From xxxxxx <[email protected]>
Subject Article America’s Health Insurance Grinches
Date December 29, 2024 1:05 AM
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ARTICLE AMERICA’S HEALTH INSURANCE GRINCHES  
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Lynn Parramore
December 20, 2024
Institute for New Economic Thinking
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_ A Scathing Indictment of “Market” Economics _

, Institute for New Economic Thinking

 

The country’s flawed insurance model, driven by greed, leads to
inefficiency, inequality, and denied care - a colossal scam that has
sparked fury across the nation.

In the past two weeks, one thing has become crystal clear in America:
the public outrage after the assassination of UnitedHealthcare CEO
Brian Thompson exposed a seething fury over the health insurance
racket. No amount of media finger-wagging at public perversity or
partisan attempts to frame Luigi Mangione’s act as a statement from
the left or right can hide the reality: the people, from all sides,
are livid about the healthcare system—and with good reason.

In the 21st century, Americans have expressed their view that
healthcare is deteriorating, not advancing. For example, according to
recent Gallup polls
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respondents’ satisfaction with the quality of healthcare has reached
its lowest level since 2001. Key point: Americans in those polls
“rate healthcare coverage in the U.S. even more negatively than they
rate quality.”

Coverage is the core failure, driven by the insurance industry’s
profit-first approach to denying care.

So here we are, regardless of politicians’ rosy narratives or
avoidance of the topic. Politicians on both sides of the aisle should
be motivated to take on this scandalous state of affairs, but, as
journalist Ken Klippenstein pointed out
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presidential nominees Kamala Harris and Donald Trump barely
acknowledged healthcare, mentioning it only twice, between them, in
their convention speeches. “This is the first election in my adult
memory that I can recall healthcare not being at the center of the
debate,” Klippenstein remarked, recalling Biden’s 2020 nod to the
public option and Bernie Sanders’ strong calls for universal
healthcare in 2016.

Meanwhile, Americans are crushed by skyrocketing premiums, crippling
medical debt, and denial of care that devastates millions of lives. It
should be no surprise that frustration has reached a boiling point,
igniting a fierce, widespread demand for real, systemic change.
Ordinary people are clear that insurance companies don’t exist to
protect their health, but to protect and maximize profits for
shareholders.

Economist William Lazonick points out that we have every right to
expect quality at a fair price, noting that a good health insurance
policy should ensure accessible care with the insurer covering the
costs—something a single-payer system could deliver. “A for-profit
(business-sector) insurer such as UnitedHealthcare could make a profit
by offering high-quality insurance,” Lazonick told the Institute for
New Economic Thinking, “but they have chosen a business model that
seeks to make money by denying as many claims as possible, delaying
the payment of claims that they cannot avoid paying, and defending
their positions in the courts, if need be.”

This is capitalism run amok.

And the profits are rolling in. Lazonick notes that in 2023,
UnitedHealthcare enjoyed an operating profit margin of 8% on revenues
of an eye-popping $281.4 billion, insuring 52,750,000 people, which
equals revenues (premiums) of $5,334 per insured. The insured,
meanwhile, pay not only the premiums, but deductibles, copays, and
things like surprise billing. He argues that while the cost of medical
care is artificially inflated, health insurers strategize to keep
costs in check by enrolling young, healthy people—a windfall
provided by the Affordable Care Act’s individual mandate, which
forced consumers into the system while allowing insurers to keep
operating as usual, engaging in their profit-maximizing schemes. In
his view, the inflated costs of medical care are partly thanks to
financialization — a process where healthcare companies prioritize
financial strategies like stock buybacks and dividend payouts over
actually improving patient care, investing in useful innovations, or
lowering premiums.

Alongside his colleague Oner Tulum, Lazonick has shown that the
biggest health insurance companies have been on a stock buyback binge,
padding their profits and lining the pockets of executives and
shareholders
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classic Wall Street greed in action. They note that of the top four
companies by revenues over the most recent decade, UnitedHealth, CVS
Health, Elevance, and Cigna, average annual buybacks were a stunning
$3.7 billion. “Ultimately, the manipulative boosts that these
buybacks give to the health insurers’ stock prices come out of the
pockets of U.S. households in the form of higher insurance
premiums,” they write.

It’s easy to see why health insurance executives are obsessed with
stock buybacks. Lazonick and Tulum point out that from 2000 to 2017,
Stephen J. Helmsley, the CEO of UnitedHealth Group, raked in an annual
average of $37.3 million—86% of it coming from stock-based
compensation. His successor, Andrew Witty, wasn’t exactly slumming
it either, pulling in $17 million a year (79% stock-based) between
2018 and 2023. And then there’s the assassinated Brian Thompson,
former CEO of the UnitedHealth subsidiary UnitedHealthcare, who bagged
$9.5 million a year (73% stock-based) from 2021 to 2023. It’s a
deadly scam, to be sure —inflate the stock price with buybacks,
fatten the paychecks for executives (not rank-and-file employees), and
deny patients the care they need.

Lazonick observes that the more profits that UnitedHealth Group makes,
the more extra cash is available to distribute to shareholders as
dividends and buybacks, “and, generally, the higher the stock price,
the potential for higher top executive pay.” The unpleasant reality,
according to him, is that “given UHC’s predatory business model,
Thompson was incentivized by his stock-based pay to rip off customers,
and he ascended to the United Healthcare CEO position because he was
good at it.”

Perhaps this helps explain why many Americans are not exactly mourning
his passing.

The roots of this mess trace back to the neoliberal, market-driven
ideology that underpins the system. Neoclassical economics, the theory
behind this philosophy, is all about maximizing profit and trusting
the market to sort things out—like some magical invisible hand. In
reality, it’s a blueprint for inequality: the rich, like insurance
CEOS, get richer, and everyone else is subject to exploitation.
Healthcare is a perfect example of why this system doesn’t work.
When you turn human health into a business, where access is determined
by how much you can pay, only the wealthy can count on top-notch,
reliably available care. The fundamental contradiction at the heart of
the U.S. system is simple: health is treated as a commodity, not a
human right.

This current system make sense to the economists still clinging to
their outdated, flawed neoclassical principles, but for regular folks?
It’s crystal clear: our system is untenable.

The myth that the U.S. health insurance system runs efficiently in a
competitive market is just that—a myth. In reality, a handful of
for-profit insurers dominate, focused not on providing care, but on
extracting profits. It’s a textbook case of “market failure.”
Instead of healthy competition lowering prices and improving services,
what we have is an oligopoly that drives up costs and leaves millions
uninsured. Let’s go over three examples of this failure.

1. INFORMATION ASYMMETRY: In a real competitive market, you’d have
clear, straightforward information to make good choices. But in the
U.S. health insurance system? Not happening. Insurers deliberately
obscure policy details, leaving you to guess the true costs and
coverage – even the percentage of claims denied. This gives them all
the power while you’re stuck with confusing, impenetrable contracts.
They know exactly what they’re doing—and it’s not about helping
you.

Say you’re self-employed and stuck buying private insurance on the
Health Insurance Marketplace. You don’t qualify for subsidies, so
you figure the best you can do is a silver plan with a $1,000 monthly
premium. It’s steep, but at least it lists a $45 co-pay for an
in-network doctor visit — and it’s got to be in-network because
the plan won’t cover a dime of out-of-network care. You sign up for
the plan, and then you go to the doctor for a respiratory infection.
Surprise! You’re hit with a $200 bill. Why? Because co-pays only
apply _after _you meet your $2,200 deductible – that was in the fine
print.

At this point, avoiding the doctor sounds like the best plan.

But wait, isn’t the Health Insurance Marketplace a government-driven
system? How could it be so unfair and deceptive? Well, it isn’t
exactly a government-driven system. The Marketplace is government-run
in name, thanks to the Affordable Care Act, with the feds running
HEALTHCARE.GOV. — but let’s be clear: it’s controlled by private
insurers. The government sets some rules, but the real power lies with
for-profit companies pulling the strings. What’s sold as a
consumer-friendly system is really just a cash cow for the insurance
industry.

2. ADVERSE SELECTION: Let’s go back to that self-employed person hit
with a $200 doctor bill. The next time they get sick, they decide to
skip the doctor—why risk a bigger bill? The insurance companies love
this—they don’t have to pay a thing while you must keep paying
your premium. This is adverse selection in action. Healthy people
forgo care to save money, while the sick are stuck with costly plans.
Insurers raise premiums, pushing even more people out of the system.
The result? A vicious cycle where prices keep climbing, and care
becomes harder to access.

3. EXTERNALITIES: The U.S. health insurance system’s failure to
provide universal coverage creates what economists call “negative
externalities.” Our self-employed person who didn’t go to the
doctor to save money has ended up in the emergency room, where the
costs quickly balloon. What started as a simple issue becomes a
preventable hospitalization, driving up healthcare costs for everyone
and straining public health resources. These added costs don’t just
hit the individual—they’re a drag on society as a whole, with
taxpayers and the healthcare system picking up the tab. And on top of
it all, the person has missed work and spread their illness to others,
amplifying both the social and economic damage.

If you want to see information asymmetry, adverse selection, and
externalities really come together, look no further than Medicare
Advantage, which economist Eileen Appelbaum plainly calls a “scam”
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– and one that is liable to expand under Trump’s second term.

As Appelbaum explains, Medicare Advantage is neither Medicare nor is
it to anyone’s advantage except insurance companies.

Medicare Advantage is actually a private insurance program that is
sold as an alternative to traditional Medicare, advertised to combine
hospital, medical, and often prescription coverage, and offer perks
such as gym membership coverage. It was originally created in 1997 as
part of the Balanced Budget Act under President Bill Clinton to allow
private insurers to manage Medicare benefits with a focus on cost
control and efficiency.

Proponents claim that privately-run Medicare Advantage plans, which
now enroll over half of all people eligible for Medicare
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offer good value, but Appelbaum notes this is only the case if you
manage not to get a chronic condition — you’d better not get
cancer or get too sick.

A 2017 report by the Government Accountability Office
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not only don’t benefit from these plans, they are worse off than
they would be under Medicare, barred from access to their preferred
doctors and hospitals.

Appelbaum notes that the Medicare Advantage program is really a
patchwork of private plans run by for-profit companies that rake in
billions in taxpayer subsidies while finding new ways to deny
care—like endless preauthorizations and rejecting expensive
post-acute treatments. Unlike traditional Medicare, which directly
pays for services, these private insurers are paid per subscriber,
boosting their profits by upcoding and cherry-picking healthier
clients. The result: taxpayers lose $88 to $140 billion a year. But
what a boon to the insurers: Appelbaum notes that they now make more
from Medicare Advantage than from all their other products combined.

In a 2023 report, Appelbaum and her colleagues noted that recent
evidence reveals that Medicare Advantage insurers have been denying
claims at unreasonably high rates, particularly for home health
services. They point to a 2022 report from the Office of the Inspector
General for the U.S. Health and Human Services, which found that in
2019, 13% of prior authorization requests for medically necessary
care, including post-acute home health services, were denied despite
meeting Medicare coverage rules. These services would have been
covered under traditional fee-for-service Medicare. Though some denied
requests were later approved, the delays jeopardized patients’
health and imposed administrative burdens. On top of that, a 2021
Centers for Medicare & Medicaid Services study showed that over 2
million of 35 million prior authorization requests were denied, with
only 11% appealed. Of those, 82% of appeals were successful,
highlighting a high rate of incorrect denials.

Appelbaum points out that, despite the similar names, Medicare and
Medicare Advantage are worlds apart. Medicare is a trusted public
program, while Medicare Advantage is really just private insurance
that’s marketed to look like the real thing, luring people in with
misleading ads and false promises. The goal of Medicare Advantage
supporters is to replace traditional, publicly funded Medicare with
private, for-profit insurers—pushing for market competition and
cost-cutting at the expense of direct, government-provided healthcare.
It’s a prime example of what happens when neoclassical economics
gets its way.

“It goes back to the Affordable Care Act,” she explained in a
conversation with the Institute for New Economic Thinking. “The ACA
introduced many beneficial reforms, but it also required Medicare to
experiment with Medicare Advantage plans as part of a broader push for
“value-based” care, where providers are going to be incentivized
to skimp on your care.” She stressed that this isn’t just
financially harmful for patients—it can be deadly. It’s not merely
about denying care; it’s about using delaying tactics that put lives
at risk: “Widespread delay is a serious problem – when someone has
cancer, two weeks of delays waiting for coverage to be approved can be
deadly.”

The reality is that with value-based care, providers are rewarded for
reducing costs, rather than being paid for the volume of services they
deliver, which can encourage cost-cutting measures that potentially
compromise care quality.

And as to that much-touted competition that neoclassical economists
insist will lower costs and boost efficiency among insurers — good
luck finding an example of that. The administrative costs of private
insurers are staggering compared to single-payer systems. According to
a 2018 study in The Lancet
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the U.S. spends 8% of total national health expenditures on activities
related to planning, regulating, and managing health systems and
services, compared to an average of only 3% spent in single-payer
systems. The excess administrative burden in the U.S. is a direct
consequence of having to navigate a fragmented system with multiple
insurers, each with its own rules, coverage policies, and approval
processes.

Beyond the outrageous administrative costs, the U.S. healthcare
system’s reliance on employer-based insurance is a relic of
20th-century policy decisions that are downright outdated in today’s
gig economy. It ties access to care to your job, effectively locking
out millions of gig and part-time workers, freelancers, and the
unemployed. The notion that people can “shop around” for insurance
plans like they’re picking a toaster is absurd when the stakes are
life and death.

The exorbitant cost of this flawed approach to healthcare is borne by
society—through higher overall health spending, worse outcomes, and
a public system buckling under the weight of the uninsured and
underinsured. The system doesn’t just fail to provide equitable
care; it deepens social and economic inequality. Health should be a
public good, with care guaranteed for all—regardless of income, job,
or pre-existing conditions.

Many argue that the solution isn’t patching the system with small
reforms, but rethinking it entirely – or, as documentary maker
Michael Moore recently put it
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_“Throw_ this entire system in the _trash.” _That means embracing
models like single-payer, where the state ensures health for all and
care is based on need, not profit.

Until the U.S. abandons its current insurance model, we’ll remain
stuck with a system that enriches a few while exploiting the
many—and the many are well and truly sick of it.

America is ready to say goodbye to the Grinches that operate 365 days
a year.

Lynn Parramore
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Senior Research Analyst

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