather pay $500 to insure against this loss than run the risk. I can easily afford to pay the small insurance premium whether there is a fire or not, but a fire would put a very serious strain on my finances that I am very happy to avoid.
No, this is wrong. Common misunderstanding about the value of insurance. Even with perfect data, where your cash EV from buying into the insurance pool is guaranteed slightly negative, it's still (usually) a positive utility EV. Losing $100,000 is, for most people, much more than 100 times worse than paying $1,000. So if your $100k house has exactly a 1% chance of burning down, you're happy to pay $1000+ for fire insurance.
Ah, of course, forcing young people, typically with less money, to subsidize older people, typically with more money, is very charitable to you. Are you incapable of telling the difference between "fuck other people" and "don't steal"?
People should pay in according to their expected costs. Anything else amounts to intentionally transferring money from healthy people to unhealthy people. It's true that healthcare gets more expensive as you get older, so if you want to burn $5M keeping yourself alive another 5 years in the geriatric ward, you should be the one to bear that burden, not everyone else. Guaranteed external subsidies + rapidly diminishing returns = horrendously inneficient allocation of resources.
I agree, businesses and doctors shouldn't have to deal with insurance bullshit, so I'm not sure why your proposed solution is to keep the same irrational overregulated "insurance" scheme we have now, which inherently requires a bureaucracy to A) force insurance companies and their customers to comply with imposed pricing rules and B) attempt to prevent people from taking advantage of the obvious economic discrepancies caused by (A).
Shameless plug: At https://tensorflight.com we are working on P&C insurance and we focus on analytics for commercial properties mentioned in the article. Please get in touch at ( kozikow [at] tensorflight.com ) if you are interested in the subject.
If you are getting into this business and are looking to write in most/all 50 states, one of the more cost-effective ways to acquire the licensing and company structure is to purchase a struggling/defunct carrier or MGA (depending on what your needs are). I didn't say cheap, but it's often cheaper than structuring and licensing yourself from nothing.
https://www.lemonade.com/lemonade_goes_nationwide
Plus, if you're going the route of getting licenses via acquisition, you need the money to make that investment. It can be cost effective to go that way, but not cheap, so if you're not trying to blow all of your cash at once and can benefit from a slow roll to 50 states, the traditional route will be fine.
Aaron's right that too much of the industry runs on pen and paper. It's confusing for the buyer and a massive headache for brokers.
Most of what we're building is behind the scenes to make the brokerage way more efficient. If you're an insurance expert with ideas to leverage tech or engineer interested in man+machine symbiosis, I'd love to chat (gordon [at] hiabe.com)!
Is it because the insurance coverage algorithms are too complicated? Because the different entities involved in a single treatment plan is too complicated to navigate? Because physicians feel that cost is orthogonal to medicine and they prefer not to be involved/prefer to recommend the ideal treatment based on a predicted outcome? All of the above?
It feels like if there were a particular hospital group / physician group that had this feature, they would attract a lot of attention. Just imagine, "Your initial differential diagnosis will not exceed $150 and we'll discuss treatment options or more conclusive diagnostic tests afterwards."
All I've heard so far are physicians who don't accept insurance but instead have a straightforward "menu" for common items, which is interesting but not what I think most people want.
My wife has experience of the doctor's office asking insurance company for $X, and the insurance company comes back and say "no, max $Y". So then the final "cost" all of a sudden becomes $Y. Pay attention to the claims that your doctors send to insurance company and you might be able to see that.
So instead of telling you, yes, whatever procedure is definitely just going to cost $Y. They can't tell you how much things are. It depends on maneuvers with other players in the industry.
This is very different than say in Canada. If I want to get a teeth filling in Canada, my dentist straight up tells me how much before the procedure. If I want to price shop that, I can. In the US, nobody is willing to say how much, because "it depends".
It's not because intrinsically there can't be price transparency. It's because of all the messed up incentives that the industry has that causes US health care to be as such.
You could have health insurance with transparency, but there is too much profit potential in forcing information asymmetry between all of the parties involved in the system.
Every time that you think...doctors...hospitals...nurses...are up to something, most of the time it can be tracked back to insurance companies and the sway that they hold over congress with their money. I'm not saying that there aren't doctors, nurses, hospitals trying to gouge people. I'm just saying that insurance companies are worse. (With some very rare and egregious exceptions.)
But the end result is that I simply cannot 100% trust any advice I'm given.
But no steak dinners still doesn't mean you won't get this happening, because some docs look at your insurance and figure that for you, your out of pocket will be lower with a coupon than with a generic. Sure the insurance company might pay an arm and a leg - but by and large docs don't care about insurance company profits, and do care about the person in front of them. And thus waste.
Other docs think all generics all the time -- even if the cost to the patient is massively higher. On the opposite side sometimes the expensive drugs just are better (even if just marginally) and most docs don't think about costs at all - as it's very very complex and their lives are busy enough.
It's messed up for a thousand reasons, not for one reason.
There are a lot more that think it's not their job to care about those things. They think they are only responsible for curing the sick regardless of time or money constraints or conflicts of interest.
They say they don't do this, especially in regards to money, but talk to all sorts of docs about how much of their patients' time they waste every day and they get real defensive. They think they are owed anything and everything and fuck running an efficient practice, fuck your time because they're a doctor and they are over in a different room performing miracles.
The egos in medicine do WAY more harm than good.
They actually have a hard time being "efficient" in the sense that you use the word, because if they don't run every possible test when they miss something and get sued they will have to answer for it.
Why are there so many lawsuits? Because the first thing that insurance companies do is lawyer up.
I'm not saying that doctors aren't also bastards sometimes, but Americans also think that doctors should deliver healthcare like a retail service and that's just stupid.
Your whole "in a different room performing miracles" might actually be running late because they are double booked and behind schedule due to trying to be thorough with an old woman who has compounded issues related to multiple diseases. That woman is also a person, just like you and the doctor might be trying to spend some time trying to help them even though insurance and the shitty clinic they work in only want them to spend 10 minutes with any one patient. That may sound efficient until you need to spend 20 minutes to do something right. Then the schedule is effed the rest of the day and people will act like you are trying to do something to them by being late.
Its hard for me to say this, because generally I hate people, but not everything is intended as a slight against you.
Never trust anyone 100%. This is America.
The reason they do pay for the cleanings is that it's probably cheaper than paying for the increased fillings and root canals that they would incur if people skipped the routine cleanings. So they want to incentivize that, even though it's not really the sort of unexpected ruinous expense risk that insurance is really meant to assume.
They could achieve the same goal by providing a discounted premium with proof of routine cleanings, but that's probably more complicated for both them and their customers.
Actually, no, they reason they do is because they're usually subsidized by employers providing the plans. In other words, it'd be equivalent to the employer reimbursing a portion of your regular dental care that you pay for out-of-pocket. The expected reduction in cost for the insurer due to routine cleanings is negligible from their perspective.
If you purchase dental insurance individually, these treatments are very rarely covered, or if they are, the price under insurance is usually about the same as the price without insurance. Which makes sense from a risk model - when there is literally no risk at hand, the price under insurance should actually be higher than the uninsured price, by a tiny amount.
It's a bundled prepayment model, similar to selling gift certificates/cards or the like. Basically making money on breakage / float.
Real casualty insurance wants to reduce the number/magnitude of casualty losses. So the theft insurer wants you to get good locks and an alarm, the fire insurer wants you to get sprinklers, and they all want nice orderly public services with good response times and suitable building codes. Win-win-win.
Nobody would ever be unhappy if they paid their whole life for fire insurance and their house never burned down.
But health "insurance" can't really reduce the amount they pay out (the "medical losses") because the customer is expecting to consume healthcare. It's also more complicated because one of the best ways to reduce medium term healthcare costs is to spend more on short term healthcare costs.
Can you imagine if the best way to prevent a house fire was to have a little house fire every year? (Well, that's not so crazy in terms of wildfires, perhaps.)
Then, there's the fact that in the very long term, everyone will die and many will get really sick just before that. And the private health "insurance" companies do their damnedest to avoid that group entirely, having effectively shunted them all off onto the commonwealth (Medicare).
Health insurance is not like other insurance and we need a new word for what it really is.
It's not just prepayment, but also a negotiated price that's lower than the average person can negotiate themselves.
Other healthcare on the other hand is often a mess, although it is getting better. I've found recently (an MRI in this instance) that I was able to get costs beforehand, and even compare prices. I think the prevalence of HDHP (high deductible health plans) has steered people towards expecting to pay out-of-pocket for care, which has led to a positive change in this area.
My root canal is $325? Cool. I can shop it around or go with it. Same with a pet procedure.
Medical is the crazy town.
[0] Sure, there are extreme exceptions, since most hospitals have a dentist they can call when an emergency patient is admitted because an abscessed tooth has destroyed their entire body... It takes commitment and/or great misfortune to get to that point.
Essentially, health insurance for the poor isn't formally subsidized well enough to make it actually workable, but doctors have professional ethics that disincentivize them from refusing care. So the system has evolved a clumsy, ad-hoc mechanism for wealthy patients to cross-subsidize poorer ones.
American health insurance sucks.
In other words, if a practice can purchase a vaccine or supplies for a lab test at $100/unit wholesale, Medicare pays the doctor (in the aggregate) $93 for it. That doesn't take into account any overhead or costs of running a practice, of course, such as wages for nurses and administrative staff.
Providers typically make a loss on Medicare patients and then make up the difference by charging private insurers (who are, by law, required to pay more than Medicare does).
Medicare's rates are so notoriously low that for doctors who can't do this - doctors who treat a disproportionate number of Medicare patients - they actually have a separate stipend program to pay them enough to stay in business.
Somehow I came across that G8709 was for prescribing antibiotics. I figure I should be able to plug that into something like:
https://www.cms.gov/apps/physician-fee-schedule/search/searc...
...but I apparently don't know the proper incantation to get that to work. It would also be interesting is someone had concrete side-by-side examples of what Medicare/Medicaid pay vs. what everyone else pays for several different "common" items.
No payer (including Medicare) pays a single price across the board - even Medicare pays different amounts to different providers in different regions, etc. So there is no one single price for each payer that we could compare, and it'd be hard to find true apples-to-apples comparisons between them, short of polling individual practices and asking them what they received last month (which is hardly rigorous).
Remember that these are often treated as closely guarded secrets - if they were truly public, the AMA couldn't charge for access to CPT codes, and it would be harder for Medicare and private payers to negotiate the minimum rate for each provider. It's the same reason you'd be hard-pressed to ask most companies to make all of their individual salary data public.
The reason we know that Medicare pays so little, though, is that (a) it's no secret - even Medicare doesn't really try to hide it, (b) Medicare has to publish aggregate data, and we know from the aggregate data that they reimburse 7% less than COGS on average, and (c) it's statutorily mandated.
Private insurer rates are definitely not public information, for any definition of "public".
Medicare reimbursement rates are sort of public, but not at the level of granularity you want. And a portion of that is because the question is not easily defined. For a given CPT code, Medicare might pay one of many different rates, depending on factors such as the geographic region, whether the provider operates in a CAH, whether the provider qualifies as a DSH, etc. That level of granularity is not easily accessible, and without it, there's no way to give meaningful example individual comparisons without running the risk of cherry-picking non-representative examples simply due to availability bias.
(Also, Medicare and Medicaid can't be lumped together. Medicare is a single, federal program that is administrated in four parts. Medicaid is a set of 50 different programs run at the state level, each of which can be administrated in more ways than I can count. The one thing that they all have in common here is that, like Medicare, they pay abysmal rates to providers, but the relationships that they have are even more complex - even in a single state, like New York, there are literally hundreds of different ways that Medicaid services can be provided, depending on the type of plan chosen.
Source: founded a company that had to abstract all of this complexity for patients, who were disproportionately on Medicare or Medicaid)
The first column are the number of points a given service is assessed for, the second is what the publicly-mandated insurances that most Germans are covered by will pay, and the third is the private rate: private insurance or straight-up cash. Doctors and other providers can choose to charge higher than the usual 2.3 multiplier for private patients, and they can choose to only accept private patients, but most accept the public insurances, too.
I can confirm that these are the current prices - I'm privately insured with the highest legal annual deductible (1200 EUR) and pay those bills out of pocket.
Result: Visits to my Hausärztin (primary care doctor) are somewhere in the 30-70 EUR range, full price. Just about everything in healthcare is startlingly cheap in Germany compared to the US (dentistry is only somewhat less expensive than in the US). About 10 years ago, I paid less for the same procedure without participation from my insurer than a friend did in the US after her insurance paid its portion - and I had a night in the hospital, while she was an outpatient!
Medicaid is separate state-run programs with different reimbursement policies in each state, and othe common federal rules governing the state programs include provider-specific (both cost and charges to the general public) limits, so, there is no simple “what rate Medicaid pays” for any service.
(And that's even before considering that in some states, a substantial portion of Medicaid is provided by private insurers who are paid capitated rates, not fee-for-sercice, by the states.)
Each year the state publishes the set of hospital rates and intensity weights for each DRG (Diagnosis-Related Group) and severity combo (currently using weights developed in 2014). So a DRG of 460 (Renal Failure) with a severity 2 has a weight of 0.7393. Now the actual cost will depend on which hospital you go to since each hospital has a different base rate. For example each Mount Sinai hospital has a base rate of $8,743.45 while Niagara Falls memorial hospital has a base rate of $5,558.99. Each hospital also has a per discharge rate. To calculate the default rate take the hospital base rate x DRG intensity weight + per discharge rate.
https://www.health.ny.gov/facilities/hospital/reimbursement/...
https://www.health.ny.gov/facilities/hospital/reimbursement/...
This is confounded a bit because a lot of medicine involves lots of expensive equipment and staff with huge student loans to pay down but low day-to-day operating costs, but for a lot of specialties there exists no set of insurance-independent prices that allow a normal clinic following industry standard practices to operate without losing money.
It's worse than that - it's below COGS (direct materials). So even before you account for rent/utilities/salaries/amortized costs, they're still making a loss, unless they operate in a CAH.
Additionally, if you inform the office you are paying the bill yourself (without insurance) they usually give you a discounted price somewhere between $X and $Y.
In other words, almost nobody is paying the list price of $X. It's not really a meaningful number.
(And, as others have pointed out, the weak US dental insurance market means that actually dentists are pretty up-front about pricing in my experience.)
Anecdotally, my wife went to her regular doctor for a nominal fee at her yearly checkup. They drew blood, then asked her what hospital she wanted a follow-up diagnostic procedure to be scheduled at. She gave the one closest to us. She showed up, did the procedure, then almost a month later, we get 2 bills. One is for the blood ($1800) which, surprise, didn't go to an in-network lab despite all of our previous years' work being covered. The other bill was for the procedure ($800 if I remember correctly). If you go to the insurance website, enter her plan, enter the hospital and the procedure, it will tell you it costs something like $40. The whole system is broken, but at least these issues wouldn't have happened in a system like Kaiser.
Also anecdotally, my sister is on Kaiser in Colorado, and she has a chronic disease along with her pregnancy. They are taking very good care of her, and nothing seems to be dropped despite her having 3 physicians whom she sees regularly. I have almost no faith that if my wife gets pregnant, we'd have the same continuity in our current setup.
"All I've heard so far are physicians who don't accept insurance but instead have a straightforward "menu" for common items, which is interesting but not what I think most people want." - I think people want this but they are scared of going off of insurance in the event they need to see someone who doesn't offer this (chance occurance, expensive disease).
Have a look.
insureathing.com
For more complex things, it's usually:
1. Not possible to know in advance everything that will need to be done. Many medical procedures are not things that just go identically every single time, and complications can occur during the procedure. Having to call it off, re-quote, re-schedule, etc. is not optimal.
2. The doctor likely doesn't actually know how the procedure will be billed. Medical billing is done using standardized codes to describe procedures, and the doctor will have someone who knows how to do that, but that person may not even work in the same building as the doctor. And the sets of allowed codes and how to use them can change quarterly, and that's without getting into the arms race of doctors trying to "up-code" (rather than the most obvious code for a procedure, find a way to bill it as multiple procedures or as a plausible but higher-paying code, since doctors and insurance companies are locked in an eternal battle of doctors trying to make as much money as they'd like and insurance companies trying to pay as little money as they'd like).
The safest thing is to refuse to give an answer.
To elaborate on this, I work for a company that offers health insurance. One of the nice features of our plans is that although it's PPO with a network of contracted providers, the co-pay for someone on the plan is the same whether a doctor is in- or out-of-network. But how do you advertise that? Saying "see any doctor you want" is a non-starter, because someone might take it to mean "doctors are required to see you even if they don't want to" and then claim we misled them with the "any doctor" line. It ended up taking quite a while to work out a way to advertise that benefit without tripping over anything that might be claimed to confuse or mislead.
I think there are great companies being built in the space (take a look at what Clover Health is doing https://www.cloverhealth.com/en/), but it's not an area I'm focusing on.
- Because healthcare providers negotiate different rates with providers, so the "list price" differs by your provider and plan.
- Because your personal cost is unknown to the doctor, as it would depend on factors between you and your insurance company (like deductible met), coverage types, etc.
Now, these are both solvable problems. And I agree with the sentiment of other posters here that it's predatory that medicine is one of the few fields where you simply don't know how much something will cost until you get the invoice.
This one CAN be known to the doctor, the full details of your coverage, current deductible met, copay amounts, etc are an X12 270 transaction away. Almost nobody does this though, unless you are planning on billing an expensive claim (outpatient surgery, post-acute care, etc) where non-payment can mean a significant monetary loss the time and money doing these checks isn't worth it for the provider. This is further exacerbated by most (all?) clearinghouse's charging to run these transactions, and a really slow adoption of CORE Phase II connectivity standards by payers (which would bypass the clearinghouses completely and allow providers to directly submit eligibility requests to payers over a standard interface).
But imagine if your mechanic did that. "Hi, thanks for bringing your car in. We investigated that noise, ran a bunch of tests, and everything looks fine to us. That will be $5,000."
(Fun story: many years ago, Jiffy Lube topped up my dad's transmission fluid without telling him there was an associated cost. When they tried to charge him the $25 or whatever it was, he told them to suck it back out.)
Pieces that can impact the price. Your insurer and what product you have. These will affect who is considered in-network and the fee schedule to use. Different insures will have different arrangements. Depending on the product if you have a narrow network product they may or may not be in-network. It could also depend on the location. A provider can be in-network in one location but not in another.
Also the procedure that is actually performed may be slightly different from what was planned due to unforeseen circumstances.
This is assuming the provider is aware of what the actual costs are. In many cases they don't even know the ballpark price since that is not the portion that they deal with.
Is it POSSIBLE to do all of this and give you a proper quote before a visit? Sure, but it requires some fairly complex software to do so and manual input of tons of different data specific to your insurance contract that almost nobody wants to do it (ironically, the billing company I work for DOES this - but since we aren't involved in patient care it's only utilized to ensure we get paid properly by insurance companies).
Doctors/Labs are often surprised after the fact by what the insurance company allows, thinks is miscoded, will pay, etc.
If you get a bill from hospital, you can call billing department, ask them if they can try a different code to bill insurance company. And it is possible new code will lower your out of pocket cost. On few occasions I did this, I end up owing nothing out of pocket.
Can someone quantify the value added by having this complexity baked into the system? Is there any advantage besides the "confusopoly" aspect?
https://en.wikipedia.org/wiki/Confusopoly
Who is the main benefactor (in $$$) behind the drive for complication of medical billing? Doctors? Medical Office Receptionists? Insurance companies? Other third parties that doctors hire to handle paperwork?
What are the benefits supposed to be over whatever we were using in 1975? If you were founding a clinic on Mars for the first colony, would anyone duplicate our current system of medical billing?
What they get out of it now are public health statistics. Doctors dont get anything out of this.
Ultimately treating medical coding as the price determination mechanism is the cancer behind all our problems.
We actually don't really get those out of the medical billing situation either. ICD codes are what's used for public health statistics, whereas CPT codes are used for billing. I mean, we could use that data for public health statistics, but we don't really. And we could still have gotten it without the rest of the sacrifices that have come along with the code-based payment systems that have turned practices into offices for billing, with a marginal medical practice on the side.
Unfortunately, as you said, because Medicare is 40% of the payer market, once they switched to this model, it created the vicious cycle we're now in.
Very roughly (it's more complex, but not worth more detail here) ICD-10-CM diagnosis codes are used for billing, and ICD-10-PCS procedure codes are used for institutional billing, as well. HCPCS (which include CPT) procedure codes are used for professional services billing.
Yeah, this is the rabbit hole I was hoping not to have to go down. :)
All I wanted to illustrate was that the desire for public health statistics could be satisfied without requiring a move to the flaws of the current billing model - they're different systems.
(And historically, the move to the current billing model came about primarily for reasons other than a desire for public health statistics).
The value added is relatively little, and past comparisons of the cost of healthcare between the US and Canada have identified paperwork as being most of the difference.
But the cost to the one insurer or hospital which DOESN'T participate in adding to the mess is very high. So everyone puts in a lot of energy to wind up in approximately the same place, only with more paperwork. After a few decades of this, well...
A new company will look at healthcare in America and say, "I'll start a company, and we'll fix part of this." And to some extend they succeed, they deal with some of the underlying insanity, and stick a nice API in front of it. But ultimately what they really do is bring in a bunch of people to sap more money out of the healthcare industry. I used to be one of them when I worked for such companies as a developer. Ultimately a small part of your high medical bill ended up in my pocket. One of the companies I worked for had hundreds of employees and could have been entirely replaced with a 50 line Python script and a cron job if only the government would pick a standard CSV format and require states to use it. (There was no patient data we were dealing with.)
It seems to me, that to make healthcare affordable in America a lot of these auxiliary workers are going to have to lose their jobs. They system must be made much smaller.
http://micheleincalifornia.blogspot.com/2017/01/direct-prima...
We recently went to a physician who works in an area that regularly isn't covered by insurance. For all procedures, the cash pricing was upfront and understandable.
In comparison, we tried to deal with another physician for a different procedure we knew our insurance didn't cover. Literally days worth of time was spent on the phone to try to figure it out and the day of the procedure we were told the prices were wrong and didn't account for some stuff.
Even though the ycombinator blog post is discussing innovation etc with regard to insurance, I like the idea of innovation on the side of service providers. And it is somewhat sad that a list of prices is innovative.
Here is a simple example that my sister (a nurse) gave me yesterday. Suppose that you go in for an operation at the hospital, spend a week recovering, and develop diarrhea on day 2 while you are there. That diarrhea is a "hospital acquired infection" and insurance won't pay a dime for your operation. Therefore until you've been through the hospital, nobody knows whether you'll get paid.
Oh right, and the possibility of this happening is a reason for the hospital to kick you out of the hospital as quickly as possible. Average patient outcomes may be better if you stay a week, but their odds of getting paid are better if you're kicked out within 48 hours.
This is just the tip of the iceberg. She went on about how broken health care is for an hour...
That's definitely not the case, because they have to know in order to bill you. To get us back on the same page, let's rescope and consider only elective procedures and primary care.
Your example is extraordinary and could be specifically excluded. Even if I got a treatment plan with equivocating language about "risk of procedures / changes / infections / etc" and all that noise at least I could make an informed decision about which treatment plan I think is appropriate.
The guff I was sold when we were shoved to high deductible plans a ~decade or so ago was that we could make decisions about our healthcare. They come up with BS estimates or treatment calculators that are from the insurer and not the provider.
To me, the actual problem seems to be that they would like to make up the price after the fact, when they have a better idea how much they can charge and get away with. This gives them the unfair advantage of setting their own prices unchecked by market forces, and is frankly a reprehensible business practice.
They bill you after the fact, after they know what they did and what insurance paid for. At that point it is easy. But before the operation, nobody knows what they will find or what insurance will decide.
Your example is extraordinary and could be specifically excluded.
On what evidence do you conclude that it is extraordinary?
All evidence that I have, including my conversation last night with a retired head nurse, is that confusion and uncertainty about what will be covered by insurance and what negotiated limits there might be on what can be charged are more the rule than the exception. And if my impression is correct, then what you want is impossible. Because before the fact, nobody really knows.
I went for a routine visit, and paid the $30 copay before the visit.
After the visit, I get a bill for Ridiculous_Number_X - Ridiculous_Number_Y = $30.
The "actual cost" of the visit and the "negotiated discount" are numbers that are obviously pulled out of someone's ass because they magically align so that I have to pay $30.
And since everything was handled by Kaiser, how the hell could they not know before my visit that they would want $30 extra and just charge me $60 beforehand and be done with it?
I'd imagine the reasons for the complexity are the same as an injury.
Edit: Just a thought...
What if enough consumers went line-by-line AFTER the fact and shared what the specific breakdown of every item cost? So then you'd be able to say, okay, at this hospital them giving us an Advil cost $X and them doing this procedure cost $Y.
Some way of making the master price list for how much individual items cost public and grouping together ones that generally appear together...
We could call that...oh wait. Nevermind.
Crowdsourcing it would make it significantly more transparent, but the problem (to me, at least) is more that submitting that information somewhere is more of a privacy/HIPAA thing than most consumers and companies are willing to handle.
I could definitely envision a government system, like medicare, would hire people to do this, and make the prices more transparent to consumers, but this is the same medicare whose part D cannot negotiate drug prices due to lobbying efforts.
Complications and hospital related infections are not extraordinary. For most of the history of healthcare they were the norm.
Everyone else has a bewildering discount scheme. The doctor literally has no idea what you pay.
In other cases you have HMOs, where primary care doctors get a monthly nut to take care of you and don't get a fee for service in most cases.
Great example. Ever checkout without an idea of what your hotel bill is going to be?
> The doctor literally has no idea what you pay.
But if it matters to me, then it should matter to my physician. Most of them will come up with a reasonable response if I tell them "doc, I checked at the pharmacist but I couldn't afford those drugs you prescribed, what else can we do?" Most of them empathize with their patients and come up with an alternate treatment plan if one exists.
I don't think it's good enough to say "well gee discounts and providers and algorithms -- math is hard let's surprise you" because somehow they can figure it out at bill-generation time. At the very least, hospitals/physician's offices could produce a "given your insurance + the nature of your chief complaint, this visit will cost $x, these common diagnostics cost $y/z/w."
Even for a checkup, after the procedures are done, the office can't tell me the bill.
...yet we we call mechanics "wrench monkey" in a demeaning manor.
BTW, this is probably why services like Minute Clinic are getting popular...go in, get something done, pay a flat/low fee.
Do you take your car to the mechanic, get some work done, only to get a bill 3 months later?
A quote from the article: The insurance industry is built on mitigating downside risk.
Maybe they should have everyone agree to use computers with sensors which can create accurate maps of everything people have ever done, might do, or should do. Citizens will be so much better off with this new system of fairness. We'll call it insurance instead of goverment.
The threat of government surveillance pales in comparison to the means of control that "private" industry will eventually "innovate" for the goal of "reducing risk". Drinks at dinner in the middle of the week, paid for with your surveillance card -> higher auto insurance. Not enough physical activity recorded on your wrist/chest surveillance device -> higher health "insurance". Fixing something around your house instead of hiring a manufacturer approved service company -> higher homeowners insurance. Taking a job with a startup instead of sticking with your predictable job at bigco -> higher mortgage insurance.
Which could be fine if such risks were priced accurately, but the centralizers' prescriptive models of the world can never actually capture reality (eg the difference between a qualified/uncredentialed repairman and a credentialed/unqualified one). Instead, it will mainly be used for price discrimination to gouge those who'd like to deviate. As more people fall into line (eg sign up for the current ruse of adding a driving surveillance device to save on auto insurance), the ability to even opt out of the surveillance ("no signal") will vanish!
Throw in the fact that many insurances are de facto or even de jure mandatory, and we've bootstrapped a system of mandatory restrictions (ie "laws") which are not even token-responsive to the governed. And similar to all teeth of the totalitarian ratchet, such developments will be cheered on by moralizing useful idiots gleeful that the "other" will get their comeuppance - blissfully ignorant that after the initial discount period, their rates will go right back up.
Getting that level of coverage can be difficult because the few people on the insurance side really understand how to price software/security risk, and because the size of contract isn't meaningful to the seller of the policy, though it is critical to the startup in question.
- Development process (Agile, Scrum, Waterfall, Panic, etc.)
- Architecture
- Testing processes
- Pentesting
- Credentials of all of the developers
- Credentials of the managers
- Even the presence of physical security
There's already "cybersecurity" insurance and surely someone from that industry could join and tell you how to price security features and processes: https://www.dhs.gov/cybersecurity-insurance
I can't really speak against it not being worth it for the insurance company though. How do you build a cheap but high coverage insurance product for startups that have limited cash?
Many of the most popular small craft (Piper, Cessna, etc.) date from the 1940s and 1950s.
"These tires are going to travel places other than roads and the sidewalls will be shredded by the terrain long before they fail from dry rot, I don't care if they're too old to have a date code, just mount the damn things."
"Our insurance policy prevents us from mounting anything over 10yo"
And that level of BS is nothing compared to overhead lifting.
A single actuarial pool is like not having a pool at all. If you want to support a single payer healthcare system, then say so, don't call it a 'single actuarial pool' because then the word 'actuarial' doesn't mean anything and at that point it stops being an 'insurance'.
The hard part about this industry is that there is no single incumbent to disrupt, but thousand of very small businesses who have personal relationships with their clients. Also whereever you jump into the process, you have to deal with companies who do not value technology as much as the HN crowd would. These companies still print out PDFs and have automated very little of their business. No matter how fast you make your software, you are the behest of the companies below and above you in the chain.
If anybody wants to nerd out on the insurance industry, my contact is in my profile.
Quoted for truth, as we used to say in forums long ago. This represents a non-trivial issue in delivering solutions.
What about shareholders? One of the biggest problem I have with insurance companies as for-profit enterprises is the inherent conflict of interest that comes from trying to service claims and customers as best as possible and turning a profit for shareholders.
I've always felt that insurance companies should be run as not-for-profits, or at the very least co-ops..
Don't get me wrong here, still pay the employees and the executives competitively (you want things to run efficiently and by talented teams so you need to attract top talent), but otherwise the whole enterprise should be working hard to make sure every other dollar goes to helping the customers who pay the premiums, and that's it.
There are a number of very large and successful mutual insurance companies - take a look at USAA. They also happen to enjoy some of the highest customer satisfaction ratings in all of financial services.
Probably the biggest consumer-owned business we have today would be Vanguard, when it comes to investment funds, but for a variety of reasons most industries have shifted to the corporate model.
They also limit net income to 2% of revenue and refund anything more.
https://www.blueshieldca.com/bsca/bsc/public/member/mp/conte...
edit: typos
Think of it this way, a not-for-profit insurance company has to pay its executives, staff, and so forth, while a for-profit insurance company has to do all of that and show a return for its investors.
When an exec makes 22 million at a for-profit company which produces dividends that might make its way into your 401k people have a hissy fit.
When a not-for-profit company pays their execs that much, those same people don't even know, because it's "not-for-profit" they assume it's more charitable somehow.
I don't think it was the reality that the prior comment lamented, but people's perception of it.
There have been moments in my life where I've wanted to smack smug idiots who, when asked what the do, say "I work for a non-profit doing X." As if that makes them better than the rest of us.
Suppose we take two situations:
#1 As described in the article, between the premium and the actual claims pool there's 50% lost to all the entities involved -- from brokers up through reinsurance companies and back down to the entity that actually cuts the claim check. But further suppose that all these companies happen to be co-ops and so no dollars are lost to passive investors.
#2 There's a vertically integrated insurance company that is highly efficient. It only sells directly and doesn't use commissioned salespeople. It has overhead of only 25% and pays a 10% of revenue dividend to its shareholders, leaving 65% of premiums to pay claims. This enables the company to offer lower premiums for the same coverage.
Is #1 somehow morally superior to #2? Do you think it is impossible for #2 to exist?
not the OP but, in the long term, yes, I do believe a for profit entity is at odds with that. Shareholders clamor for more profit and will not be content with no growth.
Investors reward behaviors that maximize revenues be it through cost-cutting, premium hikes, or benefit reductions (or potentially the opposite assuming sales increase enough.) Granted, some of the more negative actions might cause customers to move from one provider to the next because of free markets and whatnot, and theoretically, the market should reward the company that provides the best balance for customers... except that almost all insurance companies are owned by investors, and over the long run, these investors incentivized to maximize revenue in prisoner's-dilemma-like fashion.[0]
So... I'd argue introducing investors over the short term is a fantastic idea, but at some point, it's probably wisest give them a heap of profits, and turn off the tap. Otherwise, the company will turn into yet another publicly-traded monstrosity with a mechanical conscience.
[0]: https://en.wikipedia.org/wiki/Tacit_collusion
To stay at that level, I would say that while there's nothing inherently bad about #2 it would be better if 75% remained to pay claims, and then they would not only offer lower premiums but better coverage.
And as someone else said, this isn't about morals, it's about priorities.. An insurance company should exist primarily to protect it's customers.
That said, if investors were contractually bound to accept only a fixed return over a period of time (almost like a bond or a GIC or something?) and had no voting power or influence in the direction of the company, that could work?
My issue is less about "investors" and more about focus and priorities I suppose..
The competition is convents around the country that have traditionally supplied them to parish churches. Here you have organizations that are as non-profit as they come -- convents aren't like many hospitals where the CEO and other high level employees are raking off a huge salaries as quasi-profit. And the motives and priorities couldn't be any purer, their work is essentially in the service of what they consider the glorification of God.
Yet they are being out-competed by a for-profit company that explicitly tries to make on every sale in order to compensate the owners.
How do you explain this if you view profit as deadweight loss that can only be at the expense of customers?
Edit: https://www.vice.com/en_us/article/vvaeyb/the-surprisingly-c...
*The bread that is used during Catholic masses.
Secondly, I don't really think I need to disprove your anecdotal scenarios (which aren't really apples to apples anyways) in order to stand behind my statements..
I will say this: I did originally say that executives and employees should be well-compensated and that the company, while not profit-driven, should still be making enough money to attract top talent and be competitive in the market.
My idea was never about running an insurance company like a charity or a tiny unsophisticated business (as in your host example), it was just about not prioritizing shareholder profits over the core business service provided to the customer (i.e. providing coverage and paying claims), which is what many publicly-traded insurance companies do today.
I am not a fan of general health insurance. I think the government should provide universal basic health care and there should be health insurance for emergencies and the like.
I don't think it matters so much whether it is a for profit business or a not-for-profit or a co-op. It will basically come down to: Are they actually ethical? Are they actually talented at what they do? Is the model of policy any good?
Those will be problems regardless of the form of the organization.
(Background: I worked for a big insurance company for over 5 years. As an employee there, I was sent by my employer to a local technical college to get training to do my entry level job. At least while there, this training entitled me to the spiffy title of "Certified Life and Health Insurance Specialist.")
I think the way to fix this is similar to what you said. Primary care should be provided for everyone and the way you drive that cost down is by using more PAs, CRNP/other nurses and having only one actual Dr. for oversight and tougher cases. There are huge system costs that can be removed just by focusing on things like treatment compliance, pre-habilitation, healthy lifestyle, good mental health, etc.
http://micheleincalifornia.blogspot.com/2017/01/direct-prima...
Direct Primary Care is on the rise in the U.S. It is a saner solution than Obamacare, which forces premiums up crazily for everyone and is a terrible model. If we, as a nation, want to insist on market based solutions instead of the government playing a more central role, then Direct Primary Care is a far saner answer. You pay for basic care out of pocket in a way that helps keep costs down and you get insurance for actual unexpected emergencies and major health events.
The other problem with health insurance is that it doesn't serve the preventive role that car insurance serves. Car insurance is required by the state you live in and the details vary by state, but if you get too many tickets or have too many accidents, your premiums go up. So, it serves as a deterrent to bad driving behaviors. Furthermore, it doesn't just cover your losses. It covers damages done to other people. If you get in an accident and are found to be at fault, your insurance pays for their repairs.
Unlike car insurance, health insurance does not play a real role in pressuring people to behave more responsibly. So far, we have found no means to really do that effectively. Health issues are far more complicated than safe driving issues. You don't drive 24/7, but being alive 24/7 impacts our health for good for ill and in ways we don't completely understand. So it is a very hard problem to solve.
What we do know is that when people do not have access to basic health care in an affordable manner, health outcomes are worse and, thus, more expensive. So we need to find a means to get health access to more people in a way that is preventative. Direct Primary Care and government funded services seem to do that. Health insurance really does not.
I think the only way to handle the the deterrent/incentive piece is to find a metric that can be used. BMI is worthless as people vary too much. The best thing in my opinion is HA1C levels, but use it as a discount on your premium. You can't cheat A1C and most of our chronic diseases and inflammation causes are caused by poor diet. This forces people away from that if they want the discount. The only problem is high carb diets are cheap (rice/pasta) and healthy diets are expensive (lean protein/vegetables).
The biggest thing we need to change is to remove all the middlemen from the system. Each takes a cut and adds to the cost without having value. The biggest problem with health insurance is it isn't event driven like death or a crash. How do we stop everyone from being on the cheap plan for emergencies and then switching to the best if they get cancer? (Although one piece may be in the incentivizing better diet reducing cancer risk). I do keep wondering if it makes sense to flip it and make that the emergency part is tax based and mostly free to the person. You can then make the deductible based on the person maintaining healthy stats. Never go to the doctor and eat junk? You pay 25% of the total cost. Eat healthy and go for routine check ups? You pay 5% of the cost. Tough to know without running numbers.
All tough questions with no easy answers.
The difference is that what is seen as cost, private company often see the product they deliver as a cost.
https://www.lemonade.com/blog/its-not-our-money/
We earn a flat fee every time we settle a claim for members of our community - they provide the funds to cover for each other.
No conflict of interest, fair pricing, everything instant.
Have a look. insureathing.com
There has to be since no shareholders are involved assuming the rest of the setup is the same. If they are not cheaper then it's more likely that the coop is badly run which sadly is not uncommon.
Monies move toward local, low cost and essential spending as opposed to remote, high cost and luxury spending that one would expect to dominate with dividends paid out by for profit businesses.
That's just looking at the premiums though, there's no way to see any potential refunds and take those into account.
I pay 758 SEK per month now and with Länsförsäkringar I'd end up paying 968 SEK for the same coverage. I do have a 10% discount on my current insurance due to having several policies at the same company. That's still less than the difference though, so Länsförsäkringar would have to refund me around 1200 SEK per year to break even.
That would be around 10-15% of the entire yearly cost, and I don't think they can promise those kinds of refunds year over year.
But you cannot just compare for price; you also have to compare for cover and självrisk etc.
Pretty much all insurers bend over backwards to avoid paying out. I have no idea if Länsförsäkringar is particularly good or bad in this regard.
There is no reason for private insurance to be more expensive if they have non-profit competitor. If this competitor was to disappear, on the other hand, the costs would probably sky-rocket.
If you consider how most people and small businesses buy insurance, they typically make purchasing decisions one a year at most. As such, you need to get in front of them at the exact moment they want to purchase. GEICO and Progressive have done this really well, but have effectively bid up the cost of online advertising to make it prohibitively expensive. This is also why agents are such a powerful force in the industry (and because they effectively provide carriers with an initial underwriting screen which they don't need to file publicly).
It's important to get the product right, and there are many flaws with most P&C insurance today (chief among them that the forms haven't really changed in the past few decades), but I'd encourage any entrepreneurs to make sure they have an answer on distribution before spending time on product.
Disclosure: I've spent a lot of time looking at this as founder of a P&C insurance startup a few years ago.
Zenefits was allowing unlicensed agents sell insurance and for those in the company that were licensed, they found a browser hack that allowed them to not sit through the training required by the state (I'm assuming California) to be licensed. In the first case, you should know better but there can be gray areas. In the second case, it's 100% clear they knew they shouldn't be doing it, which makes the first case more likely to have been done knowingly and purposefully.
Yes, having to license people is a pain and presents onboarding and scaling issues, but they could have survived if they didn't "need" to grow at such an insane pace.
Again, tons of opportunity, with some barriers that aren't unique to the industry but maybe unique to what the tech community might encounter (and this is by no means an exhaustive list) -
1. Capital requirements: You need a dumptruck full of money to do much in this industry, at least if your intent is to write or reinsure business, but even to a lesser degree if you're working in ancillary services.
2. Regulatory environment: Assuming US operations, 50 states with 50 different sets of regs need to be okay with what you're doing. In addition, federal law comes into play in certain spaces (GLB, HIPAA, etc).
3. Distribution: The current model compensates every layer of the distribution model very well. It's not as easy as you might imagine to disrupt when entrenched interests are all making a ton of money AND are interdependent upon their neighbors in the value chain to continue to do that. You can't just hack a piece off because that bothers their neighbor, who in other circumstances might otherwise be a competitor, but has a shared interest. The relationships get complex.
None of this is fatal, but you must navigate it and play by many of the rules, particularly with #2. As Zenefits learned very publicly, the insurance industry and its regulators weren't going to let someone do what Uber did to the taxi industry - which was essentially to operate in the grey/black and just ignore the calls to stop. Insurance is a subset of financial services, and financial services is a powerful industry. For any startup, my advice is to build compliance and regulatory relations in from day 1. It's the least exciting thing you'll ever do, but is extremely important. Anyhow, I'm rambling. By no means do I want to discourage anyone from trying, I'm just trying to highlight some of the big things that are "different" in our space.
I'm particularly interested in the data piece because that's what I've done and built a career on in this industry, but it never struck me as sexy enough for YC. Appreciate the article.
The article is primarily focused on commercial lines - primarily P&C, but there are similarities in A&H. The distribution stack is complex and is a natural starting point to start looking at opportunities. The general tech community probably isn't going to look at risk pricing and the ancillary services associated with that - there's a whole discipline built around it and I don't know how many in YC's catchment would be FSA/ASAs or excited by that particular aspect. Plus, for traditional products in P&C and the Disability side of A&H, the industry is pretty good at pricing the risk. Nobody's squeezing growth from their underwriting ratio, they're doing it through products and distribution.
Anyhow, not trying to give you a hard time, just another angle.
> It's all done in spreadsheets.
No it isn't!
If you think about it a customer knows their own risk better than anyone. So, you're betting that you can judge their risk better than them and your competitors over and above your cost to manage paperwork, regulations, money and fraud.
This is a discriminatory practice but every carrier does it because it's a way to circumvent the public nature of their filings, and it's another hurdle that startups will need to overcome, particularly if they're doing online distribution where adverse selection is a more pronounced risk.
I have a certificate in GIS. As a claims processor, I worked with multiple databases all day long. This included such things as looking up names and addresses for providers (doctors, hospitals, etc -- the people providing medical care). I suggested we create a GIS based system to make this easier. The idea did not fly.
But if you want an area of opportunity in insurance tech, try finding solutions to some of their back end problems. Managing information overload is a serious and ongoing problem in the insurance world. I was there 5.25 years and I only know a thimbleful of information about the industry. Laws and regulations vary by state. In order to sell in all 50 states, you need to get licensed in every state individually and we had to be able to look up "state exceptions" which were laws that impacted how claims were paid in each state and on and on.
People in insurance are absolutely not stupid. It is just overwhelmingly complicated and no one can keep up with all of it. And, yes, it is very fragmented. But if you want a good business opportunity in this space, consider trying to build back end solutions to help them better manage the information in which insurance companies are simply drowning.
Americans pay 2.5x more than the average first-world single-payer system.
2.5x...
This funds demonstrably and starkly worse outcomes on the metrics we should collectively care about: life expectancy. Incidence of chronic disease. Infant morality.
The reason we pay much more for much less is simple: for-profit health care optimizes for profits, not outcomes. That is exactly what it has done; exactly what it will do.
The public sector already does single-payer in this country with an order of magnitude less overhead cost than the private sector.
When I discuss these facts with conservatives and libertarians, I usually discover that most of this is decreed "fine," because we disagree about whether or not health care is a right.
For that reason, I've stopped suggesting that it is, and focused on another stark fact:
Failure to provide basic health care to all, through straightforward means, merely means that it is provided through partially hidden means (like ER rooms) at vastly greater cost, not least because emergency care cannot perform preventive and chronic care, which in many cases would provide better outcomes for two orders of magnitude less cost.
Morality is a matter of instinct and choice. The costs of the existing broken system are however obvious, and render any defense IMO irrational.
Over 50% of healthcare in the US is paid for by the gov't and those costs are still higher than other systems that are single payer and non-profit.
Doesn't quite align with your theory though.
Are you suggesting that the gov't is swayed by the demands of for-profit companies?
Funding _source_ notwithstanding, bills are paid to for-profit providers with limited exception (the VA being the main one).
Price caps are calculated as a function of the largely unrestrained market gouging of the oligopoly.
If you think that's a biased or histrionic description, consider this:
https://www.wallstreetdaily.com/charts/0715_HealthcareInsura...
Stunning growth in profits under Obamacare...
The fantastically under-reported reason that the GOP is struggling to find traction or indeed direction viz. undoing Obamacare, is that Obamacare as delivered represented a mostly fulfilled GOP wish list.
As a progressive, I would say: concessions to essentially print money were extracted at gun point from Dems willing to sacrifice much to pass a bill achieving specific key planks (namely the removal of 'preexisting conditions' and a strong step towards universal coverage).
The GOP walked with a bill they largely wrote. There is little left to want, other than yet more consolidation of wealth... and the roll-back of extremely popular benefits.
Watching this break into the open provides very cold comfort.
This is absolutely true. If you look at how regional, family-owned P&C carriers got their start, you'll find they started as brokers. These brokers found a profitable niche (call it motorcycles in California, or non-standard auto in Texas) that they wanted to own, moved on to become MGAs, and then admitted carriers offering multiple lines of business.
If you can find a way to own the customer as a distributor, you own the life-blood of the entire business downstream. As a result, P&C insurance companies are huge spenders on marketing (GEICO, spends $1.7B/year). It would be game-changing if this cash was used to provide utility to their customers above and beyond the insurance transaction.
I'm of the opinion that insurance premiums could be the new ad dollars - used to create products that promote lock-in, and much more consumer-centric insurance companies.
Very interesting thought. Like how I buy clothes from Nike, then advertise them. I had some thoughts on this a while back if you're interested:
https://docs.google.com/presentation/d/1XvXVlzZULoRSfmCsPEKf...
https://www.guidewire.com/
If you're going to innovate on the software side in P&C you would need to figure out what they're not doing or could not do that would allow you to get ahead of them.
(I think governments are sometimes unfairly criticized for inefficiency because they incur higher costs simply by not having the option to cherry-pick their customers the way private companies usually can. There are of course cases where the criticism is justified.)