UnitedHealth Chief Executive Andrew Witty stated the obvious when he wrote last month that no one would design a healthcare system like the one in the United States. He neglected to detail how the medical goliath he runs helped create the “patchwork” structure and takes full advantage of it. With dissatisfaction among patients and politicians crystallising following the murder of a senior UnitedHealth executive last month, the company finds itself in the improbable position of transforming from being a big part of the disease to contributing to the cure.
Since it was started 50 years ago to process insurance claims for doctors in Minnesota, UnitedHealth has turned into a sprawling nationwide conglomerate worth some $500-billion. Instead of reducing costs for patients, the heft has mostly generated ever-increasing market power and profit. Only 44% of Americans surveyed in November rated healthcare quality as excellent or good, the lowest figure since Gallup started the annual poll in 2001. Seven out of 10 said the system is in crisis or has major problems.
Wall Street is nevertheless optimistic about UnitedHealth’s prospects. A combination of providing more services to members, rising healthcare expenses, and the expansion of Medicare, the federal program for people 65 and older, all contribute to the bullishness.
On the day the head of UnitedHealth’s insurance business, Brian Thompson, was shot last month, the company told investors the division he ran would grow nearly 10% annually, unregulated businesses were set to expand even faster and overall return on equity would be 20% or higher. Its shares have already returned more than 450% over the past decade, twice as much as the S&P 500 Index.
The exuberance depends on US healthcare policy staying largely unchanged, despite the shockingly callous reaction to Thompson’s death. How UnitedHealth intends to grow may nevertheless harden displeasure in Washington and beyond and spur some overdue changes. The United States, for example, spends more than twice as much on healthcare as any of its 37 peer nations in the Organisation for Economic Co-operation and Development.
Until now, the government and the private sector have turned to insurers to control costs. The industry provides the gateway to most patients, and therefore demands discounts from hospitals and drugmakers. They also can limit access to care they deem unnecessary, while encouraging protective measures, such as vaccines or weight loss, that often reduce longer-term expenses.
It hasn’t worked. US healthcare spending increased 7.5% in 2023 from the year before, reverting to a lengthy pattern of growing faster than GDP. Although the United States is the best in preventative care among 10 developed nations, it rated last in quality by life expectancy, avoidable death and other measures, according to a 2024 study by research outfit Commonwealth Fund. The country also was found to have the worst access to care and finished near the bottom in billing disputes and required paperwork.
Lack of competition explains a lot of the problem. Nearly all major US metropolitan areas are highly concentrated markets for commercial health insurance and Medicare Advantage, the government program run by private insurers, the American Medical Association found. While policy providers are motivated to save money on care to maximize profit, they only pass on savings to consumers in the form of lower premiums when there’s choice, a 2015 Journal of Health Economics study found.
Lawmakers tried to fix the problem with the 2010 Affordable Care Act, which stipulated that insurers spend 80% to 85% of premiums on care, depending on the type of coverage. The rest was earmarked for administrative costs and profit.
The effort introduced distortions, however. UnitedHealth, for one, snapped up medical practices, hospice providers and home healthcare services, giving it additional power to cut costs by sending insurance customers to its own doctors and nurses if outsiders charged too much. Its prowess can be spotted on the books through intercompany eliminations. Since accountants can’t count revenue twice, they must adjust earnings to reflect instances where one division bills another.
This creates conflicts of interest. An insurer can be doubly rewarded for forcing patients to see high-cost medical professionals working under the same roof. The company not only pockets the practice’s profit, but it can seek higher premiums to cover rising costs and keep some for itself. Insurance plans that have more expenses from related parties spend more, according to a Brookings Institute study.
The idea that insurers are the answer runs oddly deep, which explains another way UnitedHealth keeps getting bigger and wielding more influence. More than half of Medicare recipients are in plans run by insurers operating in the Medicare Advantage program. The rate has grown because patients pay less out of their own pockets, get extras like dental cleanings and are protected against catastrophic charges.
President-elect Donald Trump’s plans are unclear, although he spent much of his first term trying to eliminate the ACA. Many Republicans also favor an expanded private sector role. The Heritage Foundation’s Project 2025, for example, called for senior citizens to be automatically enrolled in Medicare Advantage, where UnitedHealth is the largest insurer. Premium revenue from the government division that runs Medicare and Medicaid, a sister program for poor Americans, accounted for 40% of the company’s consolidated revenue last year.
Medicare Advantage, however, increases the healthcare bill for taxpayers. One nonpartisan government agency estimates the program spent 22%, or $83 billion, more on Medicare Advantage patients.
One reason is that insurers pick and choose healthier patients. An estimated $50 billion comes from differences in risk scores between the traditional program and Medicare Advantage, because insurers appear to be claiming that patients are sicker than they are. By doing so, they can ask for more money from the government. Cutting reimbursements to better reflect risk would save the government more than $1 trillion by 2035, the Congressional Budget Office reckons, a step that clearly would eat into insurer profit margins.
The arrangement also doesn’t help the industry’s public image. The Office of the Inspector General for Health and Human Services estimated in October that there were $7.5 billion of payments based on diagnoses without follow-up visits, procedures or tests. This implies that as many 1.7 million patients received either irrelevant exams or inadequate care. UnitedHealth received about half those funds.
UnitedHealth disputes the claim and is also fighting a lawsuit from Justice Department trustbusters seeking to block its $3.3 billion acquisition of home healthcare provider Amedisys. And the company seems convinced it can gloss over rising consumer ire and the intensifying aims to cut government waste. If nobody would ever design the existing system, however, as Witty himself concedes, then there’s no reason for insurers to retain their pricing power, clout or profitability. It’s too late for preventative fiscal care, but it’s beyond time for some triage.
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