A Bad Case of Incentives→

Health care costs are notoriously difficult to estimate. This hold true for consumers, who can’t predict what may befall them, nor what a doctor or hospital will charge them — even anticipated events like delivering a baby or proceeding with an elective surgery are maddeningly opaque to budget for. It also holds true for health insurers trying to predict all the claims that they will be obligated to pay. They know what their contracted rates are, but everything from the availability of flu vaccines to economic recession to new regulations to actual consumer and provider behaviors can make for unexpected swings in what they owe.

But adding to this heady brew are regulated agreements that reward insurers for over-estimating what they will owe on drug costs for their Medicare members.