Over the past decade, health insurance companies have grown in both size and scale. Last year, revenues from six for-profit parent companies accounted for nearly 30% of total U.S. health care spending - up from less than 10% in 2011.
Why it matters: The size of health insurance companies, which today are often part of larger companies that do more than just provide insurance services, raises big questions about competition, cost, quality of care, and system risks with these sprawling players.
- One of the main arguments in favor of these large and diverse companies is that by owning the various components of the system, they can deliver health care more efficiently, at lower cost, and with higher quality.
- "I think the evidence that these results hold true is pretty weak," says Sheryl Damberg, chief senior economist at the RAND Corporation.
The big picture: The nature of health insurance (plus) companies has changed dramatically over the past decade.
- Three of them processed nearly 80 percent of prescription claims last year, one owned by the nation's largest pharmacy chain, and another became the largest U.S. employer of physicians.
- Some have also recently acquired primary care providers, home health care companies, and urgent care services.
- " Defining what an insurance company is ... in some ways has become very difficult," says Craig Garthwaite, a professor at Northwestern's Kellogg School of Management.
Whether insurer transformation will help accelerate what virtually everyone in the health care system agrees on: the shift from fee-for-service to payment for healthier patients remains an open question .
- "We don't know if it works yet," Garthwaite says. "I think that at this point, most of the big players they've bought all the groceries, but they haven't made the food yet. They own what they need and they're not sure what to do with it."
- "It's difficult to simultaneously bemoan the scale of these companies' operations and at the same time hope that we can fundamentally change the delivery of health services," he added. "If we want to get to the point where companies are making money from people getting healthier, that has to be the basis of reforming the sector."
Enlarge: The recent Change Healthcare hack, which disrupted payments and operations nationwide, has sparked a new round of criticism of mergers and consolidation in the healthcare sector.
- Change was acquired by UnitedHealth Group in 2022. However, UnitedHealth, like some experts, believes that the size of the parent company is a good thing.
- "Fortunately, we were able to leverage UnitedHealth Group's significant resources to drive recovery and begin mitigation - resources that a standalone Change Healthcare would not have had access to," CEO Andrew Witty said in this week's earnings report.
Between the lines: It's not just that health insurers are merging with companies in other lines of business: They've also entered state-regulated markets through the Affordable Care Act exchanges, Medicare Advantage programs and managed Medicaid programs.
- These markets - MA in particular - have been lucrative for insurers, and there is now a fierce debate over whether the federal government is overpaying them.
- "Medicare has become a program where at least half of the participants are in private plans, and Medicaid even more so," says Brian Blase, founder of Paragon Health and a former Trump administration official.
- "The government doesn't allow insurers to lose money. They essentially guarantee their profits in the annual cycle that happens, and I think insurers are doing very well in the transition to larger government-run health care programs," he added.
Health insurance markets themselves are very localized, and plan sizes vary greatly from place to place and market to market.
- "Focusing only on revenue provides little insight into health plan performance, especially when revenue also reflects the annual increase in the cost of care," an AHIP spokesperson wrote in an email.
- In addition, health plans are heavily regulated by states and the federal government, the spokesman added.
Bottom line: The term "too big to fail" usually conjures up the idea of government bailouts. But in health care, it can have a different meaning: They can be big enough to always win.
- "Too big to fail - I'm not sure about that," Damberg said. "But I think there's quite a lot of pressure on players who are trying to compete, and these very large companies that have a huge market share are essentially shutting them out of the market.
- "So you're going to get eaten one way or another," she added. "Either you join them and you get eaten, or you go out of business."