America’s for-profit model rewards healthcare providers for spending more. - Kena Betancur/AFP/Getty Images
The killing of UnitedHealthcare boss Brian Thompson has sparked widespread reflection on the frustrations of navigating America’s healthcare system. Many have shared stories of insurance denials and the devastating financial and emotional toll these have taken on families.
Every country aims to control medical costs, and many wealthy nations—Switzerland, for example—also rely on private insurers to help manage care. What sets America apart is its patchwork system that pits loosely regulated, profit-driven players against each other. The result: enormous administrative waste, uncertainty for patients and little added value.
The U.S. spends almost twice as much as comparable wealthy countries, including those with private insurers, on healthcare. Cracking down on insurance companies can only go so far in rectifying the disparity. That is because the bulk of America’s health bill stems from the high cost of hospital services, drugs and care in general. Even if we were to eliminate insurer profits, we wouldn’t make much of a dent in the high cost of U.S. healthcare. But that doesn’t mean the insurance system can’t work better.
The roots of today’s fragmented system can be traced back to a quirk in U.S. history. Unlike most high-income countries, which created centralized government systems to ration care in the 20th century, the U.S. followed a different path shaped by historical circumstances. During World War II, wage controls prompted employers to offer health insurance as a tax-free benefit to attract workers.
Medicare and Medicaid, followed decades later by Affordable Care Act exchanges, were added over time to cover those who couldn’t get insurance through their job, creating a highly decentralized and convoluted system. In addition to expanding insurance coverage through the exchanges, the ACA—also known as Obamacare—attempted to fix many issues with insurers by, for example, forcing them to cover people with pre-existing health conditions and requiring that they spend 80% to 85% of what they collect on medical services.
But the pressure to increase their earnings means insurers have looked for ways to overbill the government and skimp on patient care, always staying a step ahead of regulators. In recent years, they have become vertically integrated conglomerates, controlling doctors, pharmacies and payment-processing systems. This dynamic creates opportunities for self-dealing, putting the onus on the government to act continually to rein in improper practices.
Rules that more clearly define what insurers can and can’t do could make healthcare less maddening for patients and doctors. In other developed countries, doctors and insurers are tightly regulated and work in alignment, resulting in significantly lower costs. While systems such as those in the U.K. or Canada motivate the doctors and hospitals themselves to keep costs down, America’s for-profit model rewards providers for spending—and charging—more. This means health insurers such as UnitedHealthcare and Cigna wind up playing the “bad cop” role.
“We have a system of whack-a-mole, with providers trying to get paid and insurers trying to constrain costs—patients are caught in the middle,” says Christopher Whaley, an associate professor at Brown University’s School of Public Health.
And often insurers aren’t keeping costs low on their own behalf but as a service to large companies. Howard Forman, a healthcare professor at Yale School of Medicine, notes that two-thirds of employer-sponsored health insurance is self-funded, meaning employers cover the cost of claims while paying insurers a fee to manage care. In those cases, any savings accrue to employers, not insurers. That distinction is often lost on the insured, who see “Aetna” or “UnitedHealthcare” or “Humana” on their insurance cards.
One reason healthcare has become more frustrating is because employers and the government have made patients increasingly responsible for the cost of care through higher premiums, copays and deductibles—a concept known as “having skin in the game.” Insurers act as the middleman, using these tools to ensure costs remain sustainable.
One of the most frustrating aspects of the system is a tactic called prior authorization, a process requiring providers to obtain insurer approval before delivering certain services. While that might be disagreeable, there is little public data on how often insurers deny care. This lack of transparency allows insurers to wield prior authorization aggressively, particularly when expensive treatments are recommended.
“Insurers have an incentive to make things complicated for providers,” says Loren Adler, a health economist at the Brookings Institution. “How about getting rid of the fax machine?”
A recent Senate report revealed that UnitedHealthcare and CVS denied prior-authorization requests for postacute care for seniors at rates nearly three times higher than their overall denial rates. The report also highlighted the growing role of artificial intelligence in determining whether insurers approve or deny care.
Streamlining the prior-authorization process—making it smoother, less burdensome and more transparent—could significantly reduce friction in the healthcare system. The Centers for Medicare and Medicaid Services, an agency within the Department of Health and Human Services, has the power to make sure that insurers are playing fair. Under the Biden administration, CMS has proposed several rules to standardize the process, including placing guardrails on the use of artificial intelligence. Lindsay Bealor Greenleaf, head of federal and state policy at the consulting firm ADVI Health, says that is expected to continue under the Trump administration.
“There are a lot of routine services and medications where patients and doctors encounter ridiculous and unnecessary barriers,” she says. Solutions could include shortening approval times or implementing “Gold Carding,” a policy that exempts physicians from Medicare Advantage prior-authorization requirements if 90% of their requests were approved over the past 12 months.
People might always dislike insurance companies—it is baked into how the system works—but that doesn’t mean patients should have to live in fear every time they see a doctor.
The bulk of America’s healthcare bill stems from the high cost of hospital services, drugs and care in general. - Mary Conlon/AP
