Godzilla vs. Mothra vs. You: The Health Care Industry Consolidates

And the great fleas, themselves, in turn
Have greater fleas to go on;
While these again have greater still,
And greater still, and so on. —The Siphonaptera

By Lambert Strether of Corrente

Two salient characteristics of the huge and hugely complex health care industry — which comprises health insurance companies, hospitals, doctors, pharmaceutical manufacturers and distributors, and networks and alliances of all these, besides players at all levels of government — are constantly increasing prices and increased consolidation. (ObamaCare was supposed to “bend the cost curve” by increasing competition, which one would think consolidation works against, but never mind that for now.) We will see increased costs for the entire system consolidated on our insurance bills:

If you have health insurance, there’s a good chance you’ll pay more for it in 2016.

Health care and health insurance costs increase year to year, like most expenses. Since the implementation of the Affordable Care Act, growth in premiums has mostly slowed (as has the rise in health care costs overall), while your share of expenses – like deductibles – has increased. For several reasons, increases in both premiums and other out-of-pocket costs are expected in the coming year.

(The article goes on to call the increases “modest,” and to recommend ways to be a smart shopper — i.e., to pay your tax of time — but with real wages flat, even “modest” increases can cut into bone.) A third salient characteristic of the health care market is extreme fragmentation, since health insurance is regulated at the state level, and so cost increases may vary state to state, and by market within state. Here are some increases in Texas, one large state, for the individual market:

Among the rate hikes being considered for health plans sold in Texas’ individual market — coverage that is not sponsored by employers — are a proposed 20 percent rate increase for Blue Cross Blue Shield of Texas’ Blue Advantage HMO plans. Other possibilities include a nearly 18 percent rate increase for Humana’s ChoiceCare PPO plans, a more than 17 percent rise in rates for Allegian Health Plans’ Allegian Choice PPO and a more than 15 percent jump in rates for UnitedHealthcare’s Compass individual plans.

And here are some increases in the small business market in California, another large state:

California’s managed-care regulator slammed health insurance giant Aetna Inc. on Thursday for “price gouging” after it raised rates on small employers by 21%. This marked the fourth time since 2013 that California officials have found Aetna’s premium increases on small businesses unreasonable. Aetna, the nation’s third-largest health insurer, is raising rates by 21%, on average, for about 13,000 people covered by small employers. This change in premiums took effect July 1. … But California officials have no power to stop health insurance rate increases.

Meanwhile, single digit (“modest”) increases fly under the radar:

Health insurance experts say it’s tough to draw broad conclusions about prices from the requests released Monday. The health care law only requires insurers to report proposed hikes of 10 percent or more. That’s only a partial picture of the market that tilts toward a worst-case scenario.

“It’s hard to generalize, but that said, I think all signs are pointing to bigger premium increases than in 2015,” said Larry Levitt of the nonpartisan Kaiser Family Foundation.

So brace yourselves. The second salient characteristic of the health care market is consolidation. Consolidation is already “well advanced” in the health care industry as a whole, but the current proposals in the insurance sector are especially egregious:

Two more of the nation’s biggest health insurers are moving to merge, raising the possibility of a potential fight with antitrust regulators.

Anthem said on Friday that it had agreed to buy Cigna for $48.3 billion, finally striking a deal after a nearly yearlong pursuit. Buying its rival, Anthem intends to create a new giant in the sector, gaining greater scale and considerably cutting costs.

But the proposed transaction, coming three weeks after Aetna said it would to buy Humana for $37 billion, could shrink the number of major companies in the health insurance industry from five to just three. And that could mean fewer options and higher rates for consumers and the employers that provide health insurance.

Yikes. And it’s not like the health insurance industry isn’t already doing very well for itself. Forbes:

The major health insurers have announced their quarterly earnings. For UnitedHealth Group, the largest health insurer, plus the six which are currently engaged in take-over deals, the results were largely positive. The results, and the market’s reaction, indicate [that] Health plans have largely been able to pass increases in medical costs onto their members, challenging the notion that Obamacare’s regulations on profit have benefited consumers. [And] these improved margins appear to be driven by higher premiums.

So, will increased consolidation lead to lower pricing? Unlikely:

Dave Jones, California’s insurance commissioner, said he doubts there will be any significant benefits from this round of mergers.

… But generally, he said, increased consolidation has resulted in less competition and higher pricing.

Why is that? First, let’s dig into how consolidation is sold to the public. Then, let’s look at why the sales job is wrong. Finally, let’s look at the effects of consolidation on people like us. (Again, all areas of the health care industry are consolidating, for reasons we’ll get to below. But since the most visible mergers are in the insurance industry, I’ll take that industry as a proxy for all the others.)

Consolidation Means Higher Prices

Consolidation is generally framed as a cost-saving move. This reporting is typical. After noting that UnitedHealth’s quarterly profits increased 13% (!):

Competitors like the Blue Cross-Blue Shield carrier Anthem Inc., Aetna Inc. and Centene Corp. all have made multibillion-dollar offers for smaller companies in recent weeks as health insurers bulk up on technology try to cut costs by growing larger.

And, according to some theorists, costs are to be cut by “economies of scale.” Investing site the Motley Fool on Anthem, another huge player (merged with WellPoint in 2004):

Scale should generate better margins for the business — if you can spread fixed costs over a greater number of revenue-producing members, then you should make more on a per-member basis.

But the Fool goes on to note:

Yet, while the 2014 benefit expense ratio was 83.1% — a two percentage point decline year-over-year — Anthem’s SG&A (selling, general and administrative) expense ratio climbed from 14.2% of operating revenue in 2013 to 16.1% in 2014. So why is that number going up instead of down, as we’d expect if Anthem was properly wringing out synergies from its scale?

As so often: “Jam yesterday, jam tomorrow, but never jam today.” The claims of synergy are frequent, but the reality is less so.

Claims that consolidation will reduce costs are pervasive in the press, but history tells us that reality may be very different. From an influential study in the American Economic Review (pdf), “Paying a Premium on Your Premium? Consolidation in the US Health Insurance Industry”

Collectively, the results presented in this section show that consolidation does result in a “premium on premiums.” We arrive at this conclusion by exploiting arguably exogenous increases in local market concentration caused by the nationwide merger between two large insurance firms, Aetna and Prudential. Two key results indicate our conclusions are not driven by unobserved factors correlated with the pre-merger market shares of Aetna and Prudential. … The findings summarized above are consistent with the exercise of market power in the wake of consolidation.

And after dismissing alternative explanations:

Our instrumental variables estimates, which exploit plausibly exogenous shocks to local market structure generated by the 1999 merger of Aetna and Prudential, imply that the average market-level changes in HHI between 1998 and 2006 resulted in a premium increase of approximately 7 percentage points by 2007, ceteris paribus. Given our sample includes both fully and self-insured plans, and insurers have less control over pricing of the latter, it is plausible that consolidation is associated with an even larger impact on fully insured plans, which are dominant in the individual and small group markets.

And for hospital concentration, see the National Institute for Health Care Management:

Results clearly showed that hospitals in concentrated markets, where there is less competition, are able to extract significantly higher payments from private insurers for each of the six procedures studied (Figure 1). For example, the average hospital in concentrated markets received $32,411 for each commercially insured patient undergoing coronary angioplasty, or one and a half times the $21,626 received in competitive markets. Similarly large price differentials are observed across markets for the other five procedures, with all differences statistically significant.

Clearly, there’s no easy correlation between cost-saving and consolidation — even assuming good faith on the part of consolidators (or regulators, who might not approve the decrease of major health insurance companies from five (!) to three (!!)). So why does consolidationit keep happening?

The Forces That Drive Consolidation

First, before making any generalizations about the health care industry, we should remember that it’s a complex system and that explanations will be multi-causal and reflexive. For example:

[T]wo big shocks — the Great Recession and the passage of ObamaCare — recently hit the health care industry in rapid succession. And the effects of each are difficult to disaggregate. A big economic collapse reduces the number of paying customers, in health insurance as much as elsewhere, so business models have to retool to accommodate.

That said, I think I can identify five drivers, putting aside factors like CEO ego, executive compensation, “empire building,” and pastures new for accounting control fraud:

  1. It’s All About the Rents
  2. It’s All About Siphoning Off the Rents
  3. Godzilla vs. Mothra
  4. The Role of Private Equity
  5. The Effect of ObamaCare

Let’s consider each of these in turn:

(1) It’s All About the Rents

Megan McArdle (one of the few to make the call that the ObamaCare website would be a disaster at launch) provides a vivid description:

You can think of it this way: The structure of America’s third-party payer system allowed providers to make very nice incomes by providing health care services to basically price-insensitive consumers. Both insurers and the government reacted by ramping up the paperwork and claims rules to try to control this trend.

But providers had a great deal invested in keeping those income streams — not just because they need a third yacht, but because their office and hospital plant were constructed for a world where the money flowed readily, and they can’t just give back the buildings and machines and office staff. They’ve responded to these pressures by getting bigger, recovering some of their lost income. So insurers and the government have turned the screws even tighter, which has given them even more incentives to get big. That’s the story of American health care over the last few decades.

These siphoned-off “income streams” are rents, and McArdle’s logic applies to everybody in the game, not only “providers.” Here’s an example of hospitals collecting rent based on their geographical location. Here’s an example where hospitals collect rent based on their strategic position in the payments system:

Today’s frenzy of hospital mergers and physician practice acquisitions is giving hospital systems even greater leverage to inflate opaque “charge-master” medical bills that even hospitals are sometimes unable to itemize sensibly. … [T]his translates into higher health-insurance deductibles and copays for insured Americans, and in the case of Medicare and Medicaid, higher taxes.

And here’s an example of rent based on hospitals’ control over choke points at admissions and testing. Journal of the American Medical Association:

After adjusting for patient severity and other factors over the period, local hospital–owned physician organizations incurred expenditures per patient 10.3% (95% CI, 1.7% to 19.7%) higher than did physician-owned organizations (adjusted difference, $435 [95% CI, $105 to $766], P = .02).

[C]onsolidation could lead to higher patient care expenditures due to preferential use of high-priced hospitals for inpatient admissions, substitution of hospital-affiliated outpatient departments for ambulatory surgery and imaging facilities, and increased prices to insurers for laboratory tests, drugs, and other ancillary services.

Of course, hospitals aren’t the only rent-seekers; health insurance companies do the same. Health Affairs: “[T]he ongoing insurance overhead that the ACA has added to our health care system [has been estimated at] more than a quarter of a trillion dollars through 2022.” Ka-ching.

(2) It’s All About Siphoning Off the Rents

The health care industry is involved with government at all levels. That means there’s a lot of influence to buy, and consolidation helps. Health Affairs:

A further concern relates to the influence that a highly concentrated insurance industry may wield in Congress, state legislatures, and regulatory agencies. With a large and growing portion of beneficiaries in Medicare and Medicaid served by private insurance companies, the laws and administrative regulations that govern plan bidding, appeals, and administration of health plans are increasingly important.

The ability to influence these rules are as significant to the bottom line as any aspect of insurers’ business operations.

So maybe the problems Anthem had with the overhead that made its economies of scale go away had something to do with this? Bloomberg:

[Insurance] companies have a lot of regulatory overhead, first of all for compliance, and second of all for lobbying. The bigger you are, the easier it is to afford a team of experts to make sure that you understand all the pertinent regulations, and a second team of experts to prevent legislators and bureaucrats from burdening you with a lot more pertinent regulations. These are largely fixed costs, and merging reduces them. Getting bigger also makes it harder for legislators to refuse to return your phone calls.

Again, the same logic and dynamic applies everywhere in the health care industry, not just in the insurance sector.

(3) Godzilla vs. Mothra

So if the answer to pressure on rents is consolidation, that applies to all the players, and so we get an arms race. McArdle again:

Insurers are under pressure from other parts of the industry that are also consolidating. Hospital networks have gotten bigger and more powerful. Physicians are increasingly going to work for hospitals or large practices. This could put insurers at a disadvantage to negotiate prices. If your suppliers are highly fragmented, you can walk into the meeting and say, “Here’s what we’re offering; take it or leave it.” But if there are only two or three big hospital networks in your area, they can say the same thing to you. This has produced something of an arms race between insurers and providers trying to get bigger so they will better be able to crush the other. When Mothra and Godzilla are battling over the city, you don’t want to be the tiny human standing on the ground between them.

We don’t want to be, but we are! Forbes summarizes:

It sure looks like we are on the way to many fewer but much larger health care delivery corporations looking to check and balance each other and settle for their share of the spoils [rents] more than make this system work better.

(Of course, they all blame the other guy. But that’s just human nature.)

(4) The Role of Private Equity

I would be remiss not to mention private equity in pushing mergers:

[T]he biggest wagers in health-care services are being placed by private equity, which is chasing opportunities to roll up parts of the existing infrastructure. For instance, there were 95 hospital mergers in 2014, 98 in 2013, and 95 in 2012. Compare that with 50 mergers in 2005, and 54 in 2006. Cheap debt and ObamaCare’s regulatory framework almost guarantee more consolidation.

(It will be interesting to find out if private equity is as good at managing health-care services as it is at managing rental properties. I’m guessing yes. That’s not a compliment.)

(5) The Effect of ObamaCare

Finally, there’s the role of ObamaCare, or rather, “the health care law.” (As a “consumer,” I tend to identify ObamaCare with the health insurance websites and the products peddled thereon, but the scope of the PPACA was far greater.) The conventional wisdom — because markets — is that ObamaCare, by spurring competition, will “bend the cost curve.” As you see above, I’m skeptical. I’m also skeptical that ObamaCare actually “caps profits” through the Medical Loss Ratio[1], which would seem to remove a key incentive. It is true that the PPACA encourages physicians to consolidate through Accountable Care Organizations, and that this sets off an arms race with hospitals. However, I think the main driver for consolidation is less ObamaCare as such than the entire stream of all government health care programs, including ObamaCare, Medicaid, and Medicare, especially the (privatized) Medicare Advantage.

Many of the purchases have been designed to bulk up their Medicaid and Medicare Advantage businesses because both of those programs keep growing.


Aetna’s $37 billion proposed acquisition of rival health plan Humana is largely driven by getting access to Humana’s strong Medicare Advantage volumes. AHIP has fought hard to preserve Medicare Advantage, which it trumpets as offering higher-quality care than traditional Medicare.

(Hilariously, Flexian Marilyn Tavenner left CMS will run AHIP, a health insurance trade organization, her reward, one imagines, for the ObamaCare website debacle.)

Of course, all these five factors, and especially the first three, point to the health care industry as an example of massive “market failure,” unless you consider optimizing the health care industry for a product — private health insurance — that has no reason to exist a success.

How Will Consolidation Affect the Rest of Us?

Of course, consolidation creates fatter targets for hackers, and even if consolidation — against all odds — leads to cost savings, there’s no particular reason to think any cost savings will be “passed on to consumers,” as we say. Of course, consolidation itself is costly:

True to form, Anthem is claiming that nearly $2 billion in synergy [ha] savings will be realized by the merged entities. This is probably true, to some extent. But you should keep in mind that mergers are themselves extremely costly. And I don’t just mean the fabulous fees that investment bankers and consultants collect to facilitate them. Joining two entities into one is really difficult: Corporate cultures clash, turf wars damage morale and profits, IT systems never do work right together, key employees leave, customers are alienated. So in general, these sorts of statements should be taken, not just with a grain of salt, but while sitting next to a salt lick with a big bag of Mr. Salty Pretzels and some cocktail peanuts to wash the whole thing down.

Or, as Benefits Pro asks:

Money spent on the merger needs to be recouped. Who suffers? Employers, consumers, patients, medical providers? Somebody has to pay up.

Who suffers? Wait, let me take a moment to think…. Let’s take a simple example of one hospital consolidation at Saint Luke’s Hospital in Nampa, Idaho. Notice the attempt to settle an arms race between a hospital and a physicians practice with a purchase:

NAMPA, Idaho – When Idaho’s largest hospital system bought the state’s largest doctor practice in 2012, the groups expressed hope that the deal would spark a revolution in delivering better-quality care.

Instead, it ignited a costly legal battle with state and federal regulators and rival hospital systems.

Despite St. Luke’s good intentions, [a] judge worried the merged entity would be so dominant that it could raise prices at will. He suggested hospitals could work with doctors to deliver more-efficient care without buying them out.

St. Luke’s went over the line not just because the court found the merger gave it control over 80 percent of the primary care physicians in the market but because the FTC investigation uncovered internal documents indicating the hospital system might use the acquisition to charge higher rates to insurers. Idaho’s largest insurer, Blue Cross of Idaho, also testified it feared St. Luke’s would force it to pay more for care.


But executives at rival Saint Alphonsus — a subsidiary of Trinity Health, an 86-hospital Catholic health system —were not convinced. Saint Alphonsus, which put in a bid to buy Saltzer after it was asked by the medical group, sued to overturn the Saltzer-St. Luke’s merger.

CEO Sally Jeffcoat said Saltzer is “our lifeblood” because referrals from its doctors had accounted for nearly half of the admissions to its Nampa hospital.

Zelda Geyer-Sylvia, president and chief executive of Blue Cross of Idaho, ­does not buy the argument that a larger St. Luke’s would be better able to control costs.

“Consolidation has not been an effective way of reducing costs or providing more effective care,” she said. “People here have all the best intentions, but once you eliminate competition it’s gone.”

What I find fascinating is that both reporter and a major player put optimizing the allocation of rental streams under the heading of “good” or “best intentions.” Roy Poses, in his coverage of the Saint Luke’s case, points to what the intentions should be, and the intentions that you, as a patient, are entitled to expect:

True health care reform would be informed by the core value that physicians are supposed to endorse: the individual patient comes first. Health care should not be mainly about increasing corporate revenues, or pleasing corporate executives or government bureaucrats. However, big organizations and the in-group who personally profit from their operations want to keep such concerns anechoic.

Because health care isn’t all about costs and rents, is it?

At some point, as a product’s costs get low enough, they can no longer be attributed to providers finding better ways to supply a quality product — instead, it’s simply because the product itself is bad. And when a product crosses the line into “bad” is a moral and social question rather than a purely empirical one. For instance, requiring apartment developers to include good plumbing and basic sanitation in any dwelling they build drives up the price of housing to some degree. But taking away those regulations would be a pretty terrible way to make housing more affordable.

“The product itself is bad.”

If you want to see where the logic of consolidation leads, think of the cable industry, and weep. And try not to get stepped on by the monsters![2]


[1] Forbes explains that ObamaCare’s Medical Loss Ratio requirement does not cap absolute costs; it’s a ratio:

Obamacare regulates the Medical Loss Ratio (MLR), which is the amount of premium insurers actually spend on medical care. Health plans that do not meet a minimum MLR must pay rebates to customers. Although any rebate is cheered by the administration as a success, the MLR has had little effect on insurers’ income statements. Indeed, because mandates effectively guarantee profits for the industry as a whole, the MLR regulation could simply allow insurers to pass increases in medical costs to their customers. That is, an MLR of 85 percent, which is the quotient of $850,000 in medical claims divided by $1 million in premium, is the same MLR as $950,000 in medical claims divided by $1,117,647 in premium.

[2] Or advocate for single payer. After all the work NC did on the Greek payments system, however, it’s possible that the IT implications of a single payer system might need to be thought through. Of course, we could just outsource the work to Canada or Taiwan.

Readers, I’m leaving comments open because I’d like to hear your views and experiences of these consolidated systems. It’s such a huge topic!

Print Friendly, PDF & Email
This entry was posted in Guest Post, Health care, Market inefficiencies on by .

About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. Vatch

    Or advocate for single payer. After all the work NC did on the Greek payments system, however, it’s possible that the IT implications of a single payer system might need to be thought through. Of course, we could just outsource the work to Canada or Taiwan.

    Yes, it would be a major undertaking, and it would take years to implement. But we can afford to take a few years, since we don’t have the Troika breathing down our necks. Also, we have a preliminary proof of concept already in the Medicare system.

    1. JTMcPhee

      As a disabled vet who gets VA care too, might I note that Medicare is not the only model out there. Though of course as with any human- built and -operated thingie, it has its problems, often caused by the stingy Congress that funds the idiot wars that if just stopped, would stop generating more damaged GIs to be screwed over. And of course by all the Reaganimplants that fill out the bureaucracy.

      At least by being a big purchaser, not de-balled by Part D, (Wiki has some corruption details in the main article even, https://en.m.wikipedia.org/wiki/Medicare_Part_D,) the VA pays half as much for meds as the donut-hole-saddled Medicare Mopes.

      Don’t get sick or weak, and if you do, die quickly and quietly– the moaning distubs the Sh!ts Who Own Us, dontcha know?

    2. John Zelnicker

      The original Medicare was rolled out to all seniors over age 65 in six months back in 1966. I know the level of complexity in IT systems is an issue in any government program. However, the Social Security Administration has all the necessary information in its database to just expand the age range of Medicare coverage.

      I would be glad to be corrected, but it looks like the biggest IT issue would be storage and computational capacity. And, if the insurance companies no longer have a role, they should have plenty of extra processors and servers to repurpose to Medicare. ;)

      (I also think Medicare needs to be redesigned to eliminate co-pays and deductibles, and expand covered services (see Carla below), but that is a different issue.)

      1. Lambert Strether Post author

        Funny how the simpler the program gets, the easier the IT gets.

        “The cheapest, fastest, and most reliable components are those that aren’t there.” –Gordon Bell

  2. Carla

    Medicare, as American as Apple PIE — Protect it, Improve it, Expand it!

    Here are a few suggestions: In 2016, extend Medicare eligibility to those 60 and over; in 2018, to those 55 and over, ETC., until everyone is covered.

    Improve benefits to include vision, hearing, and dental. Eliminate the need for “supplemental” insurance.

    Most important: once coverage is universal and comprehensive, outlaw all private health insurance. Britain’s socialized medicine system (the NHS) and Canada’s single payer insurance called Medicare both are being cannibalized by the private insurance industry.

    1. Paul Tioxon

      Absolutely yes Carla!!!!

      Medicare expansion by all of the specifics you bring up!!!

      As consolidation continues and having insurance and paying co-pays becomes more and more an exercise in fulfilling your monthly bill payments and financial obligations with less and less medical care, healing and getting your health back as much as medical arts and science allows for, the urgent political need for more reform will press against the politicians as people even with good doctors and hospitals and Medicare and Fortune 500 medical benefits still find themselves unable to get well. Being cut off from treatment due to $40 and $50 co-pays, when you have to see a specialist for therapy 3 or 5 times a week can cost over $600/mo and up!

      Here is another Medicare Expansion that can be demanded. Just as the private insurance companies are allowed to become the BIG 3 HEALTH, the government can not be denied its right to similar good business practices, particularly the economy of scale. Medicaid from all 50 states should be shut down and everyone enrolled in Medicare. VA should enroll every new enlistee and dependents in Medicare so if you can’t get to the VA, you don’t die waiting and can go anywhere else. The combined spending and cost savings from consolidation at the Federal level into Medicare will save a fortune in administrative costs and allow for uniform access and levels of care to be offered for 10s of millions of people.

    2. Disturbed Voter

      In America single payer gets you, you don’t get single payer. With no anti-trust, there will only be one giant consolidated health service, but private not public. Now back to the salt mines with all you peasants!

  3. dw

    in texas we have what us called file and use law for insurance rates companies. and unless the insurance department (usually extremely under funded, and a shall agency at best any more) investigate the rates, they are good to go. and you thought your state was bad? cause the agency has even replied to complaints that because of funding they cant investigate complaints.

  4. allan

    But in a virtuous circle, the larger the insurance company, the more favorable advertorial product placements it can insert into the MSM:
    For this [Aetna] CEO, mindful management means yoga for employees (PBS Newhour)

    JUDY WOODRUFF: Now to a story about a high-profile and unusual CEO, whose own philosophy and unique life experience has influenced the way things operate day to day inside the company.

    And things go downhill from there.

  5. timbers

    In fairness, the phrase was “bending the cost curve” not bending the price curve. So if parsed the correct Obot way, Obama was telling the truth saying his healthcare law would be good for corporate profits.

  6. m

    While doing an internship I was able to sit in on meetings where health care providers were trying to come up with ways to deal with bundled care payments. This style of payment forces hospitals, MDs & rehabs to work together because they were splitting one payment. Shortly thereafter the hospital starting buying the MD practices and rehabs.

    Also, CMS (Medicare & Medicaid) have new bonus or penalties care of Obamacare: patient satisfaction scores (must be perfect or get a penalty deduction from reimbursement), 30 day readmits (any patient that is readmitted to the hospital within 30 days of a discharge causes the hospitals to cover the cost of the second admit-each year CMS adds new diseases/surgeries to the list) & hitting quality measures (for example, giving aspirin to a heart attack admit). Most hospitals get the penalty, which increases yearly.

    Upper management will still get their money, but everyone that actually cares for patients will get hit. Costs over care are the new focus and appear to be changing how people practice.

    1. jason

      One of the big challenges with health care is the issue of incentives. The current “fee for service” model incentivizes medical students (some of whom are over-burdened with educational debt) to pursue more lucrative specialties that get paid by the number of procedures rather than for the care provided. This has led to a shortage of primary care doctors and pediatricians (which health care providers have rushed to fill with nurse practitioners who have a lower level of training but more importantly for the health care providers cost significantly less in salary), while leading to worse care by also encouraging some specialties to over-proscribe procedures. Surgeons are notorious for believing the solution to every medical problem is a surgery, even when other non-surgical (and often medically superior) options are available. The reasoning behind “bundled payments” or “capitation” models is that it more closely aligns incentives into patient care rather than a rush to maximize the number of procedures (and don’t forget that procedures include MRI’s, CT’s, x-rays, etc. which are easy to over-prescribe and be used to earn profits in a fee for service system) because maximizing procedures maximizes profits.

      Most likely, the best payment model will be some sort of partial capitation model to tradeoff incentives of performing too many procedures (occurring in fee for service) against incentivizing no procedures to maximize profits (which can occur in a fully capitated system).

  7. phichibe

    I have been reading some of the basic economic papers on “New Institutional Economics” and by following the trail of ideological bread-crumbs in the references have also been drawn into the re-casting of antitrust in the 1960s and 1970s by the likes of Robert Bork and Richard Posner. It is simply incredible how laissez-faire ideology was allowed to re-write statutory interpretation of the Sherman and Clayton Antitrust Laws without any changes from Congress or the Supreme Court. (Yves also covers some of this in Econned).

    The idea that vertical integration and market share concentration could simply be denied as valid concerns is one of the greatest cases of legal legerdemain I know of. I knew economics had been coopted/corrupted by right-wing ideologues like Milton Friedman and George Stigler, but it has truly been a shock to see their prejudices permeate areas like NIE and agency theory. I now know where the corruption of U.S. antitrust policy comes from, and it’s way worse than I thought even a few months back. I honestly don’t know how we can re-establish a progressive political agenda without utterly reforming economics, and a good place to start would be with the specious reasoning that Bork, Posner, Easterbrook, et al have used to destroy a cold-eyed antitrust policy.


  8. jgordon

    Very enlightening post as to the particulars! But more broadly, just as when you pour a truckload of manure into a pond and the next day a scummy algae bloom forms, so too is America being choked with too much energy and resources, supplied by the empire of course. Look forward to the empire’s continued decline; at some point access to imported energy and resources will be cut off and the bloated medical complex will be among the first casualties.

    1. craazyboy

      Could be a while yet till we run out of oil. See the post about Oil Woman Clinton.

      I remember the original news back in the early 2000s. Pemex announced they discovered a “Saudi sized” deep water field, but they lacked the knowhow to drill deepwater. America to the rescue.

      And we are gonna keep our Saudi oil too!

      So there.

      1. jgordon

        Hehe, the pure propaganda coming out about the shale revolution is truly amusing to behold. More importantly oil supplies are being constrained everywhere and capex spending among oil producers is being cut to the bone. Let alone not wanting to, the rest of the world won’t even have the ability to support America’s sprawling empire soon enough. Then not only health care, but the prison industry, the police state, big pharma–all the people working in these useless industries will either have to make a quick career move into professional vegetable growing or starve to death. Let’s hope they’ve been polishing their horticulture skills while illegally spying on people! That stuff isn’t as easy to do as it sounds.

  9. sd

    A private care facility recently invested in its own lab, technician and equipment to do its own inhouse piss test drug testing. Here’s the fun part, they now bill $600 for what’s basically a $50 test.

    The rent extraction is just absolutely everywhere and its in everything and it feels like its parasitic spread is accelerating. That brick wall ahead looks more and more like all out anarchy.

    I feel very fatalistic about it all.

  10. shinola

    “Money spent on the merger needs to be recouped.”

    Strange how this is not mentioned when mergers are being discussed. so, if “synergies” will (maybe) reduce overall internal costs by $2b per year against a buy-out cost of $37b, just how & when does any cost benefit accrue to the end consumer?

  11. Matthew G. Saroff

    One note about this analysis, using Megan “Math is hard” McArdle as a source is not a way to boost your credibility.

    I have found that for some pundits, Megan McArdle, Amity Schlaes, William Kristol, John Fund, David Brooks, etc. you have to have some rules before citing them:
    1) They are always either wrong or dissembling.
    2) See rule 1.

    I am not suggesting that your point is invalid. Rather I am suggesting that the credibility of your point is diminished by citing her.

  12. LAS

    Healthcare is certainly consolidating. I’m not sure we can get a good sense of value gain/loss without more careful analysis though.

    A metric to explore in future would be insurance costs per number of persons covered by state or insurance pool.

    For instance, over the past 10 years, NY State Medicaid total cost has increased quite a bit (nearly doubled), HOWEVER, the cost per person covered dropped substantially over the same time period (by nearly a third). Some people are alarmed because the total cost is up. Other people see accomplishment because cost per person covered has declined.


    At the Intersection of Health, Health Care and Policy
    Use and abuse of the medical loss ratio to measure health plan
    by J C Robinson
    so called “medical loss ratio” has a lineage of meanings and gets translated as medical cost ratio; medical care ratio; benefit cost ratio; with expedient uses and historic abuses. Remember that these are written as percentages that may stand unchanged while the volumes may actually accelerate or multiply.

    As you wisely point out in your first paragraph: We will see increased costs for the entire system consolidated on our insurance bills. The medical “cost” includes profit driven salaries and compensations at top executive levels. California’s insurance commissioner just recently raised concerns that a $54.2 Billion Dollar merger between Cigna and Anthem Blue Cross will certainly result in raised premiums:
    http://healthleadersmedia.com/page-1/HEP-317643/MegaMergers-Among-Health-Insurers-Bode-Ill-for-Hospitals. The facts seem to be that Too Big To Fail will soon define the Medical Insurance State in the works. Small insurance group alliances may compete for a rationed medical delivery clinic system for the majority, but the systemic will be founded upon large pools of self serving profits that are sigma-streamlined as political market science, while private equity flagship ownership and IPOs privatize the high end of benefit cost ratios to maximize profits and “shareholders (sic-k. themselves) of both parasitic Insurance control fraud and the medical cost-profit incentives of the Great Medical Service Industries; for profit and path dependent growth to feed the medical revenue pool and its Trolls.

    The consolidation of money interests ties the medical incentives to the insurance incentives and we are told of its dire needs for more capital perennially. It is a vicious spiral and has been out of control for some time in the USA. OBAMACARE is Insurance bailout, and it will only accelerate the bubble and the medical hot air balloon of improved care.

  14. Pitchfork

    I’m an academic currently between post-docs and we lost our old insurance coverage before my new postdoc starts up next month. I went to the Obamacare website back in May and three months later I finally got my wife covered under expanded Medicaid (we have a large family, so even with my decent salary we are forced into the Medicaid box — no soup subsidy for you!).

    Anyhow, to make a long, painful story short (Federal website can’t communicate with state systems, data entry errors, general stupidity, etc.), my wife calls her doctor today to make an appointment, only to find out that her doctor CAN’T, by law, either take Medicaid money or take out-of-pocket payments from patients currently on Medicaid. I don’t know the law, but we had been paying cash out-of-pocket for visits over the last few months, when we weren’t covered by anything, so I doubt the doctor’s office is doing this for financial reasons. Plus, they said they’ve tried to tweak things and allow Medicaid patients to pay cash before and gotten caught for it.

    In any case, three months after going to the Obamacare website to buy my flat-screen TV, I mean, health insurance, my wife finally gets coverage and is almost immediately dropped by her doctor. It’s almost like a joke. This just happened, today. #ThanksObama

    1. Lambert Strether Post author

      Doctors are fungible. What’s wrong with you? [rimshot, laughter]. I’m sorry — thanks for the story. This keeps happening, and it’s never covered. Maybe in another decade or so the Times will get round to it.

      1. Pitchfork

        LOL — you actually had me there for a second (“Fungible my foot!”).

        It’s interesting, but most of the coverage of this stuff is found here on NC and nowhere else. Believe me, I’ve looked.

Comments are closed.