Don’t look now, but the average monthly health premium now costs about as much as a monthly mortgage payment. Perhaps that’s why almost half of Americans say it is difficult to afford health care. Patients and families are desperate for relief from high healthcare costs. Too bad, say the health insurers. They’ll be raising premiums yet again next year.
To understand how we ended up here, look no further than the nation’s largest health insurance provider, UnitedHealth Group.
During its latest earnings call, the company reported an eye-popping 61 percent jump in earnings per share and $4.11 billion in third-quarter net profit. That’s a whopping 75 percent increase from the $2.35 billion it earned during the same period last year. All the while, it has raised premiums by upwards of 30%. That’s not an ordinary business decision; it’s a downright abuse of the company’s monopolistic power in the market.
UnitedHealth Group is far from just an insurance company. It employs roughly 10% of America’s physicians and boasts over 2,600 subsidiaries. Its businesses span health care services and pharmacy benefits, allowing the same conglomerate to collect premiums, manage drug benefits, and provide care. This vertical integration gives UnitedHealth Group unparalleled control and opportunities to profit at every step. That is a far cry from a healthy market in which independent companies innovate and compete for business.
It gets even worse when you look under the hood. Big insurers are spending fewer and fewer dollars on actual medical care. A recent report published by my organization, the Insurance Watchdog Coalition, found that Medicare Advantage insurers reported spending 89.8 percent of revenue on medical care, while just 82.5 percent actually went to medical and prescription-drug claims, a $36 billion difference. That gap includes $11 billion in supplemental benefits, including prepaid cash cards that cover golf fees, ski lifts, and gym memberships. These are vital dollars that could be used to lower patient out-of-pocket costs, but are instead wasted financing luxuries.
Insurance premiums are only part of the story. UnitedHealth Group also owns Optum Health, a sprawling health services business that includes Optum Rx, its pharmacy benefit manager (PBM). Optum Health recently reported $735 million in operating earnings during the third quarter, an astronomical jump compared with the $41 million it earned during the same period last year. How is that even possible?
That is the vertically integrated model in action. UnitedHealth Group sells insurance, while Optum Health operates other health care businesses under the same corporate roof. As patients struggle with higher health care costs, UnitedHealth Group is cashing in at every checkpoint in the system, and patients are left footing the bill.
The PBM and insurance industry didn’t always work this way. I know because I spent 15 years leading the trade association representing PBMs when they were independent companies competing to lower costs. Competition, not control over every step of a patient’s care, was the point.
Today, those independent PBMs have disappeared inside massive insurance companies. The middlemen became the conglomerates. What was designed to create competition has become a system built to extract surplus profit at nearly every step.
Real reform is beyond overdue. Patients and their employers are struggling to afford the costs of health insurance at the expense of corporate greed and consolidation. It’s time for Congress to put its foot down.
By holding UnitedHealth Group accountable for its accounting practices, pricing systems, and anticompetitive behavior, Washington can rein in the consolidation that has given health care giants increasing control over Americans’ care and deliver much-needed financial relief to patients and their families alike.
Mark Merritt is the executive director of the Insurance Watchdog Coalition.
