Profits Over People: Denying Claims is the Successful Business Model of For-Profit Health Insurers*
Nothing is more American than gun violence coupled with a for-profit health carrier’s vast wealth amassed under a business model of automatically denying doctor-approved claims with an AI algorithm that has a 90% error rate. The brazen killing of United Healthcare CEO Brian Thompson and its aftermath have the literal markings of a backlash against a financial and political system that rewards the uber rich to the severe detriment of most everyone else, including the neediest and most vulnerable.
There is no justification for murder, just as there is no justification for placing profits over the lives of people who are deprived of medically necessary care, medication, and treatment for which they paid or are otherwise entitled or deserve. I’m trying to appreciate and process the range of reactions to the CEO’s violent demise — from horror to rage to gleeful joking to depraved mockery — with some people characterizing the shooter as a folk hero who carried out a form of vigilante justice. See, e.g., A Man Was Murdered in Cold Blood and You’re Laughing?; A sickness in the wake of a health insurance CEO’s slaying; $25 Million UnitedHealth CEO Whines About Social Media Trashing His Industry. If Trump succeeds in cutting Medicaid funding which has been a Republican plan since 2017, eight states, including the one where I live, will end coverage for more than 3 million adults, forcing them to purchase sub-par coverage — if they are able. With Trump’s pathocracy set to be run by billionaires and centi-millionaires to benefit their own, we will see an increase in anger and agitated disillusionment among the other 99%.
The special interest and corporate capture of lawmakers necessarily results in a government responsive to the ones with the money. Citizens United is among the most consequential Supreme Court decisions in my lifetime. Its limitless spigot of corporate campaign monies enables blatant public corruption, “legal” only because its beneficiaries are the ones who make the laws. Big pharma and the private healthcare industry are on the list of special interests that purchase outsized influence by financing campaign victories. “Today’s business culture enshrines the maximization of executive wealth and shareholder fortunes[] and has succeeded in leveraging personal riches into untold political influence.” The Rage and Glee That Followed a C.E.O.’s Killing Should Ring All Alarms. Elections in the United States and today’s political culture correspondingly encourage candidates and elected officials to solicit unlimited funding from the maximum-value donor class in exchange for that influence with the promise of untold returns on investment. The net worth of Elon Musk, for example, who contributed over $250 million toward Trump’s election, increased by at least $60 billion since the election, a 2,400 percent ROI in less than a month.
I wrote a term paper for my regulated industries seminar in law school. The paper’s premise was that the financial cost associated with medical science’s increasing ability to improve and extend life was on a crash course with the ability of third-party payers, which definitionally suffer a market malfunction, to survive without premium hikes that far outstripped increases in cost of living, earning capacities, and the average company’s and individual’s ability to pay.
The healthcare economy in the United States shifted from focusing on helping patients to focusing on seeking profits. My paper did not address a for-profit business model for health carriers with its perverse incentives that undermine any stated mission of caring for patients. That model requires paying their management teams exorbitant salaries and bonuses to assure substantial profits for shareholders. Medicare funds used for administration, for example, is 1–2% of total spending, meaning more than 98% goes to provider services — healthcare. Federal regulations, by contrast, allow private carriers up to 20% of premiums for administration, a more than ten-fold increase over government payer programs. “The Affordable Care Act introduced a cap on insurance profit margins, but not profit levels. Insurers are supposed to spend 80% of every dollar on care and only 20% on administrative costs. However, instead of lowering premiums, the insurance companies have been incentivized to increase costs so that they can make more money.” Americans suffer when health insurers place profits over people. While they can’t legally increase the percentage, for-profit carriers are free to increase the size of the pie to maximize profits with economies of scale, passing no cost savings on to insureds.
They also increase their profits by self-dealing through company-owned pharmacies and physician and provider networks. “It’s equivalent of not only developing a cellphone but owning all the apps on it too. . . . For example, an insurer can coordinate a patient’s cancer care to make sure they see their providers, get drugs negotiated via a deal with their pharmacy benefit manager and ultimately dispensed those drugs through their own pharmacy.”
UnitedHealthcare is the country’s 14th largest company with a market capitalization of $544 billion and $6 billion in net profits for Q3 of 2024. It insures more than 50 million people. UnitedHealthcare has the distinction of denying more doctor-approved claims than the other for-profit health insurers, double the industry standard at 32%. UnitedHealth, “the nation’s largest health insurer, is also the largest owner of physicians’ practices and has one of the Big Three pharmacy benefits managers . . . [which raises] increasing questions about conflicts of interest and potential fraud.” Insurers’ big profits stem from care delivery. It also has the appearance of what are known as tying arrangements under antitrust laws.
One writer summarized the problems and suggested broad solutions:
“It’s a challenging time for the American health care system — unless you’re one of America’s largest private health insurers.
“In 2022, UnitedHealth Group made over $20 billion in profit. Cigna made $6.7 billion, Elevance Health made $6 billion and CVS Health made $4.2 billion. All told, America’s largest health insurers raked in more than $41 billion of profits in 2022.
“That is a staggering sum of money. It is so much money, in fact, that you might assume that Americans are able to receive high quality, accessible care whenever they need it. Sadly, that is not the case.
“First of all, nearly 28 million Americans are still without any health insurance at all. That number is down thanks to the Affordable Care Act, but even with the progress made, roughly 10% of non-elderly Americans are still unable to afford health insurance.
“Even if you can afford health insurance, that is not a guarantee of affordable, accessible health care. Health insurers make money by not paying for health care. Their bottom line depends on refusing to pay for care and they are ruthless when it comes to protecting their profits.
“Anthem Blue Cross Blue Shield has been consistently underpaying reimbursements and inappropriately denying coverages. In 2021, 53% of Anthem’s medical bills for the second quarter were unpaid, amounting to $2.5 billion.
“Another way health insurers try to get out of paying for care that patients need is by requiring pre-authorization for routine and even lifesaving care. UnitedHealth announced earlier this year that it was going to require prior authorization for colonoscopies, a critical way for doctors to detect colorectal cancer.
“An American Medical Association survey found 94% of physicians surveyed said that prior authorizations lead to delays in receiving care and 80% said that prior authorizations can lead to treatment abandonment. UnitedHealth was forced to alter its policy due to public outrage, but they are still requiring ‘advance notification’ for the procedure, which doctors fear could lead to bureaucratic delays and delayed care.
“If insurance companies are not held accountable for their greed, our health care system outcomes will get worse. Across the country, patients can’t afford care and hospitals can’t afford to keep the lights on and their doors open, while insurers rake in hundreds of billions of dollars. We need more regulation of health insurers to ensure that they are not putting profits before people. . . .
“Congress should step in and address this problem in order to lower the cost of health care and curb insurance industry abuses. We need Congress because we know that, left to their own devices, the big insurers have proven they will put profits ahead of people every single time. Every quarterly earnings report makes that abundantly clear.”
Americans suffer when health insurers place profits over people.
Congress, however, is the problem. “Left to their own devices,” they have no motivation to change a perversely incentivized system that finances their job security to the detriment of their constituents.
Postscript:
Among the most blatant examples of legalized corruption is illustrated by big pharma’s purchase of Senator Kyrsten Sinema (I-AZ). I previously discussed her steep fall from grace. The System’s Brazen Corruption Is On Full Display: Exhibit A — Kyrsten Sinema And Big Pharma. Her story encapsulates how big money buys outsize influence with untold return on investment, directly harming the people private and government funded healthcare programs were reputedly designed to help.
When congress created Medicare Part D, which covers prescription drugs, the law included a “non-interference clause,” prohibiting the government from interfering with private negotiations between drug manufacturers and pharmacies. The law prevented Medicare and Veterans Affairs, the largest purchasers of prescription medications, from setting drug prices. “[I]t’s no accident that the law prohibits Medicare to negotiate lower drug prices. . . . ‘[T]he drug lobby worked hard to ensure Medicare wouldn’t be allowed to cut into the profits which would flow to big Pharma thanks to millions of new customers delivered to them by Part D.’”
“In 2022, U.S. prices across all drugs (brands and generics) were nearly 2.78 times as high as prices in the comparison countries. U.S. prices for brand drugs were at least 3.22 times as high as prices in the comparison countries, even after adjustments for estimated U.S. rebates. Most new drugs were available first in the U.S. before being launched in other countries. The U.S. spends a higher and growing share of total drug spending on new drugs compared to other countries.” Comparing Prescription Drugs in the U.S. and Other Countries.
Biden’s Inflation Reduction Act of 2022, for which Trump claims credit, gave Medicare the ability to negotiate prices for certain high-cost drugs, such as insulin, resulting in a significant cost savings to Medicare and its recipients.
Sinema was in the House for three terms. During her tenure there, she ran on and advocated the interests of those at the lower end of the economic spectrum, including veterans, those who struggled to make ends meet, who were forced to choose between paying for necessities like food and rent on the one hand and necessities like healthcare and prescription medications on the other. That’s her history. She came from there. She understood. She empathized. She felt their pain. She would be their voice.
Running for the Senate in 2018, she used her own family’s history of struggling with healthcare costs to reassure prospective voters she was and would be their champion: “We need to make healthcare more affordable, with access to the lowest-cost prescriptions, and fix what’s broken in the system.” Sinema’s campaign website said she was all about “making sure Arizonans have access to more health care choices, low-cost prescription drugs, and high-quality, dependable coverage.” During a 2019 Senate hearing on prescription drug prices, she doubled down:
“The issue I hear about most back home is the cost of health care. . . . There’s a gentleman in Mesa, Arizona, who is lucky enough to be insured. But he has seen the price of his medication, to treat a serious lung condition, increase nearly five times in just one year. . . . He’s looked, but there are no generics available that could offer him any financial relief. A woman from Glendale, Arizona, worries about her husband who has a serious heart condition. But his medication costs more than $500 out-of-pocket for a three-month supply. So he refuses to fill his prescription, because he’s worried about how it would impact their family financially. Another Arizona woman struggles to afford her specialty cancer medication. Even though her medication is a generic, she still has to pay thousands of dollars out-of-pocket. And often spends hours on the phone just to understand the unexpected cost increases, and to research payment assistance options. And this, of course, is unacceptable.”
Sinema created a Veterans Affairs Council to advise her on issues of greatest concern to the half million veterans living in the State of Arizona and the four million disabled veterans across the country. High and rising prescription drug costs was among the most important issues to veterans.
In a February 2020 op-ed, Sinema said: “Congress must address the cost of prescription drugs. Today, even Arizonans who have insurance sometimes struggle to afford the medicine they need. That’s why I’m pursuing policies to ensure life-saving drugs like EpiPens and insulin are affordable and available to Arizonans, especially our senior citizens.”
Sinema was elected on a platform that included prescription drug pricing reform, to “ensure life-saving drugs” were more affordable, to allow Medicare to negotiate drug prices and save taxpayers and patients billions of dollars. She promised to work toward easing the financial burden of her constituents who fell at the lower end of the economic spectrum and struggle to make ends meet.
As noted, Medicare Part D covers retail prescription drugs. Medicare contracts with private plan sponsors to provide prescription drug benefits and endows sponsors with the authority to negotiate drug prices with drug manufacturers. Part D’s “noninterference” clause prohibits the Secretary of Health and Human Services from interfering with the negotiations between drug manufacturers and prescription drug sponsors, and “may not require a particular formulary or institute a price structure for the reimbursement of covered part D drugs.” The government therefore has no direct role in negotiating and setting drug prices under Part D.
Big-Pharma charges up to four times as much for pharmaceuticals in the United States as it does in other countries.
Due to the GOP’s blockade and the inability to overcome the inevitable filibuster, Democrats intended to include drug-pricing reform in the Build Back Better infrastructure bill for passage through reconciliation.
At risk to pharmaceutical companies were billions in profits. Big-Pharma found Sinema an easy mark, flooding her campaign committee with hundreds of thousands in PAC money and hundreds of thousands in media ads promoting her in Arizona as “independent” and “bipartisan.” Big pharma has a powerful new shill, Kyrsten Sinema, fighting drug price reform
She opposed the Democrats’ revisions to drug pricing. Her about-face was otherwise inexplicable because she went silent with the public, media, activists, and other lawmakers, confirming the nature of her relationship with Big-Pharma as the only explanation for her sudden change.
Five members of her Veterans Advisory Council resigned. They accused Sinema of being “one of the principal obstacles to progress” by refusing to get behind certain of the infrastructure bill’s provisions that “support our veteran community and protect the very heart and soul of our nation.” The resignation letter was eloquent — albeit euphemistic — in describing the quid pro quo corruption that permeates the system:
“In addition to protecting the freedom to vote, your constituents urgently need you to support the Biden agenda, a whole host of policies that would help us address the great challenges of our time: employment, education, healthcare, and infrastructure. However, just like voting rights, you have become one of the principal obstacles to progress, answering to big donors rather than your own people. We shouldn’t have to buy representation from you, and your failure to stand by your people and see their urgent needs is alarming.
“Despite running with a commitment to address exorbitant drug prices, you have failed to support prescription medication negotiation, leaving your campaign promises unfulfilled and hanging your constituents out to dry. We pay more for drugs here in the United States than any other developed country, a reality that forces veterans and citizens to decide whether to pay for rent or for life-saving medications — a choice no person should have to make. You stand by while American companies see dollar signs before human beings, choosing to answer to big donors rather than the working people you’re supposed to represent.
“These are not the actions of a maverick.
“We should have realized this once you showed your true character when refusing to vote to establish a commission to investigate the January 6th riot at the U.S. Capitol.
“We do not know who has your ear but it clearly isn’t us or your constituents.
“As members of your Veterans Advisory Council for years, we’re deeply concerned by your failure to acknowledge us or seek our input. Today, we feel as though we are merely given performative titles and used as window dressing for your own image — not as resources to provide counsel on what’s best for veterans.
“Given your complete disregard for our input and your unwillingness to act on behalf of your constituents’ needs, we respectfully resign from your Veterans Advisory Council. We no longer feel you are aligned with our values, and we cannot in good faith continue to serve on your council.”
NOTES:
How Often Do Health Insurers Say No to Patients? No One Knows
UnitedHealthcare head Brian Thompson’s killing shines light on health-insurance denial rates
Six ways Trump sabotaged the Affordable Care Act
The Affordable Care Act Under the Trump Administration
R.VanWagoner https://medium.com/@richardvanwagoner publishes. https://richardvanwagoner.medium.com/subscribe
*My brother the very talented fiction writer and novelist, Robert Hodgson Van Wagoner, deserves considerable credit for offering both substantive and technical suggestions to https://medium.com/@richardvanwagoner. Rob’s second novel is a beautifully written suspense drama that takes place in Utah, Wyoming, and Norway. This novel, The Contortionists, which Rob himself narrates for the audio version, is a psychological page-turner about a missing child in a predominantly Mormon community. I have read the novel and listened to the audio version twice. It is a literary masterpiece. The Contortionists is not, however, for the faint of heart.