Misalignment of Incentives
The escalating cost of healthcare in the U.S. remains a significant concern, with over half of adults struggling to afford care, particularly among the uninsured population. A Kaiser Family Foundation (KFF) analysis indicates that approximately 41% of U.S. adults are burdened by some form of medical or dental debt, highlighting the widespread impact of healthcare expenses. This medical debt is not only prevalent, affecting nearly half of the adult population, but it also carries severe consequences; around 25% of those with medical debt report that their bills are overdue or that they are unable to pay them. The impact of medical debt is disproportionately felt by lower-income individuals, the uninsured, Black and Hispanic Americans, women, and parents, who are more likely to face these financial challenges.
In contrast to rising healthcare costs for consumers, insurers have reported record profits. The Cigna Group announced a profit of $739 million for the third quarter, despite a $1 billion after-tax investment loss related to VillageMD. The company’s revenue for the same quarter reached $63.7 billion, a significant increase from the $49 billion in revenue and $1.4 billion in profit reported in the previous year. For the first nine months of the year, Cigna has generated $181.5 billion in revenue and $2 billion in profit, while total revenues for the first three quarters of 2023 were $144.2 billion, with profits exceeding $4.1 billion.
UnitedHealth Group (UHC) also showcased impressive financial results for 2023, reporting revenues of $371.6 billion, a 14.6% increase from 2022. Its operating income grew by 13.8% to $32.4 billion, with cash flows from operations at $29.1 billion. UHC's net earnings were $23.86 per share for the full year and $5.83 per share for the fourth quarter, while adjusted net earnings reached $25.12 per share for the full year and $6.16 per share for the fourth quarter. The company’s revenue growth was largely driven by strong performance from its Optum and UnitedHealthcare divisions, along with an increase of nearly 700,000 consumers in commercial benefits.
CVS Health reported second-quarter 2024 revenue of $91.2 billion, marking a 2.6% increase from the previous year. The company has adjusted its full-year guidance, lowering its GAAP diluted EPS forecast to a range of $4.95 to $5.20 and its adjusted EPS to between $6.40 and $6.65, both of which surpassed Wall Street analysts' expectations, according to Zacks Investment Research. Additionally, Blue Cross Blue Shield reported a net gain of $146.6 million on $9.3 billion in revenue, resulting in a net margin of 1.6%. Elevance, for its part, announced fourth-quarter revenue of $2.6 billion and a profit of $856 million, exceeding analysts' predictions.
Given the rising revenues reported by insurers, one might assume they are not grappling with the same healthcare cost challenges as consumers. However, the root of the issue lies in the misalignment of incentives among large insurance carriers, which are beholden to Wall Street investors. To effectively control costs, employers need to explore funding models that prioritize data and transparency.