hpr-knowledge-base/hpr_transcripts/hpr2350.txt

Episode: 2350
Title: HPR2350: Ahuka Insurance - Understanding The Marketplace
Source: https://hub.hackerpublicradio.org/ccdn.php?filename=/eps/hpr2350/hpr2350.mp3
Transcribed: 2025-10-19 01:35:04

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This is HPR episode 2,350 entitled Ahuka Insurance Understanding the Marketplace.
It is hosted by Ahuka and is about 10 minutes long and can rim a clean flag.
The summary is how the health insurance market works in the US.
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Hello, this is Ahuka, welcoming you to Hacker Public Radio and another exciting episode.
And I want to continue my look at health insurance and health care policy because I think
there's some things worth unpacking here.
Those of you who are outside of the United States, maybe this will help you to understand
some of the issues that we're dealing with and people inside the United States, maybe
this will help clarify what the issues are.
So what I want to do now is I want to talk about marketplace because as we saw previously,
the United States, things tend to be market based, health care is no great exception.
And the Obamacare was set up on the idea that it was going to operate through private
insurance and private markets.
So how does all of that work?
It's not easy, okay.
So let's run through some basic principles here, okay?
Rule number one, companies must be able to make a profit or they won't stay in the market.
Now this is something I usually covered in semester one of economics back when I was teaching.
It really is economics 101 stuff, okay?
Companies cannot be forced to lose money indefinitely, so that one is out.
Now how do companies make a profit?
It's only one way you have to keep revenues above costs.
It's very simple.
Now this can mean raising prices or cutting costs as needed in general.
In an insurance market, it means raising premiums or reducing or denying benefits.
Those are the ways you either raise revenue or cut costs.
Now in insurance markets, you are betting on future events.
Basically when you buy a policy, you are betting, so to speak, that something bad is going
to happen that will require a benefit payment.
And the insurance company is betting that it won't happen.
And the last of the basic principles, insurance companies make this work by pooling risks.
They don't necessarily know which person will make a claim.
But if they get large numbers like millions, then it's very easy for them to get a pretty
good idea of how many people will file a claim.
So with this as a starting point, what can we say about the health insurance marketplace?
And again, I'm going to be focusing on the United States.
In the United States, most people with health insurance get it as a benefit from their employer.
This is kind of an accident, really, and comes from World War II.
During the war, labor was scarce, all of the soldiers in Europe and the Pacific.
And government price controls prevented any wage increases that might have drawn in additional
workers.
Having health insurance as a benefit was allowed, however, and so the process began.
There's a link in the show notes if you want to read more about that little aspect of history.
Now one thing this story should make clear is that this is a cost to the employer and
is part of the wage costs that employers look at.
Now in the United States, if you have ever been involved in management, if you've been
involved on the finance side or the human resources side, then that's very clear.
You come up with an overall wage cost every time you hire an employee, and it's much
higher than the actual salary that the employee gets, because you put in all of those benefit
costs, and that is going to factor into the hiring.
Now as health costs rose in the last few decades, that started to create problems for
employers, so they started looking for ways to reduce their costs.
Now this has meant something referred to as cost shifting, meaning more of the costs
are shifted to the employee.
And as costs rose, smaller employers were more likely to not offer insurance at all,
or find ways to restrict who could get it, such as limiting it by job class or the number
of hours worked.
This left more workers without insurance.
Now in 1965, the government passed a program called Medicare, and then another one called
Medicaid.
Medicare was initially targeted at providing insurance to elderly people who would otherwise
not have it.
It was later expanded to include certain types of disabled people.
Medicaid, which was part of the same overall legislative package, was targeted at people
who were receiving cash assistance from the government, what we would call being on welfare.
Now what all of these provisions have in common is a large role for the private sector.
Employer provided health insurance is purchased from private companies who need to be actuarially
sound and make a profit.
Medicare and Medicaid are not required to make a profit, but do need to be actuarially
sound.
And all three programs simply pay for services rendered by doctors and hospitals who overwhelmingly
are private entities.
Now another common feature of all three of these is that they do a pretty good job of pooling
risk.
A large company might offer many thousands of employees in a batch to an insurance company
making the pool profitable to the company.
Some of those people would have health issues, but others wouldn't, and the employer would
pay the same premium for all of them.
So for a company, they might have someone in their 50s experiencing health problems,
but also some people in their 20s with very few problems, and the employer would pay
the same premium for all of them.
With Medicare and Medicaid, this doesn't work the same exactly, since almost by definition
you are dealing with a less healthy population on average, but there is still pooling of
risk going on in these programs, and the pools are significantly larger, millions instead
of thousands.
So providers, this is the term used to talk about doctors, hospitals, labs, etc., the
people, in other words, the entities that are providing health care, and they are always
referred to as providers.
In any market analysis, you do need to look at both sides of the market, both the supply
and the demand.
So we have to look at the supply from these providers, doctors, hospitals, labs, providers
of durable medical equipment, ambulances, and so on.
All of these are providers.
Doctors are primarily for-profit.
Hospitals have a fairly significant non-profit component, so there are non-profit hospitals
and for-profit hospitals in the marketplace.
The evidence shows that care is about the same level of quality either way, and finances
are pretty similar.
For either doctors or hospitals, they need to cover all of their costs, plus some margin
that may be called profit or fund balance or whatever.
This is where the money comes from to invest in new facilities, equipment, and so on.
Doctors have the ability to decide who they will take as patients, and health insurance
is a definite factor.
Now in health insurance, the payments that doctors and hospitals get are called reimbursement,
the idea being that they have incurred costs that they need to be reimbursed for.
If reimbursement rates are too low for a given payer, say an insurance company or the government,
they may refuse to take those patients.
That is why you may need to shop around for a doctor who will take your insurance.
Those are a little different.
They usually have contracts with all of the major insurers and with the government, but
you can still get caught if you go to a hospital your insurer doesn't approve of.
This is called being out of network.
But the biggest difference is that hospitals are legally required to take emergency cases,
at least up to the point where the patient is stabilized, in other words can be put back
on the street.
This can result in what they call uncompensated care.
Does that mean they never get any payment?
No, it doesn't.
Both the government and the major insurers will allow hospitals to claim compensation to
cover that, at least to some degree.
So some of those costs are recovered, not all of them though.
So if you have people using the emergency room and they really is an emergency, they cannot
be turned away.
But they are using the most expensive form of medical care and cost are being passed
back to either taxpayers or to insurance premiums, because insurance companies are not
charities either.
So with this information, we can start to look into the trade-offs involved in the funding
of health care, U.S. style.
So this is a hookah thanking you and reminding you as always to support free software.
Bye-bye.
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