The Affordable Care Act kept profit margins in check by requiring companies to use at least 80 percent of the premiums for medical care. That's good in theory, but it actually contributes to rising health care costs. If the insurance company has accurately built high costs into the premium, it can make more money. Here's how: Let's say administrative expenses eat up about 17 percent of each premium dollar and around 3 percent is profit. Making a 3 percent profit is better if the company spends more.Read the whole thing. It's infuriating.
It's as if a mom told her son he could have 3 percent of a bowl of ice cream. A clever child would say, "Make it a bigger bowl."
Wonks call this a "perverse incentive."
Politicians, particularly on the left, are complete idiots when it comes to understanding economic incentives. They should never be allowed to create incentive structures for vast swaths of the economy.