Analyzing the Economics of Health Insurance Markets

Rising insurance premiums should not be explained by medical loss ratio alone. MLR is useful, but it is only one indicator. A more credible assessment should also consider claims cost per insured life, case mix, provider price growth, utilisation growth, administrative expense ratio, underwriting margin, capital adequacy, and the out-of-pocket burden shifted to patients. To tackle rising insurance premiums, I find it helpful to use a simple 5-part framework: 1. Measure properly Look beyond a single ratio. Separate price growth from utilisation growth, and distinguish real medical inflation from administrative inefficiency or margin expansion. 2. Moderate demand intelligently Use co-payments, deductibles, and benefit design carefully to reduce low-value care, without deterring necessary care. 3. Manage provider incentives Strengthen fee benchmarks, episode-based payment where appropriate, panel governance, and pre-authorisation for selected high-cost services. 4. Monitor insurer behaviour Require greater transparency on expenses, margins, claims denial patterns, and service performance, not just claims payouts. 5. Minimise patient harm Any premium control strategy should protect affordability, access, and continuity of care, especially for patients with genuine healthcare needs. This matters because the same premium increase can mean very different things. It may reflect genuine medical inflation and more appropriate care. But it may also reflect higher operating costs, preserved margins, weak cost control, or greater transfer of financial risk to patients. In healthcare finance, the real issue is not whether spending rises. It is whether the increase is proportionate, transparent, and tied to real value. As Program Coordinator for the Master of Health Management and Policy at Newcastle Australia Institute of Higher Education, I am interested in these questions because they sit at the intersection of policy, economics, regulation, and clinical reality. If you are interested in health insurance, healthcare finance, and the design of sustainable health systems, connect with me. Newcastle Australia Institute of Higher Education https://lnkd.in/gtHAXi8m

For health plans launching 2026 Benefit Design, this is a must-read paper: "The Health Costs of Cost-Sharing." Here's my summary: [Note: it's very impressive whenever top-tier pure econ journals like QJE (Quarterly Journal of Economics) publish health econ papers ...signal of very strong quality] The ideal question we want to answer: "What happens when patients suddenly stop taking their medications?" This is a HARD question to study. Why? Getting IRB approval for a randomized clinical trial to answer this question is impossible, i.e., we ethically can't randomize people to stop taking their medications. This study's clever solution is to take advantage of where this is happening naturally, i.e., a 'natural' experiment. (This circumvents the ethical dilemma.) 🧪 What's the natural experiment? - Medicare Part D pays $2500 in drug costs per year. - When you first enroll into Medicare at age 65, it's based on your birthday month when you turn 65. - As a result, if you are born in January, the $2500 has to stretch the whole year. - If you were born in July, it would only have to stretch 6 months. - But, in all cases, once you pass the $2500 budget (paying 25% of your drug costs), you immediately jump to paying 100% of your drug costs. This is the infamous 'donut hole' conundrum. This natural variation, based on your birth month, allows the researchers to ask, and answer, this key question: What happens to those who 'randomly' end up with higher copays? ANSWER: • "Those facing smaller budgets consume fewer drugs and die more: mortality increases 0.0164 percentage points per month (13.9%) for each $100 per month budget decrease (24.4%)" • "Contrary to the predictions of standard economic models, high-risk patients (e.g., those most likely to have a heart attack) cut back more than low-risk patients on exactly those drugs that would benefit them the most. (e.g., statins)." • "Finally, patients appear unaware of these risks. In a survey of 65-year-olds, only 1/3 believe that stopping their drugs for up to a month could have any serious consequences." But, aren't there a lot of alternative explanations?? ... yes, there are a LOT of caveats, and this is the beauty of this study. They 100% went overboard in positing and then refuting many potential alternative explanations. And, as we'd expect, they do a tremendous job here. This isn't surprising given this was published in QJE. Key takeaways for me: → 1️⃣ Medicare Part D onboarding policies are worth re-evaluating (donut holes, copays, fixed budgets). For now, health plans need to be aware, and adjust. I'm curious to learn more about what health plans are doing here. → 2️⃣ It's critical we educate patients (and physicians) on the mortality risks associated with missing medications. As co-author Ziad Obermayer succintly summarized: "Copays kill." Read the paper for more details (link in comments).

In 2006, the Netherlands faced something very familiar. Rising healthcare costs. Fragmented insurance pools. Risk selection. Growing inequity between coverage types. Public frustration. Sound familiar? And no — they did not “blow up the system.” They did not nationalize hospitals. They did not eliminate private insurers. They restructured incentives. Under the Health Insurance Act, the Netherlands unified its insurance market into a single, mandatory system built on regulated competition. Here’s what changed: • Every insurer must offer a standardized basic benefits package. • Insurers must accept every applicant — no medical underwriting. • A national risk equalization pool compensates plans that enroll sicker patients. • Coverage is mandatory, with income-based subsidies to make participation realistic. Private insurers remained. Competition remained. Choice remained. But profit could no longer depend on avoiding sick people. It depended on operational efficiency. That shift matters. By standardizing benefits and implementing national risk equalization, the Netherlands significantly reduced the financial incentive for risk selection and for vertically integrated strategies built around controlling coding, utilization, or cherry-picking healthier populations. When insurers cannot profit from avoiding the sick — or from manipulating risk — the business model changes. Competition shifts toward efficiency, service, and supplemental offerings. Over time, this structure also makes transparency structurally possible. Standardized benefits allow meaningful comparison. Universal participation legitimizes oversight. Financial reporting becomes part of the public function. That is how infrastructure behaves — even when delivered by private entities. The result? Uninsured rates dropped to approximately 1%. Not in 1950. Not in theory. In 2006. This is important because when Americans hear “reform,” they often imagine something radical or government-run. But the Netherlands kept private insurers. They kept regulated competition. They kept employer involvement. They simply aligned the insurance market with the mission of healthcare. We already spend enough in the United States to achieve near-universal coverage. We already have private insurers. We already regulate healthcare extensively. What we have not done is align the incentives of insurance with the goals of health. That is not a spending problem. It is a structural design problem. And other modern capitalist countries have shown — recently — that structural redesign is possible without dismantling the architecture. The question is not whether reform is imaginable. It is whether we are willing to change what insurance is optimized to do. #healthpolicy #healthcarereform #infrastructure #publichealth

The US healthcare marketplace has no idea how to  value behavioral health interventions. And it's costing us everything. Here's what insurers are missing: ↳ Veterans getting mental health care show 40%   lower late-stage cancer rates ↳ Depression treatment cuts heart failure   rehospitalizations by 35% ↳ Anxiety therapy reduces all-cause mortality   in cardiac patients The math is staggering: 1/ Every $100 invested in behavioral health  ↳ Returns $190 in reduced medical claims ↳ Prevents costly emergency escalations ↳ Cuts inpatient hospitalization rates 2/ Mental health treatment for seniors ↳ Reduces dementia diagnosis rates significantly ↳ Particularly effective for vascular dementia ↳ Saves decades of long-term care costs 3/ Employer programs prove the ROI ↳ Telepsychiatry shows comparable total costs ↳ Outpatient interventions prevent crises ↳ Early screening stops illness progression Yet insurers still treat mental health as  "nice to have" instead of "must have." This isn't just about parity laws. It's about basic healthcare economics. When we underpay for behavioral health, we  overpay for everything else. Mental health treatment doesn't just save minds. It saves lives, money, and entire healthcare systems. ------------------------------------------- ⁉️ How much longer can we afford to ignore  the $190 return on every $100 invested? ♻️ Share if you believe behavioral healthcare is mispriced. 👉 Follow me for more (Eric Arzubi, MD).

This open-enrollment season has seen a spate of headlines about premiums and politics, and how medical cost growth will affect individuals. But the real sleeper issue this year is how deeply the Affordable Care Act (ACA) marketplaces are now woven into the fabric of America’s small-business economy. As Cynthia Cox of KFF reminds Julie Rovner on this episode of What the Health?, the ACA isn’t just a safety net for individuals — it’s lifeline for Main Street that is under threat. Five takeaways from Cynthia’s analysis 1️⃣ Nearly half of adults under 65 with marketplace coverage are tied to small business. They’re owners, sole props, freelancers, or employees of firms with <25 workers. The “individual” market has quietly become the small-business group market. 2️⃣ Income volatility = coverage volatility. When small business revenue swings — contractors, caterers, consultants — the mechanics of income estimates and reconciliation can be difficult, and can adversely affect the business owner. 3️⃣ Geography matters. In many states, small-group options are limited or costly. For countless local firms, the exchange is the only functional benefits platform. 4️⃣ Marketplace access supports hiring and retention. When workers can secure high-quality coverage on their own, small firms can compete for talent without carrying a traditional group plan. 5️⃣ Entrepreneurship thrives on predictable health access. The ACA reduced “job lock.” Unpredictability around affordability negates that. We need better solutions for small and medium enterprises There’s no single solution. A mix of tools can strengthen the ecosystem that connects coverage to small-business success: - Individual Coverage Health Reimbursement Arrangements (ICHRAs): let employers reimburse employees for marketplace premiums with pre-tax dollars — a powerful bridge between flexibility and security (see Venteur) - Simpler income reporting & reconciliation: so gig and seasonal workers don’t face unexpected bills. - State-level affordability funds & reinsurance: to keep markets stable. - Targeted outreach to entrepreneurs: because many still don’t realize marketplaces and ICHRAs can work together. These are not partisan ideas — businesses need ways to mitigate healthcare cost inflation and stable markets to provide coverage for workers. Thanks to Cynthia Cox for emphasizing this issue. We’ll be focused on this at Morgan Health, in collaboration with others, over the coming year. https://lnkd.in/epxrutZU

Recent reports indicate that India's health insurance premiums have exceeded the national health budget, highlighting a significant shift in healthcare financing. While this surge reflects increased awareness and demand for health coverage, it also underscores a pressing concern: the growing disparity in healthcare access. Medical inflation in India has consistently outpaced general inflation, with rates hovering around 13-14% annually. This escalation has led to higher premiums, making quality healthcare increasingly unaffordable for many. Consequently, a significant portion of the population remains underinsured or uninsured, exposing them to financial vulnerabilities during medical emergencies. The government's flagship scheme, Ayushman Bharat, aims to bridge this gap by providing coverage to the economically disadvantaged. However, the reliance on insurance-based models, both public and private, raises questions about the long-term sustainability and inclusivity of our healthcare system. To achieve true equity in healthcare, a multifaceted approach is essential: Enhanced Public Investment: Increasing budgetary allocations to strengthen public healthcare infrastructure. Regulatory Oversight: Ensuring transparency and fairness in premium pricing and claim settlements. Awareness Campaigns: Educating citizens about available schemes and the importance of adequate coverage. #HealthcareEquity #Insurance #PublicHealth #AyushmanBharat #MedicalInflation https://lnkd.in/gcmbBT6N

This overview piece a) summarizes the evidence on the link between increasing health insurance costs, the result of provider price increases, and stagnating wages, b) the connection between rising provider prices and underinsurance, and c) the link between rising healthcare prices and inequality in many measures of health outcomes. The analysis shows that only about half of workers' wage increases wind up as cash compensation, with the rest going to pay for rising health care costs. Wage stagnation, simply put, is, in part, a consequence of the rising economic burden of healthcare provider price increases. The article makes an important point: for public policy intervention to work, it must be focused on the root cause of the problem it is addressing. Although there has clearly been cost shifting from employers to employees, the bigger problem has been the increase in provider (e.g., hospital) prices. Unless provider prices are somehow controlled, the future for worker wage increases looks bleak as gains will be absorbed by healthcare costs. #healthcarecosts #healthcareprices #wages #wagestagnation #healthcare https://lnkd.in/gKQge2Yg

50,000 Americans could die from Medicaid and ACA coverage losses. I joined Yahoo Finance to discuss with Julie Hyman what's at stake with ACA subsidy renewal. If these subsidies expire, average family premiums jump from $888 to over $1,900. When costs spike like this, healthier enrollees drop coverage, which drives costs even higher — a classic adverse selection spiral. The irony of the ACA is that it was Democrats passing legislation that helped Republicans. Four of the five states with the highest marketplace enrollment — Georgia, North Carolina, Texas, Florida — all voted for Trump. One more thing worth noting: from 2010 to 2023, the ACA actually held healthcare spending steady at 17.5% of GDP, saving the federal government $4 trillion in Medicare costs. The claim that the ACA failed to control costs simply isn't supported by the evidence. We know what works: subsidize coverage, advertise enrollment, bring healthy people into the risk pool. The policy is proven. The question is whether we have the political will to sustain it. Hear more about what the expiration of these subsidies could mean for American families at the link in the comments. #HealthcarePolicy #ACA #AffordableCareAct #HealthInsurance #PublicHealth #HealthcareEconomics

This is an important article that brings attention to a real problem for individuals, families and employers. As noted in this article, "increases in health insurance costs in the United States are on track for their biggest jump in at least five years." There are numerous factors driving these increases, but one that doesn't garner enough attention is the lack of competition in most insurance markets. According to the American Medical Association’s (AMA) 2023 Health Insurer Competition Report, almost three-quarters of metropolitan statistical areas (MSAs) are considered highly concentrated, meaning they are dominated by one or two insurers. In fact, fewer than 10% of markets are considered truly competitive. My organization is located in the Kansas City metropolitan area and we have a highly concentrated market with a single insurer having greater than 50% of the market share. As a result, our ability to negotiate fair rates on behalf of our employees and their families is greatly hindered - not because we don't know how, but because we don't have other choices. The cost of health insurance is the biggest threat to business operations for thousands of businesses and it deserves more attention from policymakers. https://lnkd.in/epgVHMr6