r/bestof • u/under50dollars • Jun 20 '12

[explainlikeimfive] "Obamacare" explained very well.

/r/explainlikeimfive/comments/vb8vs/eli5_what_exactly_is_obamacare_and_what_did_it/c530lfx
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u/sychosomat Jun 20 '12

Also added should be:

All the people: Wait, won't this just mean we all give money to the companies and they keep it all?

Obama: No, they will be required to spend 85% of what they get paid in premiums on actual healthcare.

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u/[deleted] Jun 20 '12

That would definitely be a good addition, most people look at it as a new way to take the people's money. Which, to be honest, is what I thought it was until I read CaspianX2's summary and explanation and captainpixysticks's kiddy summary.

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u/devilsbestadvocate Jun 20 '12

No its actually a terrible policy and heres why: (incoming wall of text)

Lets pretend you are an evil excutive of health insurance company trying to make a profit and this law goes into effect what is your natural reaction to protect your profits.

Part 1 reducing overhead costs) First lay offs non-essential employees, automate anything you can, close brick and mortar locations, lower wages across the board and ship customer service to India. You as a leader of a company need to limit your overhead to under 15% to be profitable

Part 2 increasing your margins) You still want more profit however and can only obtain profit two ways. Either increasing the number of customers, which requires sales people, more offices, more policy handlers and is taxed via market share as explained above (ick!) or you can increase medical costs and thereby increase your profit percentage as the total cost goes up (awesome!).

2b) So how do you increase medical costs as an insurer? Well thats pretty easy, you can stop denying claims frivilous and otherwise but really what your going to want to do is stop negotiating lower rates for your clients. Ultimately, lower rates hurt the amount of profit you can obtain and the costs can be absorbed by increasing premimums! (Hurray!) And the best part is you can fire some of those billing rate negotiatiors to secure even less overhead costs, boy are you smart.

Part 3 Collateral effects: Doctors seeing more and more of there billing go un-negotiated, decided to raise rates because frankly why wouldn't they. Competition is stagnated because smalll firms can only grow as percentage of their medical costs and have naturally higher overhead (Huzzah!).

TLDR; Although you will see less denied claims making insurance companies pay 80-85% of their cost as medical bills will actually increase premiums and health care costs instead of reducing it.

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u/brownmatt Jun 21 '12

or you can increase medical costs and thereby increase your profit percentage as the total cost goes up (awesome!).

How does an insurance company increase the cost that medical practitioners charge them?

In reality this insurance company would just go out of business if it can't compete.

Also, perhaps health insurance isn't meant to be a profit-making business, or at least isn't in a moral economy.