You’re talking about something theoretical. I’m telling you what actually happens.
Insurance companies lose business when their premiums are unnecessarily high. In the long run, all their prices go up, but those who manage rising costs better (and provide better service and all that other stuff), grow their businesses.
I think you're being theoretical. Insurers can only increase profits by inflating medical costs.
"Insurers are supposed to spend 80% of every dollar on care and only 20% on administrative costs. However, instead of lowering premiums, the insurance companies have been incentivized to increase costs so that they can make more money."
I am not sure what else to tell you. Companies switch insurance providers for cost all the time. I've benefitted from it several times and seen first-hand how competitive the selection/sales process can be. If an insurer thought they could coast on high prices, losing accounts would change their behavior quickly, like in any company.
As an industry, insurers all benefit from aggregate rising medical costs because of the percentage rule you mentioned, but that's not the same as what an individual insurer will do.
If you're arguing as a proxy for wanting public health to be allowed to enter the industry as a price negotiator, I'm in complete agreement.
Apparently they do not switch often enough to get US medical costs down to the level of other industrialized nations. But that metric it is hardly an efficient market.
Yes, price competition only goes so far when the underlying thing being sold is expensive and buyers don't have enough power to squeeze suppliers. Hence the CMS comment. Also, switching costs aren't zero (new cards, employee education, etc.), and is be re-evaluated only annually.
The question in this subthread is: do insurers have an incentive to negotiate pharma prices down. The answer is they do have an incentive and they do negotiate prices down.
There's nothing theoretical about price competition. Large self-insured employers and other group buyers are very price sensitive. If a company offered Aetna health plans to their employees this year they would happily switch to Humana next year to save a few dollars. There are sophisticated analytics tools available now which let those customers predict future costs under various options.
