Category Archives: Profit Model

Is Health Insurer Criticism Justified?

Posted on by • Posted in 2026 Mid Term Election Issues, 2028 Election Issues, ACA, ACA Premiums, Access & Quality of Healthcare, Health Insurance Coverage Adequacy, Health Insurance Denial, Health Insurance Industry, Health Policy, Healthcare Reform, Medicare Advantage, Profit, Profit Margin, Profit Model, Profit Motive, Underinsured, Uninsured • Tagged , , , , • Leave a comment
Is Health Insurer Criticism Justified?

Since the murder of UnitedHealth executive Brian Thompson in New York City December 4, 2024, attention to health insurers has heightened. National media coverage has been brutal. Polls have chronicled the public’s disdain for rising premiums and increased denials. Hospitals and physicians have amped-up campaigns against prior authorization and inadequate reimbursement. For many health insurers, no news is a good news day. Here’s ChatGPT’s reply to how insurers are depicted:

“Media coverage of US health insurers focuses heavily on the challenges consumers face due to high costs, coverage denials, and complicated policies, often portraying insurers as profit-driven entities that hinder care access. Investigations reveal insurers using technology to deny claims and push for denials during prior authorization, while other reports highlight market concentration and the increasing influence of large companies like UnitedHealth Group and Centene. Media also covers the marketing efforts of insurers, particularly for Medicare Advantage plans, and public frustration with the industry. “

In some ways, it’s understandable. Insurance, by definition, is a bet, especially in healthcare. Private policyholders—individuals and employers– bet the premiums they pay pooled with others will cover the cost of a condition or accident that requires medical care. In the 1960’s, federal and state government made the same bet on behalf of seniors (Medicare) and lower-income or disabled kids and adults (Medicaid). But they’re bets.

But the rub is this: what healthcare products and services costs and their prices are hard to predict and closely-guarded secrets in an industry that declares itself the world’s best. Claims data—one source of tracking utilization—is nearly impossible to access even for employers who cover the majority of U.S. population (56%).

Spending for U.S. healthcare is forecast to increase 54% through 2033 from $5.6 trillion to $8.6 trillion— the result of higher costs for prescription drugs and hospital stays, medical inflation, technology, increased utilization (demand) and administrative costs (overhead). Insurers negotiate rates for these, add their margin and pass them thru to their customers—individuals, employers and government agencies. It’s all done behind the scenes.

The public’s working knowledge of how the health system operates, how it performs and what key players in the ecosystem do is negligible. For most, personal experience with the system is their context. We understand our personal healthiness if so inclined or fortunate to have a continuous primary care relationship. We understand our medications if they solve a problem or don’t. We understand our hospitals if we or a family member use them or occasionally visit, and we understand our insurance when we enroll choosing from affordable options that include the doctors and hospitals we like and when we’re denied services or billed for what insurance doesn’t cover.

Today, corporate names like UnitedHealth Group, Humana, Cigna, Elevance, CVS Aetna and Centene are the health insurance industry’s big brands, corralling more than 60% of the industry’s private and government enrollment with the rest divided among 1,149 smaller players. Today, the public’s perception of health insurers is negative: most consider insurance a necessary evil with data showing it’s no guarantee against financial ruin. Today, it’s an expensive employee benefit for employers who are looking for alternative options for workforce stability. And only 56% of enrollees trust their health insurer to do what’s best for them.

Ours is a flawed system that’s not sustainable: insurers are part of that problem.  It’s premised on dependence: patients depend on providers to define their diagnosis and deliver the treatments/therapeutics and enrollees depend on insurers to handle the logistics of how much they get paid and when. At the point of service, patients pay co-pays and after the fact, get an “explanation of benefits” along with additional out of pocket obligations. Hospitals and physicians fight insurers about what’s reasonable and customary compensation, and patients unable to out-of-pocket obligations are handed off to “revenue cycle specialists” for collection. Wow. Great system! Mark it up, pass it thru and let the chips fall where they may—all under the presumed oversight of state insurance commissioners who are tasked to protect the public’s interests.

Do insurers deserve the animosity they’re facing from employers, hospitals, physicians and their enrollees?  Yes, but certainly some more than others. Facts are facts:

  • Since 2020, health insurance premium costs have increased 2-4 times faster than household necessities and wages for the average household. Affordability is an issue.
  • Denials have increased.
  • Enrollee trust and satisfaction with insurers has plummeted.
  • And industry profits since 2023 have taken a hit due to post-pandemic pent-up demand, pricey drugs including in-demand GLP-1’s for obesity and increased negotiation leverage by consolidated health systems.

Most Americans think not having health insurance is a bigger risk than going without. But most also think healthcare is fundamental right and the government should guarantee access through universal coverage.

Having private insurance is not the issue: having insurance that ensures access to doctors and hospitals when needed reliably and affordably is their unmet need.

In the weeks ahead, employers will update their employee health benefits options for next year while facing 9-15% higher costs for their coverage. States will decide how they’ll implement work requirements in their Medicaid programs and assess the extent of lost coverage for millions. Insurers who sponsor market place plans suspended by the Big Beautiful Bill will raise their individual premiums hikes 20-70% for the 16 million who are losing their subsidies.

Medicare Advantage (Medicare Part C) insurers will skinny-down the supplements in their offerings and raise premiums alongside Part D increases, And, every insurer will inventory markets served and product portfolio profitability to determine investment opportunities or exit strategies. That’s the calculus every insurer applies every year, adjusting as conditions dictate.

Most private insurers pay little attention to the 8% of Americans who have no coverage; those inclined tend to be smaller community-based plans often associated with hospitals or provider organizations.

Most are concerned about continuity of care for their enrollees: they know 12% had a lapse in their coverage last year, 23% are under-insured and 43% missed a scheduled appointment or treatment due to out-of-pocket costs involved.

And all are concerned about the long-term financial viability of the entire health insurance sector: margins have plummeted since 2020 from 3.1% to 0.8%%, medical loss ratio’s have increased from 98.2% in 2023 to 100.1% last year, premiums increase grew 5.9% while hospital and medical expenses grew $8.9% and so on. The bigger players have residual capital to diversify and grow; others don’t.

Criticism of the health insurance industry is justified for the most part but the rest of the story is key. The U.S. system is broken and everyone knows it. But health insurers are not alone in bearing responsibility for its failure though their role is significant.

The urgent need is for a roadmap to a system of health where the healthiness and well-being of the entire population is true north to its ambition. It’s a system that’s comprehensive, connected, cost-effective and affordable. Protecting turf between sectors, blame and shame rhetoric and perpetuation of public ignorance are non-starters.

PS: Two important events last week weigh heavily on U.S. healthcare’s future:

In Verona, WI, the Epic User Group Meeting showcased the company’s plans for AI featuring 3 new generative AI tools — Emmie for patients, Art for clinicians and Penny for revenue cycle management. Per KLAS, the private company grew its market share to 42% of acute care hospitals and 55% of acute care beds at the end of 2024.

In Jackson Hole, WY, the Federal Reserve Bank of Kansas City’s annual economic symposium where Fed Chair Jay Powell signaled a likely interest rate cut in its September 16-17 meeting and changes to how the central bank will assess employment status going forward.

Healthcare is labor intense, capital intense and 26% of federal spending in the FY 2026 proposed budget. The Fed through its monetary policies has the power and obligation to foster economic stability. Epic is one of a handful of companies that has the potential to transform the U.S. health system.  Transformation of the health system is essential to its sustainability and necessary to the U.S. economic stability since healthcare is 18% of the country’s GDP and its biggest private employer.

Self-dealing: Illegal in Most Industries, Rampant in Health Insurance

Posted on by • Posted in Health Insurance Industry, Medical Loss Ratio (MLR), Monopoly, Monopoly Behavior, Profit Margin, Profit Model, Profit Motive, Self Dealing • Tagged , , , , • Leave a comment
https://healthcareuncovered.substack.com/p/self-dealing-illegal-in-most-industries?utm_source=post-email-title&publication_id=255152&post_id=171376851&utm_campaign=email-post-title&isFreemail=true&r=59t65&triedRedirect=true&utm_medium=email

Self-dealing is illegal in banks, real estate, and investment firms, but in health insurance, it’s not only legal, it’s widespread. Large insurers have spent decades consolidating the U.S. health care system, acquiring medical practices, pharmacies, and pharmacy benefit managers, all while sidestepping rules meant to protect patients and taxpayers.

For example, UnitedHealth Group has 2,694 subsidiaries, as documented in the Center for Health and Democracy’s Sunlight Report on UnitedHealth Group. Within this conglomerate, there are 589 clinician practice locations across 32 states acquired between 2007 and 2023. UnitedHealth Group also has 24 subsidiary pharmacy benefit managers and over 30 subsidiary pharmacies. Data and insider accounts suggest that UnitedHealth Group and other vertically integrated insurers engage in self-dealing to increase profits. The ways these subsidiaries interact closely resembles self-dealing practices that are prohibited by law in other industries, such as banking, real estate, and investment firms.

As Dr. Seth Glickman and I have explained in earlier pieces, when a health insurer owns or controls medical practices, pharmacy benefit managers, or pharmacies, it can circumvent medical loss ratio (MLR) regulations. MLR rules require insurance companies to spend 80–85% of premium dollars on medical costs, leaving the remainder for administrative fees and profits. Unitedhealth Group, for instance, reportedly pays its own subsidiary providers above-market rates for medical services. These payments count as “medical costs” under MLR rules, yet the subsidiaries retain the excess as profit. Similarly, when a patient uses Optum Rx, a UnitedHealth Group subsidiary, or a subsidiary pharmacy, the fees added by the PBM are counted as medical costs, even though they are retained as profit by the parent company.

In banking, such actions are expressly prohibited. Consider a bank CEO who owns a real estate development company and seeks a loan for a risky project. If the bank lends to the CEO’s company at a below-market interest rate, the loan violates federal law and could trigger millions in fines as well as civil and criminal charges for both the CEO and the bank. This scenario parallels UnitedHealth Group’s current operations. In both cases, customer money (depositor funds in a bank; premium dollars in insurance) is used to funnel profit to insiders or affiliates, bypassing the market discipline that governs arm’s-length transactions.

Real estate law similarly prohibits self-dealing. Imagine a real estate agent hired to sell a client’s home who secretly buys the property through an affiliate at a lower price than the market reflects. By underrepresenting the home’s value, the agent enriches themselves at the client’s expense. This violates state real estate laws and common law fiduciary duties. The parallel in Insurance is clear: insurers pay inflated prices to their owned practices, driving up care costs and premiums. In both cases, the fiduciary is using client assets (property or premium dollars) to generate hidden profits for themselves or their affiliates, avoiding fair-market competition.

Investment advisers are also prohibited from similar practices. If you hire a broker to get the best price for a stock trade, the broker cannot quietly route the trade to an affiliate at a worse price so the affiliate profits. Even small losses per trade scale into substantial gains for the broker’s affiliate, all at the client’s expense. These actions violate the Investment Advisers Act of 1940, the Securities Exchange Act of 1934, and SEC rules when proper disclosure or consent is not obtained. Similarly, insurers use premium dollars to channel profits to subsidiaries instead of relying on competitive market pricing.

The stark parallels between self-dealing in banks, real estate, and investment brokerages, which Congress regulated decades ago, and health insurance are damning. Health insurance conglomerates have built empires on paying themselves to the detriment of patients and taxpayers. Congress must act to regulate this type of self-dealing in insurance as it does in other industries.

Moreover, the depth of insurer control over the patient care system necessitates regulations to prevent vertical monopolies, where insurers dominate every stage of care delivery.

As Americans Struggled, Health Insurers Made a Record-Breaking $71.3 Billion in Profits

Posted on by • Posted in 2026 Mid Term Election Issues, 2028 Election Issues, Health Insurance Industry, Health Policy, Healthcare Reform, High Premiums, High Prices, Monopoly, Monopoly Behavior, Profit, Profit Margin, Profit Model, Profit Motive • Tagged , , , , • Leave a comment
https://healthcareuncovered.substack.com/p/as-americans-struggled-health-insurers?utm_source=post-email-title&publication_id=255152&post_id=170288533&utm_campaign=email-post-title&isFreemail=true&r=59t65&triedRedirect=true&utm_medium=email

Ahead of my Congressional testimony last week before the Senate HELP committee, I compiled data on the profits, revenues and CEO compensations of big health insurers in 2024. The curiosity from senators on both sides of the aisle signaled, to me, that lawmakers are as interested as I’ve ever seen in the industry’s rampant profiteering.

What I found was that the seven biggest publicly traded health insurance companies collectively made $71.3 billion in profits, up more than half a billion dollars from 2023. All while millions of Americans continued to skip their medications, rationed insulin and delayed care due to insurers’ out-of-pocket demands.

Let’s break it down.

You won’t be surprised to learn that shareholders are not the only ones benefiting from the care-restricting barriers insurers have erected to boost profits. The CEOs of those seven companies took home a combined $146.1 million in 2024 compensation. That’s enough to cover annual premiums for thousands of American families.

Here’s what the top brass made:

Meanwhile, patients across the country report increasing out-of-pocket costs, more aggressive prior authorizations and narrower provider networks. But for these executives, the real measure of success is how high they can push their stock prices and not how many people can afford to see a doctor.

So, What’s Driving the Revenue Surge?

One word: Gouging.

Insurers continued to jack up premiums for their commercial customers and overcharge the government. Despite watchdog warnings, Uncle Sam continues to pour money into private Medicare Advantage plans even as audits and investigations uncover widespread fraud and upcoding. And Medicaid managed care is a gold mine, too. These insurers now dominate state Medicaid contracts and can quietly extract billions through behind-the-scenes ownership of pharmacies, PBMs and providers.

It’s not just health insurance anymore — it’s a monopolized empire.

All that said, to the dismay of shareholders, the big seven insurers have had to admit that so far in 2025, they’ve paid more medical claims than they had expected, which means their profits were down somewhat during the first months of the year. I’ll shed more light on that in a future post. No need for you to shed any tears for them, though, because we’re still talking billions and billions in profits.

So if you’re wondering why your premiums, deductibles and costs at the pharmacy counter keep going up — just look at those 2024 numbers. We all paid more for health insurance and got less for the hard-earned money we had to shovel out for our “coverage.” 

And expect even more financial pain (and difficulty getting the care you need) as these companies do all they can to get their profit margins back to where Wall Street wants them.

Inside the Midyear Panic at UnitedHealth

Posted on by • Posted in 2026 Mid Term Election Issues, 2028 Election Issues, Health Insurance Coverage Adequacy, Health Insurance Denial, Health Insurance Industry, Health Insurance Pre Authorization, Health Insurance Premiums, Health Policy, Healthcare Reform, High Premiums, Medical Loss Ratio (MLR), Medicare Advantage, Medicare Advantage Denials, Medicare Advantage Overpayments, Out of Network, Out of Pocket Expenses, Profit, Profit Margin, Profit Model, Profit Motive, UnitedHealth Group, UnitedHealthcare • Tagged , , , , • Leave a comment

https://healthcareuncovered.substack.com/p/inside-the-midyear-panic-at-unitedhealth

Imagine you’re facing your midyear performance review with your boss. You dread it, even though you’ve done all you thought possible and legal to help the company meet Wall Street’s profit expectations, because shareholders haven’t been pleased with your employer’s performance lately.

Now let’s imagine your employer is a health insurance conglomerate like, say, UnitedHealth Group. You’ve watched as the stock price has been sliding, sometimes a little and on some days crashing through lows not seen in years, like last Friday (down almost 5% in a single day, to $237.77, which is down a stunning 62% since a mid-November high of $630 and change).

You know what your boss is going to say. We all have to do more to meet the Street’s expectations. Something has changed from the days when the government and employers were overly generous, not questioning our value proposition, always willing to pick up the tab and pay many hidden tips, and we could pull our many levers to make it harder for people to get the care they need. 

Despite government and media reports for years that the federal government has been overpaying Medicare Advantage plans like UnitedHealth’s – at least $84 billion this year alone – Congress has pretended not to notice. There is evidence that might be changing, with Republicans and Democrats alike making noises about cracking down on MA plans. 

Employers have complained for ages about constantly rising premiums, but they’ve sucked it up, knowing they could pass much of the increase onto their workers – and make them pay thousands of dollars out of their own pockets before their coverage kicks in. Now, at least some of them are realizing they don’t have to work with the giant conglomerates anymore.

Doctors and hospitals have complained, too, about burdensome paperwork and not getting paid right and on time, but they’ve largely been ignored as the big conglomerates get bigger and are now even competing with them.

UnitedHealth is the biggest employer of doctors in the country. But doctors and hospitals are beginning to push back, too. 

Since last fall, UnitedHealth and its smaller but still enormous competitors have found that “headwinds” are making it harder for them to maintain the profit margins investors demand. That is mainly because, despite the many barriers patients have to overcome to get the care they need, many of them are nevertheless using health care, often in the most expensive setting – the emergency room. They put off seeing a doctor so long because of insurers’ penny-wise-pound-foolishness that they had some kind of event that scared them enough to head straight to the ER. 

It’s not just you who is dreading your midyear review. Everybody, regardless of their position on the corporate ladder, and even the poorly paid folks in customer service, are in the same boat. And so is your boss. Nobody will put the details of what has to be done in writing. They don’t have to. Your boss will remind you that you have to do your part to help the company achieve the “profitable growth” Wall Street demands, quarter after quarter after quarter. It never, ever ends. You know this because you and most other employees watch what happens after the company releases quarterly financials. You also watch your 401K balance and you see the financial consequences of a company that Wall Street isn’t happy with. And Wall Street is especially unhappy with UnitedHealth these days.

And when things are as bad as they are now at UnitedHealth’s headquarters in Minnesota, you know that a big consulting firm like McKinsey & Company has been called in, and that those suits will recommend some kind of “restructuring” and changes in leadership to get the ship back on course. You know the drill. Everybody already is subject to forced ranking, meaning that at the end of the year, some of your colleagues, regardless of job title, will fall below a line that means automatic termination. You pedal as fast as you can to stay above that line, often doing things you worry are not in the best interest of millions of people and might not even be lawful. But you know that if you have any chance of staying employed, much less getting a raise or bonus, you have to convince your superiors you are motivated and “engaged to win.” No one is safe. Look what happened to Sir Andrew Witty, whose departure as CEO to spend more time with his family (in London) was announced days after shareholders turned thumbs down on the company’s promises to return to an acceptable level of profitability. 

If you are at UnitedHealth, you listened to what the once and again CEO, Stephen Hemsley, and CFO John Rex, who got shuffled to a lesser role of “advisor” to the CEO last week, laid out a new action plan to their bosses – big institutional investors who have been losing their shirts for months now. You know that what the C-Suite promised on their July 29 call will mean that you will have to “execute” to enable the company to deliver on those promises. And you know that you and your colleagues will have to inflict a lot more pain on everybody who is not a big shareholder – patients, taxpayers, employers, doctors, hospital administrators. That is your job. And you will try to do it because you have a mortgage, kids in college and maxed-out credit cards.  

Here’s what Hemsley and his leadership team said, out loud in a public forum, although admittedly one that few people know about or can take an hour-and-a-half to listen to:

  • Even though UnitedHealth took in billions more in revenue, its margins shrank a little because it had to pay more medical claims than expected.
  • Still, the company made $14.3 billion in profits during the second quarter. That’s a lot but not as much as the $15.8 billion in 2Q 2024, and that made shareholders unhappy.
  • Enrollment in its commercial (individual and employer) plans increased just 1%, but enrollment in its Medicare Advantage plans increased nearly 8%. That’s normally just fine, but something happened that the company’s beancounters couldn’t stop.
  • Those seniors figured out how to get at least some care despite the company’s high barriers to care (aggressive use of prior authorization, “narrow” networks of providers, etc.)

To fix all of this, Hemsley and team promised:

  • To dump 600,000 or so enrollees who might need care next year
  • To raise premiums “in the double digits” – way above the “medical trend” that PriceWaterhouseCoopers predicts to be 8.5% (high but not double-digit high)
  • Boot more providers it doesn’t already own out of network
  • Reduce benefits

Throughout the call with investors (actually with a couple dozen Wall Street financial analysts, the only people who can ask questions), Hemsley and team went on and on about the “value-based care” the company theoretically delivers, without providing specifics. But here is what you need to know: If you are enrolled in a UnitedHealth plan of any nature – commercial, Medicare or Medicaid or VA (yes, VA, too) – expect the value of your coverage to diminish, just as it has year after year after year.  

The term for this in industry jargon is “benefit buydown.”

That means that even as your premiums go up by double digits, you will soon have fewer providers to choose from, you likely will spend more out-of-pocket before your coverage kicks in, you might have to switch to a medication made by a drug company UnitedHealth will get bigger kickbacks from, and you might even be among the 600,000 policyholders who will get “purged” (another industry term) at the end of the year.

Why do we and our employers and Uncle Sam keep putting up with this?

Yes, we pay more for new cars and iPhones, but we at least can count on some improvements in gas mileage and battery life and maybe even better-placed cup holders. You can now buy a massive high-def TV for a fraction of what it cost a couple of years ago. Health insurance? Just the opposite. 

As I will explain in a future post, all of the big for-profit insurers are facing those same headwinds UnitedHealth is facing. You will not be spared regardless of the name on your insurance card. If you still have one come January 1. Pain is on the way. Once again. 

How Drug Prices Got So Bloated

Posted on by • Posted in Health Policy, Healthcare Reform, Hidden Fees, High Drug Prices, Optum Rx, Pharmaceutical Industry, Pharmacy Benefits Management, Profit, Profit Margin, Profit Model, Profit Motive, Shareholder Expectations, UnitedHealthcare, Wall Street • Tagged , , , , • Leave a comment
https://healthcareuncovered.substack.com/p/how-drug-prices-got-so-bloated?utm_source=post-email-title&publication_id=255152&post_id=169171522&utm_campaign=email-post-title&isFreemail=true&token=eyJ1c2VyX2lkIjo4ODU1Nzg5LCJwb3N0X2lkIjoxNjkxNzE1MjIsImlhdCI6MTc1MzQ0OTUxNiwiZXhwIjoxNzU2MDQxNTE2LCJpc3MiOiJwdWItMjU1MTUyIiwic3ViIjoicG9zdC1yZWFjdGlvbiJ9.duxGPDH1QMjULHWG9_pg6FQdsvj19UocpbArG67oe7Q&r=59t65&triedRedirect=true&utm_medium=email

It’s no secret the brand name prescription drug costs are high. The rising costs have been blamed by health care analysts on kickbacks within the drug supply chain demanded by the federal government, drug distributors (wholesalers), health insurance companies and pharmacy benefit managers (PBMs).

This month we got a look at just how bloated brand-name drug prices have become in the United States thanks to an analysis from the Drug Channels Institute (DCI).

How about $356 billion worth of pure glut in the prescription drug supply chain, according to the analysis by DCI. Simply put, the market price established for these drugs by manufacturers has $356 billion worth of markups that mainly accommodate the financial demands (i.e. kickbacks or rebates) of groups that profit off the prescription drug system in the United States, health insurers and their PBMs in particular.

 And that’s an all-time record.

Why?

Get ready to choke on your popcorn.

In the 1990s the federal government mandated in the Medicaid program that drug manufacturers offer a minimum rebate of 23% off the purchase price of brand name drugs. The feds also mandated that if drug manufacturers offer a better rebate on those drugs to someone else, the government also gets that same rebate.

The thought was no one gets a better deal than the federal government.

Medicaid then began to expand in the 2000s and the rebates and the demands increased.

Rebates expanded again as PBMs continued to gain more control over the drug supply chain. The PBMs now force drug manufacturers to offer significant concessions in order to get on the list of approved medications – known as a formulary – available to patients with health insurance.  

To account for these demands, drug manufacturers set the list price for their brand name drugs with these price concessions baked into the number.

DCI’s analysis found that baking is $356 billion of goodies for health care companies paid for by the government and you.

It’s the same kind of concept as a U.S. popular clothing retailer that displays inflated retail costs on the tags of goods and then right below displaying a lower “sale” price to make the consumer think they got a deal.

Here’s another way of thinking of it: Just like Congress has a lot of “pork” in its spending bills, there’s also a lot of pork in prescription drug costs that have very little to do with anything, other than increase profits for the health care industry.

Though the federal government intended to create a better system for taxpayers back in the 1990s when it demanded rebates in the Medicaid system, it instead created a feeding frenzy for companies in the drug supply chain.

In the year 2000 just a handful of companies in the drug supply chain dotted the Fortune 100 list of most financially successful companies. Today there are four such companies in the top 10.

The Minnesota-based health care conglomerate UnitedHealth leads that pack. The company’s profits have soared in the last two decades largely due to increasing medical costs and prescription drug costs paid by Americans. It has leaped over companies like Exxon Mobile and Apple to become the third largest company in America. Only Walmart and Amazon take in more revenue.

The company employs more than 400,000, including doctors and clinicians and has its own pharmacy benefits manager called Optum Rx.

We reported last month that Americans spent $464 billion last year on prescription drugs. That was also an all-time record, which will likely be set again and again and again until reforms are enacted.

How Health Insurance Monopolies Affect Your Care

Posted on by • Posted in Competition, Competition on Price, Competitive Bidding, Health Insurance Denial, Health Insurance Industry, Health Insurance Pre Authorization, Market Consolidation, Market Failure, Market Power, Market Share, Monopoly, Monopoly Behavior, Profit, Profit Margin, Profit Model, Profit Motive • Tagged , , , , • Leave a comment
https://time.com/7302346/health-insurance-monopolies-patient-care/?utm_source=beehiiv&utm_medium=email&utm_campaign=newsletter-health-matters&_bhlid=b8ef51635479257a1d1d099c9581345a28c94b91

Not long ago, Dr. Richard Menger, a neurosurgeon, was ready to operate on a 16-year-old with complex scoliosis. A team of doctors had spent months preparing for the surgery, consulting orthopedists and cardiologists, even printing a 3D model of the teen’s spine.

The surgery was scheduled for a Friday when Menger got the news: the teen’s insurer, Blue Cross Blue Shield of Alabama, had denied coverage of the surgery. 

It wasn’t particularly surprising to Menger, who has been practicing in Alabama since 2019. Alabama essentially has one private insurer, Blue Cross Blue Shield of Alabama, which has a whopping 94% of the market of large-group insurance plans, according to the health policy nonprofit KFF. That dominance allows the insurer to consistently deny claims, many doctors say, charge people more for coverage, and pay lower rates to doctors and hospitals than they would in other states.

“It makes the natural problems for insurance that much more magnified because there’s no market competition or choice,” says Menger, who in 2023 wrote an op-ed in 1819 News, a local news site, arguing that ending Blue Cross Blue Shield of Alabama’s health insurance monopoly would make people in the state healthier.

Blue Cross Blue Shield of Alabama also has the largest share of individual insurance plans in the state, according to data from the Centers for Medicaid & Medicare Services. Perhaps not coincidentally, Alabama also had the highest denial rates for in-network claims by insurers on the individual marketplace in 2023, according to a KFF analysis: 34%. Neighboring Mississippi, where the majority insurer has less of the market share at 81%, has an average denial rate of 15%.

Alabama is an extreme case, but people in many other states face health insurance monopolies, too. One insurer, Premera Blue Cross Group, has a 94% share of the large-group market in Alaska, and Blue Cross Blue Shield of Wyoming has a 91% market share in that state. In 18 states, one insurer has 75% or more of the large-group health insurance marketplace, according to KFF data.

These monopolies drive up costs, says Leemore Dafny, a professor at Harvard Business School and Harvard Kennedy School who has long studied competition among health insurance companies and providers.

“More competitors tend to drive lower premiums and more generous benefits for consumers,” she says. “There’s a lot of concern from analysts like myself about concentration in a range of sectors, including health insurance.”

Bruce A. Scott, the immediate past president of the American Medical Association, has said that when the dominant insurer in his state of Kentucky was renegotiating its contract with his medical group, it offered lower rates than it had paid six years before. “This same type of financial squeeze play is found nationwide, and its frequency has been exacerbated by health insurance industry consolidation,” he wrote in The Hill in 2023.

What happened to competition? There used to be a lot more regional health insurers, Dafny says. But as costs started to rise, they didn’t have enough leverage to negotiate prices down with providers and stay profitable. As a result, many were happy to be acquired by larger companies. Then hospitals and doctor’s offices merged to get more leverage against the bigger insurers. Now, there’s a lot of concentration among both provider groups and insurers.

“None of this had anything to do with taking better care of patients,” she says. “It had to do with trying to get the upper hand.” 

In a statement to TIME, Blue Cross Blue Shield of Alabama said that it was working to make the prior authorization process more transparent and reverse the requirement of prior authorization for certain in-network medical services. It will attempt to answer at least 80% of requests for prior authorization in near real-time by 2027, it says. (A coalition of major health insurers recently vowed to fix their prior authorization processes under pressure from the federal government.)

The insurer also says it welcomes competition. “We know Alabamians have a choice when it comes to choosing their health insurance carrier and we don’t take that for granted,” a spokesperson said in the statement. In the commercial and underwritten market—which represents the bulk of its business—Blue Cross Blue Shield Alabama competes with four other companies that sell individual, family, and group plans, the company says, and it competes with 68 companies who sell Medicare plans in Alabama. Its success in the state is partly because it sells policies in every county in Alabama, the insurer says, while others do not. 

Other casualties of such a concentrated health-insurance marketplace are rural hospitals and providers. Small rural hospitals are often independent and have not merged with other systems like many of their large urban counterparts, so they have an even harder time negotiating with the one big insurer in the state, says Harold Miller, president and CEO of the Center for Healthcare Quality and Payment Reform, a national policy center that studies health-care costs. That means big insurers will often refuse to cover procedures or pay lower prices for services.

“I’ve had rural hospitals tell me they can’t even get the health plan on the phone,” Miller says.

In the past decade, the Department of Justice has stopped some mergers, but has not been very aggressive at stopping consolidation in the health-care industry, Dafny says. That may be in part because the courts require a high standard of evidence to block a transaction, and the government might have been worried it would have lost whatever cases it brought.

A few factors prevent insurers with a monopoly from driving costs too high, says Benjamin Handel, an economics professor at the University of California, Berkeley who studies health care. One is a regulation called minimum loss ratio that essentially requires insurers to spend a certain share of what they earn from premiums on medical care. Another is that an insurer with a monopoly that angers consumers might attract attention from regulators, he says.

Of course, there’s not a whole lot regulators can do to make a marketplace more competitive. A state could try to incentivize more insurers to enter their states with tax breaks or other sweeteners, but it’s very hard to enter a market and offer low rates right away. The establishment of the health-care marketplaces in the Affordable Care Act allowed new entrants, Dafny says, but many of them did not survive.

Menger, the Alabama doctor, says that he and his colleagues—and therefore their patients—are basically stuck. His staff has to spend 10-15 hours a week negotiating with the insurer to get prior authorizations that sometimes don’t come, even while patients pay higher premiums. 

The teenage boy eventually got approved for the scoliosis surgery, but not after the family went through a lot of stress with postponements and uncertainty. “I think it’s pretty clear that the more competition, the better things are,” Menger says. “This prior authorization nonsense is really hurting patients.”

From Nonprofit Blues to Wall Street Blues: Elevance’s Stock Points Down

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Elevance, which owns Blue Cross plans, is now reeling from Wall Street losses thanks to its Medicare Advantage business.

The company now known as Elevance, which owns Blue Cross plans in 14 states, took a drubbing on Wall Street yesterday after executives told shareholders that it had to pay out way more in medical claims during the second quarter than expected, especially in its Medicare Advantage business. As a reminder, Wall Street hates to hear such news, so much so that investors rushed to sell their shares in the company, sending the stock price to $296.39 – a 52-week low – before closing at $302.45 yesterday afternoon. That’s down 47% from the all-time high of $567.36 it reached last September.

The news was so distressing for people who still have investments in for-profit health insurers that many of them finally bailed, getting the message that the entire sector is likely not the best place to make money these days. All seven of the companies (Centene, Cigna, CVS/Aetna, Elevance, Humana, Molina and UnitedHealth) saw big drops in their stock price with two others (Centene and Molina) also falling to 52-week lows. The companies’ stock is continuing to tank today as I write this.

When Denial Becomes a Liability

UnitedHealth has historically been the first of the companies to release quarterly earnings, but it stepped back as leader of the pack this quarter after that giant’s recent troubles on Wall Street. UnitedHealth missed financial analysts’ profit expectations last quarter and withdrew its profit guidance for the year, an unprecedented move for that company, which terrified its shareholders. UnitedHealth’s stock price has lost nearly 55% of its value since reaching a high of $630.73 last November.

Like UnitedHealth, Elevance had been a Wall Street darling until a business practice common in the health insurance game – refusing to pay for patients’ medically necessary care – finally caught up with it.

I’m talking about prior authorization, the benign sounding term that covers a number of ways a health insurer banks money by saying no to a doctor’s plea to cover a patient’s treatment or medications. The fundamental problem is that by refusing to pay for care a patient needs, that patient likely will get sicker and wind up needing even more expensive care down the road. Insurance company beancounters know that can happen, but they also know there is a decent chance that that potentially high-cost patients will not even be enrolled in one of the company’s health plans when the day finally arrives that they have to go to the hospital, which, of course, might have been avoided if the initial treatment had been approved in the first place.

We’re not just talking about a stay in the hospital. One permutation of prior auth is called step therapy in which an insurer demands that a patient try other medications on the insurer’s list of preferred drugs (its “formulary”) before approving the drug a doctor believes will work best. Sometimes it’s called “fail first.” In other words, a patient must endure pain and suffering for weeks or months taking an ineffective drug on an insurer’s formulary – the price of which the insurer has negotiated to its financial advantage with a drug maker – before the insurer will agree to cover the medication the doctor believes will be more effective. The doctor will then have to persuade the insurer that the insurer’s preferred drug failed. We’ll dive deeper into that insurer-induced nightmare in a future post, but know for now that it is a big and expensive time-suck that doctors have to endure while insurers can keep unused premium dollars in their investment accounts.

The Conversion That Changed Everything

But let’s go back to Elevance, which until recently was called Anthem and before that WellPoint. Many of its subsidiaries still use the term Anthem in its branding, like the biggest under its corporate umbrella, Anthem Blue Cross of California. All of those Blues plans operated on a nonprofit basis until a savvy executive named Leonard Schaeffer, who was CEO of Anthem of California back when it was still a nonprofit, pulled off a deal that would put him on the path to considerable fame and fortune, a first-of-its-kind “conversion” that would prove to be a major reason why the U.S. has the most complex, expensive and inefficient health care system on the planet.

According to his official bio on the website of the Leonard D. Schaffer Fellows in Government Service, which is affiliated with some of the country’s most prestigious universities, Schaeffer was recruited as CEO of Blue Cross of California in 1986 when, we are told, it was near bankruptcy. We’re also told that Schaeffer “managed the turnaround of Blue Cross of California and the IPO (initial public offering, i.e., converting it to for-profit status) creating WellPoint in 1993. During his tenure, WellPoint made 17 acquisitions and endowed four charitable foundations with assets of over $6 billion. Under Schaeffer’s leadership, WellPoint’s value grew from $11 million to over $49 billion.”

One might think from reading that last sentence that Schaeffer himself wrote big personal checks to endow those foundations, but establishing those nonprofit foundations (which includes the California Endowment, the California Health Care Foundation and the California Wellness Foundation) was demanded by California regulators as a condition of their approval of the IPO. The money was referred to as a conversion fund (converting from nonprofit to for-profit status), and it came from the proceeds of the IPO.

But Schaffer did indeed make a ton of money from the deal and WellPoint’s subsequent acquisition by a rival company that also owned recently converted Blues plans, Anthem, in 2004.

One of the organizations that opposed the WellPoint-Anthem deal, Consumer Watchdog, wrote at the time that:

Payments to WellPoint executives after the company’s buyout by Anthem Inc. could top $600 million if regulators and shareholders do not modify the acquisition terms, according to documents received from California regulators by the Foundation for Taxpayer and Consumer rights under a Public Records Act Request late Tuesday.

The documents detail potential payments in excess of those estimated by the company to shareholders at $200 million in a recent proxy. Executives will receive cash bonuses worth between $146 million and $365 million under the proposed terms of the company buyout by Anthem, in addition to over $251 million in stock options. WellPoint CEO Leonard Schaeffer has already begun exercising his stock options as of June 1st at sweetheart prices – earning him $16 million on that one day alone and increasing the size of his shares by hundreds of thousands.

When we look back at the history of health insurance in this country, we can thank this one man for the rapid shifting of Americans out of what historically had been nonprofit health insurance plans that initially were community-rated, meaning they charged everybody the same premium, regardless of gender, health status, occupation or address, and did not use gimmicks like prior authorization to boost profits. Being nonprofits, they couldn’t even book profits, although many of them did amass millions more in “reserves” than regulators required for solvency reasons.

I was working at Cigna when WellPoint joined the club of big for-profit insurers in 1993, along with Aetna, Humana (where I also previously worked), UnitedHealth, which was a relatively small player back then, and giant “multiline” insurers like MetLife, Prudential and Travelers. All of those last three decided to sell their health insurance operations to UnitedHealth and Aetna, putting those companies on the path to becoming the behemoths they are today.

And Schaeffer would wind up being one of America’s richest men, and, to his credit, he has been personally philanthropic. We know that because his name shows up all over the place in U.S. health care think-tank world. Indeed, his name is now associated far more with groups and institutions engaged in public policy than the “platinum parachute,” to use Consumer Watchdog’s term, he got when he and a few colleagues engineered the sale of WellPoint to Anthem. As his bio notes:

In 2009, Schaeffer established the Schaeffer Center for Health Policy and Economics at the University of Southern California, which emphasizes the interdisciplinary approach to research and analysis to support evidence-based health policy. In 2015, he established the Schaeffer Fellows in Government Service program which has supported 418 undergraduates to date in high-level, summer government internships. In 2004, he established the Schaeffer Institute for Public Policy & Government Service. He has also endowed chairs in health care financing and policy at the Brookings Institution, Harvard Medical School, the National Academy of Medicine, UC Berkeley and USC.

If Schaeffer still owns shares in Elevance, he is a bit poorer today than he was yesterday morning, but he’s probably still doing OK. Shares of Elevance’s stock have increased 1731% in value since they started trading on the New York Stock Exchange in October 2001, even with the company’s very bad Thursday on the Street.

DOJ Questions UnitedHealth Doctors Re: Medicare Advantage Upcoding

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I’ve been at this for so long and have seen so much. And it’s hard to overstate how significant the latest revelations from The Wall Street Journal are. According to its reporting, the U.S. Department of Justice’s criminal health care-fraud unit is questioning former UnitedHealth Group employees about the company’s Medicare billing practices regarding how the company records diagnoses that trigger higher payments from taxpayers.

For years, independent policy experts and *some* regulators have warned that the private Medicare Advantage program has become a breeding ground for upcoding and tax dollar waste. The tactic being scrutinized by the DOJ is called “upcoding.” Essentially, Medicare Advantage companies have an incentive to “find” new illnesses — even among patients who might not need additional treatment because the more serious the diagnoses, the bigger the government payouts to the company.

According to the Journal, prosecutors, FBI agents, and the Health and Human Services Inspector General have been asking ex-employees about special training for doctors, software that flags profitable conditions, and even bonuses for physicians who recode patient files. One former UnitedHealth doctor told the Journal that prosecutors inquired about pressure to use certain diagnosis codes and bonus pay for certain health care decisions that financially favored UnitedHealth. 

The Journal’s data shows that UnitedHealth’s members received certain lucrative diagnoses at higher rates than patients in other Medicare Advantage plans — billions of extra dollars that ultimately come from taxpayers. In one example, they reportedly pulled in about $2,700 more taxpayer dollars per patient visit when nurses went into seniors’ homes to hunt for additional conditions.

In a statement, UnitedHealth insists they “remain focused on what matters most: delivering better outcomes, more benefits, and lower costs for the people we serve.”

This latest criminal investigation joins at least two other DOJ probes into UnitedHealth’s billing and potential antitrust violations. And it’s yet another reminder that the Medicare Advantage program — which, much to many advocates alarm, now covers more than half of all Medicare enrollees – is desperately in need of real oversight.

If there’s any silver lining, it’s that courageous former employees are speaking up. They know what I know: This “profit-maximizing” through “upcoding” and “favorable selection” drains billions that could be better spent on actual patient care and pad Wall Street profits.

Gut Punches for Healthcare and Hospitals

Posted on by • Posted in 2026 Mid Term Election Issues, 2028 Election Issues, Bankruptcy, Center for Medicare and Medicaid Services (CMS), Deferred Healthcare, Financially Distressed, Health Insurance Coverage Adequacy, Health Policy, Health System, Healthcare Industry, Hospital, Hospital Industry, Medicaid Cuts, Medical Debt, Out of Pocket Expenses, Politics, Profit, Profit Margin, Profit Model, Profit Motive, Public Opinion, Public Perception, Shareholder Expectations, Sign of the Times, Underinsured, Uninsured, Wall Street • Tagged , , , , • Leave a comment
Gut Punches for Healthcare and Hospitals: The One Big Beautiful Bill Act and the CMS Proposed Rule

The healthcare industry is still licking its wounds from $1 trillion in federal funding cuts included in the One Big Beautiful Bill Act (OBBBA) signed into law July 4.

Adding insult to injury, the Center for Medicare and Medicaid services issued a 913-page proposed rule last Tuesday that includes unwelcome changes especially troublesome for hospitals i.e. adoption of site neutral payments, expansion of hospital price transparency requirements, reduction of inpatient-only services, acceleration of hospital 340B discount repayment obligations and more.

The combination of the two is bad news for healthcare overall and hospitals especially: the timing is precarious:

  • Economic uncertainty: Economists believe a recession is less likely but uncertainty about tariffs, fear about rising inflation, labor market volatility a housing market slowdown and speculation about interest rates have capital markets anxious. Healthcare is capital intense: the impact of the two in tandem with economic uncertainty is unsettling.
  • Consumer spending fragility: Consumer spending is holding steady for the time being but housing equity values are dropping, rents are increasing, student loan obligations suspended during Covid are now re-activated, prices for hospital and physicians are increasing faster than other necessities and inflation ticked up slightly last month. Consumer out-of-pocket spending for healthcare products and services is directly impacted by purchases in every category.
  • Heightened payer pressures: Insurers and employers are expecting double-digit increases for premiums and health benefits next year blaming their higher costs on hospitals and drugs, OBBBA-induced insurance coverage lapses and systemic lack of cost-accountability. For insurers, already reeling from 2023-2024 financial reversals, forecasts are dire. Payers will heighten pressure on healthcare providers—especially hospitals and specialists—as a result.

Why healthcare appears to have borne the brunt of the funding cuts in the OBBBA is speculative: 

Might a case have been made for cuts in other departments? Might healthcare programs other than Medicaid have been ripe for “waste, fraud and abuse” driven cuts? Might technology-driven administrative costs reductions across the expanse of federal and state government been more effective than DOGE- blunt experimentation?

Healthcare is 18% of the GDP and 28% of total federal spending: that leaves room for cuts in other industries.

Why hospitals, along with nursing homes and public health programs, are likely to bear the lion’s share of OBBBA’ cut fallout and CMS’ proposed rule disruptions is equally vexing.  Might the high-profile successes of some not-for-profit hospital operators have drawn attention? Might Congress have been attentive to IRS Form 990 filings for NFP operators and quarterly earnings of investor-owned systems and assume hospital finances are OK? Might advocacy efforts to maintain the status quo with facility fees, 340B drug discounts, executive compensation et al been overshadowed by concerns about consolidation-induced cost increases and disregard for affordability? Hospital emergency rooms in rural and urban communities, nursing homes, public health programs and many physicians will be adversely impacted by the OBBBA cuts: the impact will vary by state. What’s not clear is how much.

My take:

Having read both the OBBBA and CMS proposed rules and observed reactions from industry, two things are clear to me:

The antipathy toward the healthcare industry among the public  and in Congress played a key role in passage of the OBBBA and regulatory changes likely to follow. 

Polls show three-fourths of likely voters want to see transformational change to healthcare and two-thirds think the industry is more concerned with its profit over their care: these views lend to hostile regulatory changes. The public and the majority of elected officials think the industry prioritizes protection of the status quo over obligations to serve communities and the greater good.

The result: winners and losers in each sector, lack of continuity and interoperability, runaway costs and poor outcomes.

No sector in healthcare stands as the surrogate for the health and wellbeing of the population. There are well-intended players in each sector who seek the moral high ground for healthcare, but their boards and leaders put short-term sustainability above long-term systemness and purpose. That void needs to be filled.

The timing of these changes is predictably political. 

Most of the lower-cost initiatives in both the OBBBA changes and CMS proposals carry obligations to commence in 2026—in time for the November 2026 mid-term campaigns. Most of the results, including costs and savings, will not be known before 2028 or after. They’re geared toward voters inclined to think healthcare is systemically fraudulent, wasteful and self-serving.

And they’re just the start: officials across the Departments of Health and Human Services, Justice, Commerce, Labor and Veterans Affairs will add to the lists.

Buckle up.

The Fundamental Problem at the Heart of American Health Insurance

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Administrative waste, denials, and deadly incentives — the U.S. model shows what happens when profit rules.

The United States is the only country where a health insurance executive has been gunned down in the street. But that’s not the only thing that’s unique about American health insurance.

Almost all of our peer countries – advanced, free-market democracies — have health insurance companies. In some cases (Germany, Switzerland, Japan), private health insurance is the chief way to pay for medical care. In others (such as Great Britain), private insurance works as a supplement to government-run health care systems. But there’s a fundamental difference between health insurance elsewhere and the U.S. system. 

In all the other advanced democracies, basic health insurance is not for profit; the insurers are essentially charities. They exist not to pay large sums to executives and investors, but rather to keep the population healthy by assuring that everyone can get medical care when it’s needed. 

America’s health insurance giants are profit-making businesses. Indeed, in the insurers’ quarterly earnings reports to investors, the standard industry term for any sums spent paying people’s medical bills is “medical loss.” They view paying your doctor bill as a loss that subtracts from the dividends they owe their stockholders. 

When I studied health care systems around the world, I asked economists and doctors and health ministers why they want health insurance to be a nonprofit endeavor. Everyone gave essentially the same answer:

There’s a fundamental contradiction between insuring a nation’s health and making a profit on health insurance.

Health insurance exists to help people get the preventive care and treatment they need by paying their medical bills. But the way to make a profit on health insurance is to avoid paying medical bills. Accordingly, the U.S. insurance giants have devised ingenious methods for evading payment — schemes like high deductibles, narrow networks of approved doctors, limited lists of permitted drugs, and pre-authorization requirements, so that the insurance adjuster, not your doctor, determines what treatment you get. 

Other countries don’t allow those gimmicks. In America, the patient pays twice — first the insurance premium, and then the bill that the insurer declines to pay. That’s why Americans hate health insurance companies — as reflected in the tasteless barrage of angry social media commentary aimed at the victim, not the perpetrator, of the sidewalk shooting in 2024  of UnitedHealthcare’s CEO Brian Thompson in New York City. 

Another unique aspect of U.S.-style health insurance is the huge amount of money our big insurers waste on administrative costs. Any insurance plan has administrative expenses; you’ve got to collect the premiums, review the patients’ claims, and get the payments out to doctors and hospitals.

In other countries, the administrative costs are limited to about 5% of premium income; that is, insurers use 95% of all the money they take in to pay medical bills. But the U.S. insurance giants routinely report administrative costs in the range of 15% to 20%.

When the first drafts of the Affordable Care Act (“Obamacare”) were floated on Capitol Hill in 2009, the statutory language called for limiting insurers’ admin costs to 12% of premium income. Then the insurance lobby went to work. The final text of that law allows them to spend up to 20% of their income on salaries, marketing, dividends, and other stuff that doesn’t pay anybody’s hospital bill. 

There is one American insurance system, however, that is as thrifty as foreign health insurance plans. Medicare, the federal government’s insurance program for seniors and the disabled, reports administrative costs in the range of 3% — about one-fifth as much as the big private insurers fritter away. And Medicare’s administrators — federal bureaucrats — are paid less than a tenth as much as the executives running the far less efficient private insurance firms. 

Americans generally believe that the profit-driven private sector is more efficient and innovative than government. In many cases, that’s true. I wouldn’t want some government agency designing my cell phone or my hiking boots.

But when it comes to health insurance, all the evidence shows that nonprofit and government-run plans provide better coverage at lower cost than the private plans from America’s health insurance giants.

If we were to make basic health insurance a nonprofit endeavor, as it is everywhere else, or put everybody on a public plan like Medicare, the U.S. would save billions and improve our access to life-saving care. Then Americans might stop celebrating on social media when an insurance executive is killed.