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Insurers

For decades, federal health policymakers have touted corporate consolidation and privatization, which they promised would deliver better patient outcomes at lower costs.[1] As a result, the U.S. healthcare system today is dominated by vertically-integrated insurance conglomerates that wield their market power to gouge patients, workers, taxpayers, employers, and unions.[2] Insurers’ profits come at the expense of patient outcomes, which are worse than in other high-income countries, as well as affordability, with healthcare spending in the U.S. approaching roughly 20 percent of GDP.[3]

Take, for example, UnitedHealth Group. Its subsidiaries include UnitedHealthcare, the largest commercial insurer and enroller of Medicare Advantage beneficiaries in the country, and Optum, the largest physician employer.[4] UnitedHealthcare is incentivized to deny claims, which it does at twice the average rate.[5] UnitedHealthcare is also incentivized to steer its patients to Optum providers, which squeezes out independent physician practices.[6] In the case of patients who are enrolled in Medicare Advantage, Optum is incentivized to inflate their perceived disease burden, on which federal payments are based. Indeed, in 2003, UnitedHealthcare received $3.7 billion for questionable home health visits, which resulted in new diagnoses but no treatment.[7]

Other examples include CVS Health, which combines the third-largest insurer with the largest retail pharmacy chain and pharmacy benefit manager (PBM); Ciga Group, which comprises an insurer, the second-largest PBM, a specialty pharmacy, and a widening suite of providers, including a behavioral telehealth platform and a senior-focused primary care chain; and Humana, which is the second-largest enroller of Medicare Advantage beneficiaries and the second-largest provider of “senior-based” primary care and home health services.[8]

Fortunately, state governments can undo the perverse incentives created by these giants, shifting power from conglomerates to clinicians and patients. These policies work in tandem with other reforms that target hospitals, PBMs, and corporate ownership, given that the largest insurers encompass these categories, too.

Structurally Separate Payers from Providers

The Problem

Insurers are increasingly vertically-integrated conglomerates, built through serial acquisitions from across the healthcare supply chain. With dominant market power, they can dictate which clinicians patients can see, which medications are prescribed to them, and which insurance plans they enroll in. By coordinating across lines of business, they can also squeeze out independent practices and pharmacies, skirt regulations, and increase costs.

As one former Cigna executive recently explained, “Sure, the health insurance industry isn’t to blame for all the problems with our health system, but it shoulders much of them.”[1]

The Solution

State legislatures should draw inspiration from the 1933 Glass-Steagall Act, which Congress passed in response to the Great Depression (and later repealed in the 1990s). The law structurally separated commercial and investment banks to address the systemic risks of common ownership.

A “Glass-Steagall” for health care would similarly separate insurers from providers, given the inherent conflicts of interest and risk associated with one conglomerate being on both sides of a transaction.[2] Specifically, such legislation would ban insurers and PBMs from owning pharmacies, including mail-order and specialty pharmacies, and insurers and wholesale drug distributors, a middleman on the payer side, from owning medical providers.

Model Legislation: At the federal level, the bipartisan Patients Before Monopolies (PBM) Act would force health insurers and PBMs to divest their pharmacy businesses, eliminating the structural conflicts of interest that have driven independent pharmacies out of business, inflated drug prices, and harmed patient care.[3] It provides a template both for similar state legislation and for future bills that would force insurers and other payers to divest their medical provider businesses.

 

[1] Wendell Potter, “I Was a Health Insurance Executive. What I Saw Made Me Quit.” The New York Times, Dec. 18, 2024, https://www.nytimes.com/2024/12/18/opinion/health-insurance-united-ceo-shooting.html.

[2] Ibid. at 2.

[3] Liz Essley Whyte and Joseph Walker, “Lawmakers Plot to Force Health Insurers to Sell Off Pharmacies,” The Wall Street Journal, Dec. 11, 2024, https://www.wsj.com/politics/policy/warren-hawley-health-insurers-pbm-bill-c8cdeb85.

 

[1] Krista Brown et al., “The Courage to Learn,” American Economic Liberties Project, January 2021, https://www.economicliberties.us/wp-content/uploads/2021/01/Courage-to-Learn_12.12.pdf.

[2] Hayden Rooke-Ley, “Medicare Advantage and Vertical Consolidation in Health Care,” American Economic Liberties Project, April 2024, https://www.economicliberties.us/wp-content/uploads/2024/04/Medicare-Advantage-AELP.pdf.

[3] “U.S. Health Care from a Global Perspective, 2022: Accelerating Spending, Worsening Outcomes,” The Commonwealth Fund, January 31, 2023, https://www.commonwealthfund.org/publications/issue-briefs/2023/jan/us-health-care-global-perspective-2022#:~:text=Despite%20high%20U.S.%20spending%2C%20Americans,dropped%20even%20further%20in%202021; “NHE Fact Sheet,” Centers for Medicare & Medicaid Services, accessed Dec. 18, 2024, https://www.cms.gov/data-research/statistics-trends-and-reports/national-health-expenditure-data/nhe-fact-sheet.

[4] “Competition in Health Insurance: A Comprehensive Study of U.S. Markets,” American Medical Association, Dec. 12, 2023, https://www.ama-assn.org/system/files/competition-health-insurance-us-markets.pdf; Meredith Freed et al., “Medicare Advantage in 2024: Enrollment Update and Key Trends,” KFF, Aug. 8, 2024, https://www.kff.org/medicare/issue-brief/medicare-advantage-in-2024-enrollment-update-and-key-trends/; Rylee Wilson, “Optum now has 90,000 physicians,” Becker’s Hospital Review, Nov. 29, 2023, https://www.beckershospitalreview.com/legal-regulatory-issues/optum-added-nearly-20-000-physicians-in-2023.html#:~:text=The%20UnitedHealth%20Group%20subsidiary%20is,Desai%20said.

[5] Stephanie Guinan, “Insurance Claim Denials: Worst Companies and How to Appeal,” ValuePenguin, May 15, 2024, https://www.valuepenguin.com/health-insurance-claim-denials-and-appeals#denial-rates.

[6] Ibid. at 2.

[7] Christopher Weaver and Anna Wilde Matthews, “Medicare Paid Insurers Billions for Questionable Home Diagnoses, Watchdog Finds,” The Wall Street Journal, updated Oct. 24, 2024, https://www.wsj.com/health/healthcare/medicare-insurers-extra-payments-72d09393.

[8] Ibid. at 2.