If you could sell a product and were guaranteed a 15% profit, would you sell it for

[Uncle Joe]

Edited to change the word "limited" to "guaranteed".

[Nicholas D Wolfwood]

1. Re-read your question, then tell me if that causes any logical problems for you. (nt)

[Uncle Joe]

3. I haven't had much coffee yet please explain the breakdown in logic.

[Nicholas D Wolfwood]

7. You said there's a 15% cap in profits.

Therefore, the only way you CAN price your product is 15% higher than the cost of producing that product.

Let's use math here. Say your product cost you an even $100 per unit to produce. If you are capped at a 15% profit margin, the highest amount you can ever charge for that product would be $115. (100*1.15=115)

Thus, you answered your own question.

[slampoet]

25. BINGO!

Finally a DUer with a grasp of middle school math. (that and the others on this thread.)

[Uncle Joe]

26. Self- delete due to technical error bug.

[lukasahero]

28. The fact that you had to explain that

causes me to despair.

:cry:

[Nicholas D Wolfwood]

33. Seriously.

[Uncle Joe]

29. What if you set the cost of producing that product?

This is a repost because there was a technical error on the previous post.

[Nicholas D Wolfwood]

37. Then it depends on why you have a cap in the first place.

I assume if you're talking about a legal cap (can't possibly think of any other kind), you'd likely be forced to show exactly how you achieved that number, and I'm sure that there would have to be some kind of regulated (read: rules issued by an executive branch agency, not listed in a law) framework for what's allowable. Any meaningful system with an imposed cap wouldn't just play by the honor rule.

[Oregone]

43. "show exactly how you achieved that number"

Insurance companies don't need tricks to increase medical loss (and subsequently, overall premiums and profit). They negotiate rates with providers. They don't care how much a service costs as long as 1) they will not lose market share and 2) it will be compensated for by increased receipts.

[Oregone]

31. If only it were that simple

"Say your product cost you an even $100 per unit to produce"

And say that YOU can control that cost, and raise it to $200 easily?

Then the most you could charge is $230.


Sounds strange to raise a price, right, with competition and all. But I don't see much competition in the health insurance industry as is. There is a ton of overhead they could currently cut to lower the cost of production, and they don't. They negotiate hetrogeneous rates, some 3 times higher for some doctors than others not based on quality, which is nothing but waste they could cut--but they don't. The reality is that the shareholders need a set profit-per-share amount, and any lowering of rates (without gains in marketshare) that threaten that will not be pursued (that is against the tenants of capitalism).

[Winterblues]

34. Actually the price would be $117.65 for a Profit Margin of 15%

To find Profit Margin you don't multiply by fifteen percent, you divide by .85......Your fifteen percent is off the end value and not off the cost of goods..

[Oregone]

38. And to be technical, its not all profit anyway

:)

Because this is about health insurance. Some of that 15% has to pay for cubicles. Only after operational overhead is disbursed, will anyone know the profits.

[Nicholas D Wolfwood]

48. I guess you're right, but the point remains the same.

The concept is that you can't just set whatever price you want if you have a fixed cap.

[Oregone]

52. But yes you can

"The concept is that you can't just set whatever price you want if you have a fixed cap."

In an industry that has direct control over what the cost of materials is, you can increase such to increase the overall price.

Capping operational overhead/profit creates an incentive to make the most expensive product. Especially if the current shareholders are expecting a certain profit-per-share rate and that cap will cut into it. It is the goal of these companies to do whatever it is they can (from cutting operational overhead, capturing market share, or increasing the price of the product) to maintain the current profit-per-share rate. And increasing the overall price may be the easiest way.

[Gormy Cuss]

61. Does HCR cap overhead, or just profit?

The portion of overhead necessary to deliver the service may be defined as a direct cost rather than overhead. The companies have an obvious incentive to do so. It's a matter of whether the government accepts them as costs.

[Oregone]

68. It "caps" what they can spend which is not on medical loss

So that includes profits and operational overhead.

Of course they can control operational overhead (and this will make them become more efficient). But these companies also control medical loss by negotiating rates and adjusting the throttle on how and what types of care they ration. They control the entire big picture, and its not difficult for them to increase medical loss so they are allowed more money they for profit and operations.

[Oregone]

69. dupe

[Nicholas D Wolfwood]

54. Someone tell "ignored" that I'm not interested, please. (nt)

[Oregone]

56. If you ignore people due to fear of an intellectual debate, what makes your view objective?

Or even reasoned? To look an an issue with binocular vision seems to sell yourself short. How can you convince anyone of the authority and accuracy of your view if you refuse to debate it?

If you have reasoned arguments, you should welcome them to be challenged.

[hansberrym]

40. Which is why the COST must rise, so profit will rise.

Because COST is not limited to cost per unit of service, since the number of Cat scans, surgeries, doctors vists, etc can surely rise.

What incentive will there be for insurance companies to reduce the number of units? They will simply produce more units in order to produce more profit. Certainly doctors and hospitals will have the same incentive.

And the individual will say, what the hell, my rates are going up whether I go to the doctor for these sniffles or not, so I may as well go.


It is assinine to believe it will save money, just as it was assinine to believe that communal farming would produce more than the private sector.
People will act in their own self interest, the trick is to design a system that takes advantage of that basic truth.

[Nicholas D Wolfwood]

50. That would require massive collusion among literally everyone involved in health care.

Doctors, hospitals, equipment manufacturers, lab service providers... everyone. Which is not going to happen any time soon. So, no, I don't think that they can price fix.

[Oregone]

55. You think service providers will balk if insurace companies wish to negotiate higher rates?

Massive collusion? Are you kidding me? It takes a simple phone call amongst the FEW insurance companies to decide to up the pot so their take is bigger. The providers will be cumming over the new rates.

[Oregone]

2. LOL. Let the boy wonders figure this one out.

:)

Obviously I understand they are trying to tame a ridiculous private market...but, its a capitalistic market that cares about profits and not the welfare of its customers. If a measures creates an incentive to raise negotiated rates (and premiums), it doesn't seem like all that great of a measure.

This regulated MLR is about trying to allow private industry to keep profitting, but trying to cap its inefficiencies. Its funny how private companies that do Medicare contracts operate at minimum overhead around 2%, but yet the government thinks its permissible on the open market for them to take 15%. Well hell, guess thats better than 30% (thats what the dumb politician thinks with short sightedness).

Now hospitals and medical providers are cumming over this. They know this measure means a big payday for them.

Its like allowing two brothers different responsibility for picking out a pie. One brother pays for it, and tells the other what portion he is allowed. The other...well he gets to pick the overall size of the pie. I gotta wonder how big itll be, with his tiny little portion motivating him.

[Iggo]

4. I think I might sell it for 15% over cost.

[Oregone]

5. And if they can control that cost?

[Iggo]

6. Someone other than me always controls the cost...

...unless I'm manufacturing it myself. And even then, the material cost is out of my hands.

[Oregone]

12. "the material cost is out of my hands"

What if it isn't?

What if its up to the person creating and selling the product to determine how much the materials/expenses are (And there is no real competition to consider and regulated profit)?

[Iggo]

13. I make stuff out of steel.

I do not dictate to the steel companies how much to charge for steel.

[Oregone]

17. Insurance companies dictate, through a process of rate negotiation, how much to pay per service

You getting a bit of the picture here now?

Insurance companies, along with a standing anti-trust exemption (that is suppossed to be repealed), are being faced with contained overhead. But on the flip side, they control their medical loss directly, so they can easily operate within these ratios and still profit as much as before.

[Iggo]

23. Oh, I see where you're going just fine.

My answer to the OP still stands, though: 15% above cost.

[Oregone]

27. And if you can control costs? Would you make sure they go up?

Because you and I both know, 15% of $100 is less than 15% of $200.

If you can control medical loss, this creates an incentive to continually increase it (and raise premiums to match such)

[Iggo]

58. Yes.

[JVS]

44. Let's have a thought experiment here. Suppose we have stand where we sell pop.

Profit= revenue - expenses

Fortunately for you, everyone in town has to buy your product according to law, so you get to sell 25,000 pops each day. On the other hand 85% of all revenue must go to expenses.

You have the following supply options: 12 packs of generic store brand for $2 each, 12 packs of Coke for $3 each, bottles of Mexican coke with real sugar for $1/ bottle or $12 per 12 pack, if you will.
So with p=price .85*p=2/12, .85p=3/12, or .85*p=12/12=1 for the different pops.
Yielding prices of 19.6 cents for the generic pop, 29.4 cents for the Coke, or 117.6 cents for the Mexican coke.
No matter which one you choose to sell, you get 15% of that money. Which do you want to sell?

[kirby]

8. Nonsense question...

Why are you mixing percentages with absolute dollar amounts. Regardless of what you charge, 15% profit is 15%.

For $100, it means it cost you $85 and you made $15.
For $1000, it means it cost you $850 and you made $150.

It is all the same.

[Cessna Invesco Palin]

9. That's a pointless question.

What kind of product is it? What's the volume? If I'm selling a million units a year I could sell it for cheap. If I'm selling 100 units a year, I'm gonna charge a lot more. There's no point in even asking this question without addressing the issue of volume.

[guardian]

10. Depends on how much it costs to produce.

The poll question is poorly worded in that it mixes percentages with absolute dollars.

[Oregone]

20. Its referring to a scenario where the producer can control the cost of production

Such that they may increase it to make their 15% greater. I made a post about this a bit ago...

Today, imagine a company has gross revenue of $100 million dollars, and pays out $65 million in claims.

This leaves them with a 35% medical loss ratio.

This company spend $30 million of this money on staff, executive pay, buildings, advertisements, and general operational costs.

This leaves $5 million dollars in pure profits the shareholders get to receive each year. With a million shares, each one delivers $5 of dividends per share; this is the target rate for each shareholder.

Now, after this reform, lets assume they must now operate with an 85% medical loss ratio.

They assume that they can reduce overhead by $15 million dollars by dropping health care benefits, removing cubicle walls, firing staff, and running the heater at 59 degrees max all year round.

And now, lets remember that they need $5 million in profit to maintain the proper profit per share ratio (so the owners don't bail in mass)

So, all in all, they need to have an overhead of $5 million + $15 million dollars, or $20 million

Now, $20 million must be a *maximum* of 15% of their new gross revenues.

20/.15=$134 million dollars.

So this company became 50% more efficient and raise their negotiated rates 34% so that they could maintain the target per share ratio. And their friends did too after a nice phone conversation.

You see, insurance companies DO NOT care how much they pay hospitals and doctors for services. ALL they care about is the profit-per-share ration. Thats it. Don't fool yourself. This is capitalism and the private market (without forced competition). If they must pay more to get the same (or more eventually), its no sweat off their back.

[jody]

11. As others pointed out, your question is nonsensical. n/t

[rocktivity]

14. Presuming that I'm not limited to what I could charge for it

I'd sell it for as much I could legally convince someone to pay.

:eyes:
rocktivity

[tridim]

15. If you wanted to sell a new/improved product in a newly expanded market would you..

Sell your product for as much as possible and risk losing customers to your competition?

Or would you set the price as low as possible to get more of the new market?

[Oregone]

18. Why don't insurance companies currently race to the bottom?

There is a ton of overhead they can already cut. If they negotiated low rates homogeneously any one company can blow another away for market share. This is not the status quo. What in this bill will magically make them competitive and race to the bottom for market share?

[harun]

16. Lasers.

[kirby]

19. Ball bearings n/t

[tridim]

24. Gauze Pads.

[JVS]

21. If I could sell a product that people were forced to buy, but I could only have 15% profit...

I would make damn sure that my costs are high as hell so that in order to cover them I can charge a lot of money and have `15% of a larger number than if things were kept cheap.

[Uncle Joe]

45. Yes and here is one way you can do it from Hugh Moran's thread.

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=102x4308681

Harvard Pilgrim’s testimony mirrors the results of a yearlong investigation by Attorney General Martha Coakley’s office, which found that the highest pay goes to the providers with the most clout and not as a reward to those hospitals and medical practices that provide the highest-quality care. The attorney general’s report looked at payment rates from all large insurers. Unlike Harvard Pilgrim’s testimony, Coakley’s preliminary report did not identify providers by name.

A 2008 Globe Spotlight Team series focused on the Boston market found that a small number of hospitals such as Mass. General and the Brigham typically are paid 15 percent to 60 percent more for essentially the same work as other hospitals, even though the quality is not superior. It said the fees paid the Partners hospitals were helping to drive up health costs in Eastern Massachusetts, something critics have called the “Partners effect’’ but that Partners disputes.

[cherokeeprogressive]

22. Every penny of profit I can make from selling it.

[HopeHoops]

30. 15% of a thousand is the same whether you make 1 sale at $1000 or 10 at $100.

I'm thinking 10 at $100 is more likely.

[Uncle Joe]

60. You control the cost of the product, you don't need to sell ten 100s or 1 thousand,

you can sell ten 1000s or ten 100,000s.

The market is captured, regardless.

[HopeHoops]

62. You still have to sell the fuckers. Volume rules when profit percentage is fixed.

[Uncle Joe]

63. The profit can be manipulated but it's guaranteed at 15%

I did edit the O.P after your first post.

The market is captured and has no choice, do you believe the big boys would collude on cost or price?

[HopeHoops]

64. 15% is 15%, shit's shit, and that's that.

If the price is too high to attract sales, you won't get that many. Volume rules. That's why Blockbuster is moving to RedBox style kiosks because their fucking $5 rentals aren't moving - but the store fronts soon will be.

[Uncle Joe]

66. Yes and monopolies are monopolies and trusts are trusts.

People have a choice about renting a movie, not so much about whether they get sick or injured, and for profit "health" insurance corporations know that.

[Oregone]

71. Volume? There are only so many policies and Americans don't need more than one at a time

Its not like selling fancy widgets. We aren't talking hotdogs here.

[Gormy Cuss]

32. You sell it for the highest price that the market will bear. n/t

[Uncle Joe]

35. Yes, thank you except in this scenario, the market is captured and has no choice. n/t

[Romulox]

42. Which only means that it will "bear" that much more... nt

[branders seine]

36. change 'limited to' to 'guaranteed'

[Uncle Joe]

51. Thank you. n/t

[Hello_Kitty]

39. Don't forget that you're also getting subsidized by the government!

"Cost plus no bid contracts", anyone?

[Oregone]

47. The simple market rules are so fucken augmented here

The demand at almost any price is nearly infinite due to mandates and necessity, and only limited by a finite population and captured market share. Then you add in government subsidies....

And "competition" is nearly non-existant in this industry. To top it off, the actual producer gets to set the cost of production, and the higher it is, their operational overhead aside from medical loss remains constant.

It makes my head numb that they think these technocratic tinkerings are going to make the whole shithouse work

[Romulox]

41. The answer is "As much as the market will bear". This is economics 101. nt

[Sheepshank]

46. I don't get the premis...you don't take into account number of widgets sold

if I only sold one widget every month to the same 5.2 Million people every month, and those widgets cost $100 every month, I'd be very happy with profit of 15%. I could let greed get in the way and charge more, but why? Warren Buffet lives in the same house he bought 50 years ago. What is he doing with all that extra monty? playing with it. I could play with $10,000 just as easily as $10M. I live a simple life and would be content with a $78M monthly profit (per my example)

[Oregone]

49. And you are typing on a computer, and not on a Yacht being fed grapes by naked models

Ask some of those Yacht goers (aka Health Insurance Shareholders/Execs) what they think about this.

[Sheepshank]

53. Ahh right gotcha *wink*

the premis is that we need to teach those insurance execs the simple life is desireable and that grape peeling enslavement is not nice.

[Romulox]

57. Corporate directors have a "fiduciary responsibility" to maximize profits.

There is no such thing as "enough" in corporate logic. Corporate directors have a legal duty to maximize profit.

[Sheepshank]

73. Was the original premis

that this company was supposed to be corporation, with directors? Nope, then the argument is null and void.

I think the legal responsibility of turning the biggest possible profit, is a narrow requirement based on the articles of incorporation, the contractual agreement with directorship, if it's a publically offered corporation, and the purpose of the company. If I set up as a sole officer S-Corp I can do what I want and how I want it done.

[Romulox]

78. Yes, an insurance company will be organized as a corporation.

And the word is "premise"!

"If I set up as a sole officer S-Corp I can do what I want and how I want it done."

Do you know of many S corps which offer group health? Bizarre response.

[Uncle Joe]

59. Warren Buffet is an exception to the rule.

I commend you on your enlightenment but if I listed all those people and/or corporations addicted to greed, this post would never end.

Enron and Bernie Madoff are two quick ones that come to mind, Enron screwed the entire state of California and was recorded joking about it.

[Sheepshank]

74. hardly people wirth of emulatation

I agree that greed tends to be rampant. I just don't agree that because this vice is so difficult to control (on a personal level) that it should be accepted as the standard.

[Uncle Joe]

77. I agree, greed is rampant, but why would a basic fundamental truth regarding the human condition

on a micro level not apply to the macro level.

A corporation's prime directive is to maximize profit by any legal means, while searching for every loophole; to take advantage of whether tax or legal.

I don't believe that dynamic is 100% ironclad, but I would certainly put it in the vast majority.

Since we both agree that greed is rampant at least on a personal level and that it is indeed a vice, why should an illogical, dysfunctional and redundant industry having nothing to do with health care be enshrined as having a legal right to make a profit from the American Peoples' injury, illness and death?

[mmonk]

65. It would depend on the costs.

Also, salaries and compensation are already taken out of (before) net profit. So the 15% is beyond that.

[Oregone]

70. And if the company can control costs directly

The higher the cost of production, the more they can charge, and the more they can profit.

[Uncle Joe]

72. I appreciate your contributions to this thread.

:thumbsup:

[Oregone]

76. Thanks. Right back at you.

Im confused why more people can't see the obvious issues. I totally understand what they are trying to do with this technocratic bandaid (but I also have problems with the ethical implications of allowing such overhead and subsidizing it in the first place). Yes, it could work to make companies more efficient, just as it could create an incentive to raise rates (or some combination).

By no means do I think it is right to allow them to take whatever cut they want. But allowing them to set the "size of the pie" when limiting their slice is absurd. If this bill just *has* to have private industry involved, it should of followed the path of some European models and reduced them to paper pushers. Im not sure why the government cannot regionally negotiate rate ranges for the insurers to be bound to.

[mmonk]

75. You got it.

[tech9413]

67. I don't think a guaranteed profit is realistic or ethical

Any business takes a risk to be profitable in a certain period of time. There is no way to read the future and adjust your operations without some margin of error.

If I were to get involved in a business that had the potential for 15% profit, I'd feel like a fat cat having it's belly scratched. Anyone who buys into the idea of "guaranteed" profit is a fool who will probably lose most of their money.