“Sen. Wyden is right that it’s time to rethink how the insurance industry operates,” says health expert Sally Pipes. “But it was his party’s policies that created this system. They should not be trusted to clean up their mess.”
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Sen. Ron Wyden, D-Ore., recently invited his colleagues to begin a new conversation about reforming the health insurance industry.
It’s a conversation worth having. Health insurers have grown bigger, more powerful and more deeply embedded in our healthcare system than ever before—to the detriment of patients and taxpayers alike.
But if Democrats are serious about fixing the problem, they’re more than a decade late. The Affordable Care Act—their signature healthcare law—helped create the very market dysfunction they’re now decrying.
Republicans, by contrast, have already begun taking steps to rein in some of the industry’s worst abuses. They’d be wise to keep the momentum going.
Obamacare reshaped the insurance market with a dense web of mandates, pricing rules and coverage requirements. Those regulations made it far harder for smaller insurers to comply and compete—and far more attractive for larger ones to scale up.
The result is today’s highly concentrated market. The five largest insurers—UnitedHealth, Elevance Health, CVS, Cigna and Health Care Service Corp.—now control nearly 60% of the commercial market. UnitedHealth alone accounts for roughly 16%.
In other words, the “insurance giants” Democrats are suddenly worried about didn’t emerge in spite of Obamacare. They emerged because of it—and the endless taxpayer-sponsored subsidies that line insurers’ bank accounts.
Those insurers haven’t just gotten bigger. They have vertically integrated. Many now own or control physician practices, clinics and pharmacy benefit managers.
That consolidation has real consequences for patients—and for taxpayers.
Consider what’s happening in Medicare Advantage, the privately administered alternative to traditional Medicare that now covers more than half of seniors. The program pays insurers based in part on how sick their enrollees are. The sicker the patient appears on paper, the higher the payment.
That structure creates a powerful incentive for insurers to document as many diagnoses as possible—an incentive that becomes even stronger when insurers also employ the physicians making those diagnoses.
The Trump administration is now examining whether UnitedHealth Group exploited that system. Lawmakers and regulators have raised concerns that the company used aggressive coding practices to make patients appear sicker than they actually were—and thereby inflated the payments it received from Medicare.
Audits in recent years have identified billions of dollars in potential overpayments across Medicare Advantage tied to similar practices. This is exactly the kind of fraud and abuse that demands scrutiny. It’s encouraging to see Republicans taking it seriously.
These problems didn’t emerge in a vacuum. They developed in a system that rewards scale, integration and complexity—exactly the features Obamacare helped accelerate.
Those same dynamics are at work in the prescription drug market.
Pharmacy benefit managers, or PBMs, design drug formularies, negotiate with manufacturers over how much their insurer clients will pay for drugs and determine what patients must shell out at the pharmacy counter.
Many of the largest PBMs—like Express Scripts, CVS Caremark and Optum—are owned by the same companies that dominate the insurance market. That creates obvious conflicts of interest—and helps explain why patients often face high out-of-pocket costs even when their insurers are receiving substantial rebates and discounts from drug companies behind the scenes.
The Trump administration has begun to address these problems. The U.S. Department of Labor recently proposed a rule that would require PBMs to disclose the full scope of their compensation—including rebates and fees—to the employer-sponsored health plans they service.
That kind of transparency could expose how money flows through the system and help ensure that savings are passed on to patients rather than retained by middlemen.
So while Democrats are sounding the alarm about insurer power, Republicans have been taking concrete steps to rein it in: policing abuse in Medicare Advantage, increasing transparency in drug pricing and challenging the practices that drive up costs.
Sen. Wyden is right that it’s time to rethink how the insurance industry operates. But it was his party’s policies that created this system. They should not be trusted to clean up their mess.