UnitedHealth lacks antidote for chronic anger

Amedisys

15/01/2025 10:00

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are his own.)
    By Robert Cyran
       NEW YORK, Jan 15 (Reuters Breakingviews) - UnitedHealth
 UNH.N  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 crystallizing 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  .SPX .
    The exuberance depends on U.S. 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. U.S. 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 U.S. 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  AMED.O . 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.

    Follow @rob_cyran on X
         
    CONTEXT NEWS 
    UnitedHealth is scheduled to release its fourth-quarter
earnings on Jan. 16, the company’s first set of financial
results since the head of its insurance business, Brian
Thompson, was murdered ahead of an investor presentation in New
York on Dec. 4.

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
UnitedHealth's dominance reflected in its stock performance    https://reut.rs/4gdNHuh
UnitedHealth keeps more spending in-house    https://reut.rs/3PEXTkg
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Jeffrey Goldfarb and Pranav Kiran)
 ((For previous columns by the author, Reuters customers can
click on  CYRAN/ 
robert.cyran@thomsonreuters.com))