Products, regulation, and the economy

Alright, wanting to throw this out there to get some insight into what people think because there's an aspect of this bill that makes zero sense to me. The Democrats and Obama have repeatedly told us this is going to bring premiums down, however I see it as nothing but an attempt to be able to continue to demonize the insurance industry for simply being smart businessmen. Here's what I mean...

Say you are a businessman, and you produce a product. Doesn't matter what the product is, be it tangable or a service, but you produce it.

You currently sell it for "X" amount of money

The government then passes regulation and legislation that is going to cause the basic cost associated with what determines the price of your product up substantially, but it is not going to happen for another 4 years. At this time however there will also be mechanisms in place where they could exert control over how much you sell your product for.

So, as this businessman do you:

1. Not raise your prices at all currently, or in the next four years, until such time that the regulations come into play. At that point you raise it to cover the increase in cost and hope the government doesn't lower it on you.

2. Raise your prices slowly and steadily over the next few so that by the time regulations come into place you're already at the threshold to afford it with a little backlog of funds incase the government chooses to lower your price.

3. Raise your prices at a relatively fast pace over the next few years above what would be needed to cover the regulations, with the belief that its likely the government will require you to sell your product at a lower price and hoping that by being more expensive at that point the lower price will actually be higher than it would be if you were right on the money with cost.

To me, personally, option 2 would be my prefered method if I was running a business, with 3 being more prefered over 1. One seems suicidal, placing all trust in the government not meddling and that your customers won't have an issue with an enormous price increase.

This is my issue with Health Care currently.

Soon, Insurance Companies are going to have to be insuring people with preconditions. To me, this is like Las Vegas having to give the Indianapolis Colts the same odds at winning the Super Bowl as the Cleveland Browns. People with previous conditions are more likely to incur expenses, and typically more costly expenses, at a lot quicker rate meaning that they're far more likely that they get out more than they put in. This raises the general operating costs of Insurance Companies. This is just one of numerous potential things that will likely end up raising the operating costs associated with the cost of medical care for Insurance Companies.

This is especially true if one could hold off on getting insurance until they discover they have cancer, and then are legally required to be given insurance at that point, as an example.

If the costs to be able to provide Insurance go up, then premiums will have to raise to cover the business expense. If they don't then the Insurance Companies can not function and would have to close up shop (which of course would set the stage to say "oh, well the government needs to take over", but that's a different story). So, IF the Insurance Agency's are to survive, prices MUST go up.

Which then begs the question, should we expect the prices to rise only in the future or start rising now? And IF they start rising is that the fault of the "greedy" Insurance Companies or of the government for putting into place the situation that makes them HAVE to raise their premiums if they want to remain in business.

So, there's my question to you all, with the reasoning behind it (So its not a baiting question)....

In the hypothetical above, if you're the business owner, would you raise prices in 4 years, slowly raise prices in the intermediate years, or quickly raise prices in the intermediate years.

Zyphlin said:

Alright, wanting to throw this out there to get some insight into what people think because there's an aspect of this bill that makes zero sense to me. The Democrats and Obama have repeatedly told us this is going to bring premiums down, however I see it as nothing but an attempt to be able to continue to demonize the insurance industry for simply being smart businessmen. Here's what I mean..

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Zyphlin, I think alot of you, but I could not make it past there in your post. Yeah, the democrats spent months, alot of political capital, doing something extremely controversial, just do they could continue to demonize the insurance industry..

And like all politicians trying to "fix" a problem they are going to talk up the problems with the current situation. The "problem" before this bill was passed was insurance companies. Of course they're going to go after them.

Redress said:

Zyphlin, I think alot of you, but I could not make it past there in your post. Yeah, the democrats spent months, alot of political capital, doing something extremely controversial, just do they could continue to demonize the insurance industry..

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No, I don't think they did it JUST so they can demonize the insurance industry. I'm sure many did it because they think its best for the country. I'm sure many did it with hopes that its the first step towards gettin to a true single payer plan (Like DisneyDude has stated he hopes it is). I'm sure others did it because they think its most likely to get them re-elected next year. I'm sure there are other reasons as well, and I'm sure most are a mix of those things.

That said...

I think an offshoot of the "get elected next year" thing is that politics has shown us time and time again that its easier to win when you have something you can paint as an enemy and rally people against. The "Greedy Insurance Companies" have proven to be that target during the entire time of this health care debate.

We have been told by Obama and others that this plan is going to reduce premiums, and yet every time I look at the facts behind this bill and the economics of it I just don't see HOW that's goign to actually happen.

So, that means a couple things. The democrats could honestly believe its going to happen. Definitely a possability. The democrats don't know one way or another, but know they need to say it to get people on board. Definitely a possability. The Democrats know its possible, but unlikely, but helps to get people on board and sets the Insurance Industry up to continue to be "bad guys" they can campaign against. Also definitely a possability.

This puts the insurance companies in a bad spot, where if they adapt to the cost of this bill then they will be demonized but if they don't adapt to the cost of the bill then they'll be unprofitable. It also puts democrats into a strategically sound position where if the Insurance Companies raise the prices then they can claim it is greed and use that as a reason why they need to get to a single payer system, and if they don't raise it and start failing as businesses then they can use it to say they need to get to a single payer system. (Which I'm sure is the goal of many, like Disneydude has stated)

I am in no way suggesting that the only reason this entire bill has came into affect was to give them a way to insult insurance companies. But I'm also not going to discount that the benefits of being able to create a scape goat to campaign against, and the need to get re-elected, isn't PART of what is playing into some peoples minds.

I agree that prices will raise for the reasons you mention, although there will be offsets. Early treatment and preventative medicine instead of last minute uninsured emergency room stops should lower the hospitals required rates. Administrative costs will be significantly lowered when no more effort is spent to deny coverage wherever possible. Still, I think the whole timeline of events is a huge mistake. Plenty of folks are going to be trying to grab as much cash as possible during the 4 year grace period, long termed consequences be damned.

Zyphlin said:

This puts the insurance companies in a bad spot, where if they adapt to the cost of this bill then they will be demonized but if they don't adapt to the cost of the bill then they'll be unprofitable. It also puts democrats into a strategically sound position where if the Insurance Companies raise the prices then they can claim it is greed and use that as a reason why they need to get to a single payer system, and if they don't raise it and start failing as businesses then they can use it to say they need to get to a single payer system. (Which I'm sure is the goal of many, like Disneydude has stated)

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Personally, I would be ok with a public option that would actually require the insurance companies to compete or fail. It would reign in the insurance corporations and they would not be able to "profit" off the backs of the American people the way that they have operated for decades.

As you say Zyph...my preference would be for single payer, but I could live with a public option. I have yet to hear a good argument for why a public option is not a good idea.

So any actual comment on the theoritical that is the topic of the thread along with your comments on the public option?

In my mind in four years the insurance companies will have two options:

1. Raise prices to continue their extremely high profit rates
2. Lower prices to stay competitive and in turn bring in less profits

If a company wants to stay in business, I would assume they would take the second option.

The greatest shortcoming in the Healthcare bill was not opening up insurance companies to compete across state lines. Without minimal competition they only have to make sure their rates are competitive with the few other insurance companies in their market. That said, I would wait until the costs increase before raising my rates.

Stay competitive with what? If all insurance companies actually want to make a profit, the point of a business, and all insurance companies are going to have increase in the cost of medical care because of the regulations, then there is no competition they have to compete with if they all increase rates to match the rise in cost.

reefedjib said:

The greatest shortcoming in the Healthcare bill was not opening up insurance companies to compete across state lines. Without minimal competition they only have to make sure their rates are competitive with the few other insurance companies in their market. That said, I would wait until the costs increase before raising my rates.

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Thanks for the response.

Might I ask why as a businessman of said generic product would you take option 1 rather than 2 or 3? What would spur this decision?

But they have their underlying costs and revenues which are competitive. Let me add benefits to that mix. Given a couple of insurance companies in a region, they have different benefits (one a PPO and the other an HMO) at different rates with different costs depending on their underlying members' health. If both have to add $2000/year to their rate, then they may want to change benefits and cost to stay in the game. I think they want to balance cost benefit to maximize their member pool and their corresponding revenue.

Zyphlin said:

Thanks for the response.

Might I ask why as a businessman of said generic product would you take option 1 rather than 2 or 3? What would spur this decision?

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Stay competitive for as long as possible.

Zyphlin,
In this hypothetical are we to assume that other measures of value beyond price will remain constant between different insurance companies.

For example, someone might gladly pay a premium if it means that the insurance company provides other services such as an on call nurse, prescription information, a good website, partners that bring other types of value, a registry of who is the best doctor in the network for a certain type of illness, etc.

Wow, after reading this, it is obvious I am going to way too many meetings that use buzzwords.

reefedjib said:

Stay competitive for as long as possible.

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Ah, so going on the assumption that either others will not go up, or only go up a little bit, and thus keeping level or under them will give you more business in the interim and banking on only light backlash when having to raise the rates greatly in the future or that the government would fix your price to a point lower than what you would need to turn a worth while profit?

megaprogman said:

Zyphlin,
In this hypothetical are we to assume that other measures of value beyond price will remain constant between different insurance companies.

For example, someone might gladly pay a premium if it means that the insurance company provides other services such as an on call nurse, prescription information, a good website, partners that bring other types of value, a registry of who is the best doctor in the network for a certain type of illness, etc.

Wow, after reading this, it is obvious I am going to way too many meetings that use buzzwords.

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LOL. Useless meetings and fancy buzzwords is what makes the corporate (and government) World go round

And yeah, its assuming all things are equal, or equal enough that price is goin to be the primary differentiator that you have can account for. As i said, this isn't even as much specifically focused on insurance but just on economics and products in general here. There are other ways of course one could do to try and help the issue but this is focusing primarily on cost of operation and price of service.

Zyphlin said:

LOL. Useless meetings and fancy buzzwords is what makes the corporate (and government) World go round

And yeah, its assuming all things are equal, or equal enough that price is goin to be the primary differentiator that you have can account for. As i said, this isn't even as much specifically focused on insurance but just on economics and products in general here. There are other ways of course one could do to try and help the issue but this is focusing primarily on cost of operation and price of service.

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Hrm, that leaves out using branding too. You had to make it hard didn't you. :2razz:

Speaking generally, I would go with option one and start raising prices right before the regulations take affect. By than the actuaries should have figured out the proper costing with the new rules and it will afford you the flexibility of trying to lock in as many customers are you can before raising prices and blaming it on the government (whether the blame is fair or not does not matter).

However, this does not include factors such as the economy, performance of investments, etc.

So you would ramp it up before hand, just not quite as far out from the point of regulations beginning as option #2 would be, so somewhere between #1 and #2.

So your hope would be that the blame on the government would win out over blame of greed, or over consumer shock at the sudden increase? And you think it'd be a worth while risk that the government wouldn't fix your price lower to than the point you hope to increase it to? Or would you increase it higher than you would need in anticipation of such a price fix in hopes of negating that affect while still being able to hold off till just near the end to raise your prices?

Zyphlin said:

Ah, so going on the assumption that either others will not go up, or only go up a little bit, and thus keeping level or under them will give you more business in the interim and banking on only light backlash when having to raise the rates greatly in the future or that the government would fix your price to a point lower than what you would need to turn a worth while profit?

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I agree with the first bold. What is the second bold? I don't understand the government fixing a price.

To my understanding price fixing is generally when a group of businesses or people selling a particular item get together to agree that it will be sold at a specific price or above/below. Typically it happens with a minimum being set above what would be the actual cost and everyone going above that, garaunting profits for all. (This is illegal to my understanding in the U.S.) It can also be used in a top down method (with a cieling rather than a bottom) in an attempt to stabalize prices or force a discount.

In this scenario I'm suggesting the government putting a cap on the price at which you could sell your generic product, essentially creating a price fix, with said cap being below the level you would idealy wish to sell your product act.

I'm sure someone more educated about how this works could fill it in better than I.

Zyphlin said:

So you would ramp it up before hand, just not quite as far out from the point of regulations beginning as option #2 would be, so somewhere between #1 and #2.

So your hope would be that the blame on the government would win out over blame of greed, or over consumer shock at the sudden increase?

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Well the real reason means less to the customer than the advertised reason and blaming the government would provide an easy scape goat that seems the least likely to harm the business. Given that it is not the whole truth, it would technically be a lie, but hey that's how businesses operate.

Zyphlin said:

And you think it'd be a worth while risk that the government wouldn't fix your price lower to than the point you hope to increase it to?

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The question of what the government would do is hard to answer because I think it depends on the details of the exact legislation, so I don't know.

Zyphlin said:

Or would you increase it higher than you would need in anticipation of such a price fix in hopes of negating that affect while still being able to hold off till just near the end to raise your prices?

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My initial reaction is that if the government is going to try and regulate prices than they will expend some effort to find out what the necessary costs are for a particular operation. My reaction to this would probably be to bribe and lobby.

megaprogman said:

Well the real reason means less to the customer than the advertised reason and blaming the government would provide an easy scape goat that seems the least likely to harm the business. Given that it is not the whole truth, it would technically be a lie, but hey that's how businesses operate.



The question of what the government would do is hard to answer because I think it depends on the details of the exact legislation, so I don't know.



My initial reaction is that if the government is going to try and regulate prices than they will expend some effort to find out what the necessary costs are for a particular operation. My reaction to this would probably be to bribe and lobby.

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Hrm my impression and my own negative reaction to what I wrote tells me that I am not cut out to be a top officer at a large company.

Zyphlin said:

Alright, wanting to throw this out there to get some insight into what people think because there's an aspect of this bill that makes zero sense to me. The Democrats and Obama have repeatedly told us this is going to bring premiums down,

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They are lying- either knowingly or unknowingly. Whatever you subsidize, you get more of. Subsidize poverty, you get more poverty. Subsidize illigitimacy, you get more of it. Subsidize illness, you get more illness. What our government does is focus on societal problems by trying to buy solutions. You can't solve problems by throwing money at them. You solve problems by refusing to indulge the causes. You let the problem solve itself. It's the law of nature, and it's the only one that does not fail.

Zyphlin said:

Stay competitive with what? If all insurance companies actually want to make a profit, the point of a business, and all insurance companies are going to have increase in the cost of medical care because of the regulations, then there is no competition they have to compete with if they all increase rates to match the rise in cost.

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Since they are all subject to the same new regulations, and thus the playing field is level, could it not also result in either:

A. Increased efficiency on the part of the insurer in terms of administration costs.

B. A reduction in profit margins rather than an increase in premiums beyond what they otherwise would have been.

C. The added costs of the additional regulation being more than offset by the increased number of participants and more young and healthy people will be in the market.

I would imagine that C will more than offset the additional costs of the additional regulation.

lizzie said:

They are lying- either knowingly or unknowingly. Whatever you subsidize, you get more of. Subsidize poverty, you get more poverty. Subsidize illigitimacy, you get more of it. Subsidize illness, you get more illness.

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You might be on to something, I am sure we will have more cancer, genetic diseases, and other chronic health problems simply because insurers now have to insure those with pre-existing conditions. After all, cancer is caused by insurers having to insure you even if you have had it. :roll:

Sometimes y'all libertarians treat your beliefs as though they were a fundamentalist cult and thus not subject to reason and common sense.