Insurance Isn't The (Biggest) Issue
american healthcare, united health, and the system as a whole
Luigi Mangione had no understanding of the healthcare system. This is evidenced by the fact that he targeted an insurance CEO. Insurance is not the issue. I’m here to hopefully clear up why that is, and give you a better sense of how the system works. There’s a LOT that goes into our healthcare structure — I’ve tried to address what I believe to be most important. There are things I’ve left out, both intentionally and unintentionally. But I hope that this is a coherent read for you, and that it tells a story of where the problems lie. Thanks for reading.
The Situation
As I’m sure you’ve heard, a couple weeks ago a masked man wearing a hoodie and backpack walked up to Brian Thompson, the CEO of UnitedHealth, and shot him dead outside the Hilton in Midtown Manhattan.
The killer wrote deny, delay, and depose on the bullet casings.
The internet was quick to delight in the murder. What was clearly a targeted attack at the largest healthcare company in the country opened the floodgates for the pent up anger that Americans hold toward their healthcare system. Across social media, you saw comments like “sorry my condolences are out of network” and “the gun wound was a pre-existing condition, so we can’t cover that” and myriads of other plays on claim denials and the purported evils of the insurance industry.
The comments were strewn across every social media platform, every news outlet — LinkedIn’s United Health account had to take down a post due to all the celebratory sentiment in the reactions.
You also saw comments detailing the lived experience of people who had really bad experiences with these companies. One Instagram user commented —
Not gonna lie. UHC approved an emergency doctor’s appointment for me once to see an orthopedic when I hurt my back. I didn’t have time to go see my PCP. They did it over the phone and I didn’t record it… probably wouldn’t have done any good. They denied my doctor’s appointment 3 months later and said they had no evidence of the phone call. These are bad people.
That’s a very reasonable basis for anger. And while I don’t believe it to be a reasonable basis for the murder or vigilanteism that we saw on that Wednesday morning, I think that the anger is worth paying attention to.
Americans want to see some sort of justice for all the injustice that they have gone through, and it’s easier to target an individual than it is a whole system. So when the CEO is shot and killed, the killer is lauded, because in the eyes of many that is some form of justice. When, really, it isn’t.
Anger and Profits
People are pissed off at the healthcare system. That anger is being directed towards the health insurance industry. At face value, rightfully so — those are the worst phone calls to make, the worst forms to fill out, the worst letters to receive in the mail.
United Healthcare has some of the highest rates of claim denials in the industry.
One in three claims made to them is denied. That’s a lot of healthcare to deny people, and that’s not great. If they were to NOT deny those claims, it would cost them money. In fact, that’s likely the reason they’re denying these claims — to keep more money. So let’s talk about money.
UnitedHealth is the fourth largest company in the United States by revenue. It’s the fifth largest by the number of people it employs — a whopping 440,000. As Noah Smith points out, last year the company’s net income (profit) was $23.1 billion dollars. That’s a lot of money! But it’s actually only about 6% of their total revenue, which puts their profit margins at around half that of the average company in the S&P500 (a collection of the 500 largest companies in the US).
To quote Noah Smith directly —
If UnitedHealth Group decided to donate every single dollar of its profit to buying Americans more health care, it would only be able to pay for about 9.3% more health care than it’s already paying for. If it donated all of its executives’ salaries to the effort, it would not be much more than that.
In fact, private insurance isn’t very profitable, with most companies clocking in between 2%-4% profit margins, with an average of 2.2% in 2023.
You’ll note that the medical costs are lower than the total premiums collected — roughly about 83%. The Medical Loss Ratio from the Affordable Care Act requires private insurance companies to spend 80% or 85% of their premiums on medical care. Just a note to say that they aren’t spending all that money out of the goodness of their hearts, rather because they have to. This also increases the incentive to push premiums up.
But anyways, Brian Thompson made a $10 million dollar salary that year. That’s a lot of money, but again its only 0.0041% of all the medical costs that UnitedHealth covered. If the company were to operate like a non-profit, it would be able to provide 10% more care, it would likely better the lives of tens of thousands of people, but it would STILL deny claims. If the company were to go above and beyond, and donate the salaries of the entire C-suite towards providing more care, it would (again) STILL deny claims. Why? Because healthcare in this country is EXPENSIVE. And that’s not on insurance companies.
The Root of the Problem — Healthcare Is Expensive
The United States spends more per capita than any other nation on healthcare — we spend roughly 18% of our GDP on it. What exactly does it spend so much more on?
From the source above:
The largest category of health spending in both the U.S. and comparable countries is spending on inpatient and outpatient care, which includes payments to hospitals, clinics, and physicians for services and fees such as primary care or specialist visits, surgical care, provider-administered medications, and facility fees
The reason your healthcare costs are so expensive is because the actual price tag of goods and services, decided by the hospitals and the pharmaceutical companies, is very high. Also because the quantity in which Americans consume healthcare is very high. It’s not the insurance companies; it’s the institutions making the drugs, engineering the equipment, and providing you the care.
We are a wealthy country, and so we spend a lot on care, as highlighted above. But maybe I can talk you through an example of where these high prices might show up:
Say I go on a long run one Saturday morning, and the next morning my ankle is in pain. So I book an appointment with my primary care doctor. He wants to tell me I just rolled my ankle, but he wants to be REALLY sure, so he refers me to an orthopedic specialist. He’s pretty sure that the orthopedic specialist will prescribe an MRI, so to be ahead of the ball, he sends me downstairs for one right then and there. Then he submits a claim to my insurance saying “hey I think he needed an MRI”. Maybe insurance is like “well, did you try just giving him ibuprofen for some time?” and then there’s this back and forth of requesting documentation, justifying prescriptions, etc. that take a long time administratively and suck up resources from the system. That one hour escapade could run me thousands of dollars — too much!
If I were to do the same in Canada, where they have a single payer healthcare system, they’d probably say “we think you sprained your ankle, you don’t need an MRI, here is some Tylenol, if it doesn’t get better soon, come see us.” And you don’t have to pay anything, which is probably the right call?
As a result, Americans are hit hard by the cost of healthcare. In a 910 person survey, 37% of them said “very much agree” that medical expenses was a significant contributor to their bankruptcies, an additional 25.5% said they “somewhat agree” that it was a factor.
These bankruptcies primarily affect lower income people. This brings me to another reason that these high prices are so problematic — the healthcare system in the United States is riddled with inequality. There are numerous examples of this, but I think some of the strongest evidence we have is the life expectancy gap in those with a college degree versus those without.
It’s quite a stark difference. Those without a bachelors live on average 10 YEARS LESS than those with one. It’s a system that works when you have money, and doesn’t when you don’t — noting here that those with a bachelors degree earn more than those without one.
In a capitalist system, we often resort to competition as the driver of innovation, low prices, and a happy customer. And this is true in many cases, but it is product dependent. If I want to buy a pair of tennis shoes, I can walk into a Nike store and look at some air forces, I can walk down the street to an Adidas and try on some sambas, and I can scroll through Amazon and compare the prices. Then I can make a decision, informed on my experience with the products on knowledge of their prices.
Our healthcare system doesn’t work like that. If you have a medical emergency, you’ll likely go to whichever hospital is closest to you. You don’t have any idea how much that hospital charges, and you don’t have any idea how much other hospitals charge. You don’t really know if the quality of care for your specific issue is better there or elsewhere. We don’t know what good, affordable care looks like. If you live in a smaller town, perhaps you only have one or two hospitals. It’s not an industry that is made more resilient by competition.
Additionally, we have the pharmaceutical companies, who really do have large profit margins. From the GAO in 2017:
About 67 percent of all drug companies saw an increase in their annual average profit margins from 2006 to 2015. Among the largest 25 companies, annual average profit margin fluctuated between 15 and 20 percent. For comparison, the annual average profit margin across non-drug companies among the largest 500 globally fluctuated between 4 and 9 percent.
They really do have high margins. Those profit margins also take into account the research and development costs, which are HIGH in pharmaceutical companies. They also seemingly have less incentive to put that R&D money to good use from all their patent schemes. They game the patent system to keep drugs under their control, and there’s just a lot of bad that happens in that industry.
There’s also the issue of private equity buying up hospitals and practices. The incentives there are not to provide the best care, it is to make the most money. I don’t want to derail too much, but it felt worth mentioning.
The American Health Crisis
This is the part that no one wants to hear. One of the biggest reasons Americans are so unhealthy is because they eat too much and don’t move enough. Nearly 75% of adults in the United States are obese or overweight.
This Johns Hopkins report analyses the difference in life expectancy between the United States and the United Kingdom:
As Cremieux comments on the report:
It reported that 57% of the life expectancy gap between the U.S. and the U.K. was down to cardiovascular disease, another 32% was down to drug overdoses, 20% was down to firearm-related homicides and suicides, and 17% was due to motor vehicle accidents. But, as the above treatable/screenable cancer note suggested, the report also concluded that, if anything, America is ahead when it comes to mortality from conditions the healthcare system can actually affect—namely, COVID and cancer
In the United States, we don’t have walkable cities, we don’t have good public transit, we don’t have “third spaces”, we have an impossibly annoying car culture, we have fast food everywhere. Roughly 60% of the foods we consume are ultra processed.
These factors push towards a sedentary life, that sedentary life gets you sick. There’s a lot to say here, about the structural factors at play, the individual factors at play, and personal agency at play, but that would just double the size of this post. All that to say, Americans aren’t healthy…
A Quick Note On Insurance
I mentioned above that United takes a 6% cut of their revenue, and the average private healthcare company profits roughly 3% — why is that? What value are they providing?
Before we answer that, it’s important to state that the majority of Americans receive health insurance from their employers. From eHealth:
In the United States, approximately 78% of the population are eligible for health insurance obtained through their employers as of 2022.
This is the hidden tax that no one sees — you are being “underpaid” at your job in order for your employer to cover your health insurance. Employers are paying an average of $24,000 for family coverage and $8,000 for single coverage towards any given employee.
What these insurance companies, like United, are doing is diminishing concentration of health risks among the people that buy into their programs. There is a world where we don’t need health insurance. Where employers say — begone with these programs! And maybe, ideally, they give you a $15,000 dollar raise since they’re no longer paying the healthcare companies for your individual coverage. And maybe, just maybe, you don’t need to see a doctor at all that year — and you make off like a bandit — $15,000 extra dollars in your pocket! But there is a chance that something bad happens, and you need some expensive treatment, and in a world with no insurance perhaps you need to pay $50,000, and the salary bump is not enough to cover it.
Insurance exists to distribute that risk. That’s the “value” they provide, and they take a small piece of the pie for that value. With that being said, healthcare with no insurance is incredibly expensive. Again, that’s the root of the problem.
But ultimately, insurance providers are the ones we interact with when we need to pay a bill. That is never a good interaction. We get to walk into hospitals, receive care, see smiling doctors who care about us, and then have to call our insurance company to settle the bill that the hospital gave them. There’s a clear “bad guy” in who you interact with. But it’s way more complicated than that.
Where do we go…
I wanted to talk about solutions, how single payer healthcare works, what the government can do, how Canada’s healthcare system works, how Sweden’s healthcare system works, and a whole bunch of other stuff looking ahead. But this post is getting a bit long, so I’ll maybe leave that for the next post.
Anyways, I hope you’re doing well, I hope you enjoyed this, and thanks for reading.
Super interesting. Learned a lot! When can we expect a breakdown of how the US healthcare system works compared to those other countries?
One area I would love to see covered there is how although US healthcare is expensive, we typically receive the care we need.
I believe hospital shortages are typically worse in more social-provided systems.
And side-note, I personally think the US should make prescription “kick-backs” or % requirements illegal. Over prescription is just evil! So many people getting prescribed medication when they aren’t active, diet is bad, etc.
Not sure if this writing plays well in the young Republicans club, but asserting that Luigi Mangione had no understanding of the healthcare system is ignorant of the facts.