Surprising as it may seem, conservatives should give Sen. Elizabeth Warren (D-MA) credit when it comes to health policy—but only a little. Warren has correctly identified one of the main reasons for the constant upward spiral of healthcare costs. If only she showed some self-awareness about the true culprit behind those higher prices.
Just before Thanksgiving, Warren and Sen. Mike Braun (R-IN) sent a letter to the inspector general of the Department of Health and Human Services, requesting an evaluation into anti-competitive tactics used by health insurers that manage pharmacy claims. The letter had its roots in a recent Wall Street Journal investigation that found some insurers are charging far above sticker prices for generic drugs that should be far more affordable.
Both the Warren letter and the Journal investigation explain why insurers markup otherwise-cheap generic drugs. When insurers own pharmacies and pharmaceutical benefit managers (PBMs)—as most of the large insurers do—they can divert business to their own affiliates. By allowing their affiliated pharmacies to reap outsized gains via inflated drug prices, insurers can sidestep medical loss ratio (MLR) regulations that cap the percentage of spending insurers can dedicate towards administrative overhead or profit.
Unfortunately, consumers quite literally end up paying the price. First, patients who have co-payments or co-insurance tied to the inflated drug price pay more at the pharmacy counter. Second, when an insurer pays inflated costs for generic prescriptions, those costs get passed on to patients in the form of higher insurance premiums.
Warren’s letter outlines the problem well—but deliberately omits the problem’s underlying source. Consider this paragraph:
Just a year after the MLR requirement was put in place, UnitedHealth Group formed Optum, which now includes a PBM and a specialty pharmacy, as well as over 70,000 physicians. Today, UnitedHealth Group sends 25 percent of its medical claim revenue to its Optum subsidiaries—in other words, to itself. Similarly, in 2019, CVS Health sent 13 percent of its profits to its own providers and pharmacies.
The inconvenient truth that Warren neglects to mention is that the MLR requirement came into effect as part of Obamacare.
The paragraph above amounts to a tacit admission that Obamacare encourages the industry consolidation that continues to drive up healthcare prices. And indeed, it has done so, in numerous ways. For instance, the accountable care organization model codified in Obamacare has encouraged hospital chains to combine and buy up physician practices while they’re at it.
In the past decade, practically all players within the healthcare sector tried to get bigger and bigger, so they will have more leverage to demand higher prices and more favorable conditions from other entities. Patients often bear the brunt of the damage from this monopolization of health care—in the form of higher prices, worse service, and the further depersonalization of care delivery.
Warren claims that “insurance companies are exploiting loopholes in the law,” while neglecting to take a hard look in the mirror and realize that she and her fellow progressives helped create the current mess to begin with. As usual, Warren believes that more government will solve a problem that government created in the first place.
But what health care needs instead are new incentives that will spur on competition—from transparency to expose high prices and poor healthcare quality, to reforms at the state and federal levels that can expand access and help break up the current health care cartels. Those solutions, not more government, will solve the problems Warren outlined—and can finally begin to deliver the affordable, high-quality healthcare system Americans deserve.
Mary Vought (@MaryVought) is a Senior Fellow at the Independent Women's Forum and the Founder of Vought Strategies.
