> Conventional accounting measures portray large health insurers such as UnitedHealth Group (UHG) as earning relatively low profit margins because they treat premium dollars that are subsequently paid out in medical claims as revenue. However, these medical claims are pass-through costs, not income retained by the insurer.
I don't understand this claim. Doesn't every business have costs to make its goods and services, and revenue when those are sold? A grocery store sells food and uses the money to buy more food, pay its employees, reinvest etc, and the profit leftover goes to the owners. An insurance company sells policies and similarly uses the money to pay claims, pay employees, reinvest, and profit. Why is the insurance company's sales revenue pass-through and the grocery store's sales revenue not?
Insurance companies often have a parent company. That parent company owns healthcare providers and pharmacies.
So it goes something like this
United Health Group -> United Health Insurance
United Health Group -> Sunshine Hospital.
United Health Insurance has a profit cap, it’s a % of revenue. Sunshine Hospital has no cap. So Sunshine Hospital charged United Health Insurance X$ and that profit rolls up to United Health Group.
>United Health Insurance has a profit cap, it’s a % of revenue. Sunshine Hospital has no cap. So Sunshine Hospital charged United Health Insurance X$ and that profit rolls up to United Health Group.
That doesn't really work as a strategy unless UHI cornered the insurance market within a given region, otherwise they'd lose business to competing hospitals. You might then say "hospitals aren't competitive, they're (regional) monopolies!", which might be true, but if that were the case, you'd expect them to raise prices anyways. They're profit maximizing companies after all, not operating out of altruism.
Uhh...? We know for a fact that this is how it works.
It's actually far more insidious.
The payer will have non-owned providers on their network, and by virtue of processing those claims they will understand a lot about the provider. They use this info to decide which providers to acquire. If the provider declines acquisition, the payer will use their member population (i.e. customers/patients of the provider who are covered by the payer) as leverage in negotiations against the provider, effectively crippling their business.
Once a practice is sufficiently maimed, they come back with another acquisition offer, and ta-da, the big player gets bigger.
Yes, all of this only works if the payer is large relative to other payers. There was a period of history where this was a caveat, now it's just an observation about history. Now, there is 1 or 2 mega-players in each region. They've divvied up the country into their own territories and will extract rent henceforth.
It's very important to understand that this model also eliminates all incentives to reduce costs of care. There is not a single player in the entire ecosystem who is incentivized to reduce cost of care except patients, but even there, most patients' health insurer is selected by their employer. Then what is an employer going to do? Select a health plan that doesn't have any local healthcare providers?
>Yes, all of this only works if the payer is large relative to other payers. There was a period of history where this was a caveat, now it's just an observation about history. Now, there is 1 or 2 mega-players in each region. They've divvied up the country into their own territories and will extract rent henceforth.
...which is specifically what I acknowledge in my original comment:
>... unless UHI cornered the insurance market within a given region, otherwise they'd lose business to competing hospitals.
For all the words you wrote, it doesn't seem like you're disputing this point, and you're not providing any evidence that UHI has monopoly/monopsony powers, only postulating that it's probably true.
So your very substantive contribution to "they're abusing market power" is the observation "they could only do this if they have market power?"
And you're wanting someone else to go demonstrate to you that the single entity that is both 1) largest health insurer and 2) largest health provider in the country has significant market power?
I'll assume that this is legitimate ignorance and not a bad faith attempt to muddy conversation, and I'll direct you to a few resources where you can read several years of extensive investigative reporting on the myriad ways the pay-vider structure enables acquisition and exploitation of market power:
>I'll assume that this is legitimate ignorance and not a bad faith attempt to muddy conversation, and I'll direct you to a few resources where you can read several years of extensive investigative reporting on the myriad ways the pay-vider structure enables acquisition and exploitation of market power:
I read through the first 3 and can't tell how they're related, so I'm not going to check the rest.
These only claims that united health is the "biggest", but that's not the same as having monopoly in a given market, which is needed for the scheme to work. Otherwise if you only have say, 30% market share, and your associated hospital charges sky high rates, you might be able to get slightly fatter margins on your insurance side, but you'll be losing money to other competitors that can out-compete you through greater economies of scale. I did a cursory search and their national market share in insurance is around 15%, which really seems tough to have the economics work out, especially given how capital intensive hospitals are.
You read through the first 3 links, including what... all 8 parts of the deep investigative work done by the leading healthcare publication with the subtitle "How UnitedHealth Group wields its unrivaled physician empire to boost its profits and expand its influence", and you came away thinking that this was unrelated to the topic at hand?
You read through all those 8 parts and didn't see how, for example, Part 5, titled "UnitedHealth pays its own physician groups considerably more than others, driving up consumer costs and its profits" is related to the question of whether or not they have and exploit market concentration to increase their profits?
> That doesn't really work as a strategy unless UHI cornered the insurance market within a given region, otherwise they'd lose business to competing hospitals.
Welcome to the Certificate of Need. A legal requirement in most states for creating a new healthcare facility. Ostensibly to make sure that the population in that area has adequate healthcare options. But lobbied for by healthcare facility and hospital owners, it actually surveys other providers (your competitors) in the area and asks if their revenue would be adversely affected by you opening up. Too much of this (i.e. "we're worried that a hospital might reduce coverage or shutdown if there's too much risk to their profit"), and no CoN for you.
And this is to say nothing of Pharma Benefits Management. Steering you towards their own more expensive pharmacy (which isn't profit-capped). Mine does it by saying "you want a more convenient >30 day prescription? Only through our wholly owned mail-order subsidiary". 30 day scripts at your local pharmacy. 90 day for the same med? Denied.
>which might be true, but if that were the case, you'd expect them to raise prices anyways. They're profit maximizing companies after all, not operating out of altruism.
I just scanned the doc but I think your question is the core argument of the doc. It explicitly says that United is using standard accounting practices and proposes the “pass through” mechanism as a “better” metric.
Based on the source I, personally, don’t find it to be a credible argument
I'm not an accountant and don't claim to have a clean answer to how it should be accounted, but I hope I can highlight the conundrum.
Suppose you run a brokerage or some kind of marketplace enabling transactions. Should all transactions passing through your platform be considered your revenue? Or only the part that stays with you for the services you provide, while deducting the component which is simultaneously directed to the transaction counterparty?
In one simple perspective, calling these revenue and inventory would make sense only in a world where you hold on to the cash and the goods for extended periods, so they need to be appropriately accounted for in your books among cash flows and balances.
So what should be the correct accounting model for an insurance service that collects premiums and holds on to your money and pays later for services once you avail them?
I imagine that so long as they are taking on the risk of how much service you might avail rather than simply putting a stop at how much you've paid them in advance, then the premiums they collect ought to be considered revenue, to balance against the as yet unknown inventory costs.
All of this might be relevant in a conversation between accountants or investment analysts, but it's pretty obvious the "study" chose this particular methodology to get a number that makes insurance companies look as bad as possible. In this context, using their methodology does more to obfuscate/mislead than to clarify. If you say that UHI has a profit margin of 15%, most people would interpret that to mean that per $1000 worth of premiums paid, they make $150, which is exactly what happens. Their argument of "they charge $1000 in premiums, but of that $800 is paid out as costs, therefore their margin is 75%" is more confusing.
>You're just asserting common convention among some implicitly selected audience that you consider "most" people, rather than justifying why that is the most reasonable practice.
The purpose of language is communication, so if "most" people (which I mean to be laypeople off the street, which is the presumptive audience for this report) understand what it means, then it's mission accomplished. On the flip side, if the language used is deceptive/misleading, even if the underlying principle is sound, that's bad. The "most reasonable practice" question is unhelpful because it quickly devolves into questions on how society ought to work, which is subjective and no objective statements can be made about it. For instance, why even argue what the "profit" margin is? Should private entities even be making money on healthcare? Why not put out a "study" on how much unitedhealth is "stealing" from people instead? After all, the position that for profit companies shouldn't be involved in the provision of healthcare isn't exactly an uncommon position.
I believe they are saying that only the portion of premiums paid by UHG customers _that are not_ spent on paying out claims should be counted as UHG revenue. That is if I and my employer pay UHG $18,000 over the course of the year and UHG pays out $2,500 to my doctors and to cover my prescriptions, only the remaining $15,500 should be counted as UHG revenue.
The thinking here is that because UHG is legally obligated to pay out claims, this money only "passes through" their hands. I believe the legal obligation is the thing here.
Anyway, if these pass through costs (the claims they are legally obligated to pay) are removed from the equation then their revenue number is smaller and their profit margin is larger.
> if I…pay UHG $18,000 and… UHG pays out $2,500…, only the remaining $15,500 should be counted as UHG revenue
To illustrate the problem with this, what would you calculate their revenue to be if you become severely ill and they pay out $100,000?
There is no such concept in accounting as negative gross revenue. And situations where net revenue goes negative are exceedingly rare and complex (you’d probably hear about it in the news and someone might end up in jail).
The point is that, to a typical person who doesn't know much about accounting or insurance, UnitedHealth's "profit margin" is understood to mean the fraction of the money I send them each month that's going into their pockets. Conventional accounting matches this intuition pretty well, and the source article's proposed alternative metric does not match it well at all.
The ACA tried to address this sort of thing with a Medical Loss Ratio [1]. This basically meant that 80% of premiums had to be spent on healthcare. This has two obvious flaws:
1. Certain government contracts are what are called "cost plus" contracts. These have the same flaw. If the contractor earns 20% above "costs", they're incentivized for a cost blowout. Same with insurance premiums. If you have $100B in premiums, then $20B doesn't have to be spent on healthcare. But if premiums were $1T, then that same ratio is $200B. It incentivizes insurers to raise premiums; and
2. Health insurers cheat on the ratio by moving profits elsewhere. For example, UHC has a pharamaceutical benefits manager ("PBM"). Sounds inocuous but it's evil. PBMs bulk negotiate with drug suppliers but can basically keep the volume discount as an extra profit. PBMs do much more such as constantly force what medications are covered to force people to ssee providers even and get a prescription for whatever the new medication is even if they're stable on current medications. The whole point is to make people give up (or die).
But health insurance companies also own providers like hospitals and medical providers, either directly or through thinlyhh veiled subsidiaries meant to hide profits and that corporations are making healthcare decisions (something certain states have laws against).
The whole thing is a ridiculous system and needs to be scrapped.
That 80% problem also means that there's no incentive for an executive to reduce medical costs because that would then reduce the 20% hen can allocate to henself.
I'm pretty sure that's why UHC gives people on ACA $100 gift card just for visiting their PCP. That inflates the 80% bucket.
The weirdest thing about the PBM play is that the Medical Loss Ratio gives them the freedom to arbitrarily increase profit values without doing anything weird, because you can just not put any downward pressure on costs and they will just naturally rise.
Which of course means that these companies are not satisfied with a free ticket to arbitrary profit values, and have other motivations than just having all the money.
There's an aspect of "We also want to control things" to it.
The Traditional View (How it actually works):
If an investment fund manages $1000 of your money and charges a $150 management fee while keeping your $1000 completely separate, they made $50 on $150 of sales and have a 33.3% profit margin.
The "Insurance Style" View (If they copied UHG's model):
If an investment fund counts your $1000 deposit as their own revenue and treats buying stocks for you as their own cost, they made $50 on $1150 of sales and have a 4.3% profit margin.
The distinction is that the insurance company is not selling you medical services; those are covered by your and other clients' own money. They are selling the service of managing a central fund to reduce risk for the people who are part of it. For them to claim that you were paying them for medical services, they shouldn't just be covering the hospital bills—they should be operating the hospital and buying and selling the drugs themselves. It might feel like they do that, but this is actually done by the healthcare providers and pharmacies, with the costs merely covered by the insurance fund.
Grocery-Bagging Analogy:
Imagine you pay a teenager $10 an hour to help bag customers' groceries. In that hour, $2000 worth of groceries get bagged, and your business takes a $100 fee from the store for the service. After paying the teenager, you pocket $90.Do you claim a 90% profit margin on your $100 service fee? Or do you claim that your "costs" were $2010 because you included the value of the customers' groceries, pretending your margin was a measly 4.3% while walking away with almost all the fee?
I think its more anologous to a bank giving out a loan. There, rhe bank doesnt count any principle repayments as revenue, only interest repayments. The principal repayments are what the bank is "returning" to whoever owned the money in the first place. The interest is for the banks actual financial service. The implication being that insurance providers arent providing medicine, they are providing financial liquidity just like the bank
1) medical loss ratio rules mean insurers are expected/required to pass a certain percent of premium on as payment for medical services, in a way that a grocery store is not required
2) insurer is selling you a contract that they will pay your medical bills if you have any - they are NOT retailing you medical services
Insurers in the US actually are retailing you medical services. All the large insurers own huge (and growing) numbers of medical providers and they use their insurance plans to abuse non-owned medical providers into selling out to the insurer.
You're saying that insurers aren't retailing you healthcare services despite the fact they are actually retailing you healthcare services, but in some cases you can choose to not use your insurance and buy healthcare from someone else?
Brokers quite correctly do not count the value of the shares because they never actually see it. But that's not the way insurance works--while dollars flow in and dollars flow out they are not remotely the same dollars. This feels like someone is trying to lie with statistics.
Medicine is big business. Insurance exists because people are betting against their health. Profits this high indicate insurance is REALLY GOOD at getting people to bet against themselves.
The nice thing about stuff like this is that you can check the stock price to see if it's actually meaningful. You're not gonna surprise a bunch of wallstreet analysts with a finding that profits are actually 4x, and if you do, the gap up in stock price would be near instant.
That being said, while $UHG has had a good year, the stock is still underwater from where it's been since 2021, and no noticeable movement from this report.
Some of this has to do with limits from the ACA (Affordable Care Act), which limited the margins of insurance companies. It creates incentives for higher premiums, but also these types of gains, which is just bad for everybody.
I don't think there's much you can look at with the Affordable Care Act and think that it was a success.
49 comments
[ 0.27 ms ] story [ 28.8 ms ] threadI don't understand this claim. Doesn't every business have costs to make its goods and services, and revenue when those are sold? A grocery store sells food and uses the money to buy more food, pay its employees, reinvest etc, and the profit leftover goes to the owners. An insurance company sells policies and similarly uses the money to pay claims, pay employees, reinvest, and profit. Why is the insurance company's sales revenue pass-through and the grocery store's sales revenue not?
So it goes something like this
United Health Group -> United Health Insurance United Health Group -> Sunshine Hospital.
United Health Insurance has a profit cap, it’s a % of revenue. Sunshine Hospital has no cap. So Sunshine Hospital charged United Health Insurance X$ and that profit rolls up to United Health Group.
That doesn't really work as a strategy unless UHI cornered the insurance market within a given region, otherwise they'd lose business to competing hospitals. You might then say "hospitals aren't competitive, they're (regional) monopolies!", which might be true, but if that were the case, you'd expect them to raise prices anyways. They're profit maximizing companies after all, not operating out of altruism.
It's actually far more insidious.
The payer will have non-owned providers on their network, and by virtue of processing those claims they will understand a lot about the provider. They use this info to decide which providers to acquire. If the provider declines acquisition, the payer will use their member population (i.e. customers/patients of the provider who are covered by the payer) as leverage in negotiations against the provider, effectively crippling their business.
Once a practice is sufficiently maimed, they come back with another acquisition offer, and ta-da, the big player gets bigger.
Yes, all of this only works if the payer is large relative to other payers. There was a period of history where this was a caveat, now it's just an observation about history. Now, there is 1 or 2 mega-players in each region. They've divvied up the country into their own territories and will extract rent henceforth.
It's very important to understand that this model also eliminates all incentives to reduce costs of care. There is not a single player in the entire ecosystem who is incentivized to reduce cost of care except patients, but even there, most patients' health insurer is selected by their employer. Then what is an employer going to do? Select a health plan that doesn't have any local healthcare providers?
...which is specifically what I acknowledge in my original comment:
>... unless UHI cornered the insurance market within a given region, otherwise they'd lose business to competing hospitals.
For all the words you wrote, it doesn't seem like you're disputing this point, and you're not providing any evidence that UHI has monopoly/monopsony powers, only postulating that it's probably true.
And you're wanting someone else to go demonstrate to you that the single entity that is both 1) largest health insurer and 2) largest health provider in the country has significant market power?
I'll assume that this is legitimate ignorance and not a bad faith attempt to muddy conversation, and I'll direct you to a few resources where you can read several years of extensive investigative reporting on the myriad ways the pay-vider structure enables acquisition and exploitation of market power:
https://www.economicliberties.us/data-tools/unitedhealth-gro...
https://www.statnews.com/unitedhealth-group-investigation-he...
https://www.wsj.com/us-news/unitedhealth-medicare-fraud-inve...
https://www.wsj.com/health/healthcare/medicare-health-insura...
https://publicintegrity.org/topics/health/federal-programs/m...
I read through the first 3 and can't tell how they're related, so I'm not going to check the rest.
>https://www.economicliberties.us/data-tools/unitedhealth-gro...
https://www.statnews.com/unitedhealth-group-investigation-he...
These only claims that united health is the "biggest", but that's not the same as having monopoly in a given market, which is needed for the scheme to work. Otherwise if you only have say, 30% market share, and your associated hospital charges sky high rates, you might be able to get slightly fatter margins on your insurance side, but you'll be losing money to other competitors that can out-compete you through greater economies of scale. I did a cursory search and their national market share in insurance is around 15%, which really seems tough to have the economics work out, especially given how capital intensive hospitals are.
>https://www.wsj.com/us-news/unitedhealth-medicare-fraud-inve...
What does "Medicare Fraud" have to do with the question that they're a monopoly or not?
You read through all those 8 parts and didn't see how, for example, Part 5, titled "UnitedHealth pays its own physician groups considerably more than others, driving up consumer costs and its profits" is related to the question of whether or not they have and exploit market concentration to increase their profits?
Welcome to the Certificate of Need. A legal requirement in most states for creating a new healthcare facility. Ostensibly to make sure that the population in that area has adequate healthcare options. But lobbied for by healthcare facility and hospital owners, it actually surveys other providers (your competitors) in the area and asks if their revenue would be adversely affected by you opening up. Too much of this (i.e. "we're worried that a hospital might reduce coverage or shutdown if there's too much risk to their profit"), and no CoN for you.
And this is to say nothing of Pharma Benefits Management. Steering you towards their own more expensive pharmacy (which isn't profit-capped). Mine does it by saying "you want a more convenient >30 day prescription? Only through our wholly owned mail-order subsidiary". 30 day scripts at your local pharmacy. 90 day for the same med? Denied.
Based on the source I, personally, don’t find it to be a credible argument
Suppose you run a brokerage or some kind of marketplace enabling transactions. Should all transactions passing through your platform be considered your revenue? Or only the part that stays with you for the services you provide, while deducting the component which is simultaneously directed to the transaction counterparty?
In one simple perspective, calling these revenue and inventory would make sense only in a world where you hold on to the cash and the goods for extended periods, so they need to be appropriately accounted for in your books among cash flows and balances.
So what should be the correct accounting model for an insurance service that collects premiums and holds on to your money and pays later for services once you avail them?
I imagine that so long as they are taking on the risk of how much service you might avail rather than simply putting a stop at how much you've paid them in advance, then the premiums they collect ought to be considered revenue, to balance against the as yet unknown inventory costs.
The purpose of language is communication, so if "most" people (which I mean to be laypeople off the street, which is the presumptive audience for this report) understand what it means, then it's mission accomplished. On the flip side, if the language used is deceptive/misleading, even if the underlying principle is sound, that's bad. The "most reasonable practice" question is unhelpful because it quickly devolves into questions on how society ought to work, which is subjective and no objective statements can be made about it. For instance, why even argue what the "profit" margin is? Should private entities even be making money on healthcare? Why not put out a "study" on how much unitedhealth is "stealing" from people instead? After all, the position that for profit companies shouldn't be involved in the provision of healthcare isn't exactly an uncommon position.
The thinking here is that because UHG is legally obligated to pay out claims, this money only "passes through" their hands. I believe the legal obligation is the thing here.
Anyway, if these pass through costs (the claims they are legally obligated to pay) are removed from the equation then their revenue number is smaller and their profit margin is larger.
To illustrate the problem with this, what would you calculate their revenue to be if you become severely ill and they pay out $100,000?
There is no such concept in accounting as negative gross revenue. And situations where net revenue goes negative are exceedingly rare and complex (you’d probably hear about it in the news and someone might end up in jail).
1. Certain government contracts are what are called "cost plus" contracts. These have the same flaw. If the contractor earns 20% above "costs", they're incentivized for a cost blowout. Same with insurance premiums. If you have $100B in premiums, then $20B doesn't have to be spent on healthcare. But if premiums were $1T, then that same ratio is $200B. It incentivizes insurers to raise premiums; and
2. Health insurers cheat on the ratio by moving profits elsewhere. For example, UHC has a pharamaceutical benefits manager ("PBM"). Sounds inocuous but it's evil. PBMs bulk negotiate with drug suppliers but can basically keep the volume discount as an extra profit. PBMs do much more such as constantly force what medications are covered to force people to ssee providers even and get a prescription for whatever the new medication is even if they're stable on current medications. The whole point is to make people give up (or die).
But health insurance companies also own providers like hospitals and medical providers, either directly or through thinlyhh veiled subsidiaries meant to hide profits and that corporations are making healthcare decisions (something certain states have laws against).
The whole thing is a ridiculous system and needs to be scrapped.
[1]: https://www.cms.gov/marketplace/private-health-insurance/med...
I'm pretty sure that's why UHC gives people on ACA $100 gift card just for visiting their PCP. That inflates the 80% bucket.
Which of course means that these companies are not satisfied with a free ticket to arbitrary profit values, and have other motivations than just having all the money.
There's an aspect of "We also want to control things" to it.
The "Insurance Style" View (If they copied UHG's model): If an investment fund counts your $1000 deposit as their own revenue and treats buying stocks for you as their own cost, they made $50 on $1150 of sales and have a 4.3% profit margin.
The distinction is that the insurance company is not selling you medical services; those are covered by your and other clients' own money. They are selling the service of managing a central fund to reduce risk for the people who are part of it. For them to claim that you were paying them for medical services, they shouldn't just be covering the hospital bills—they should be operating the hospital and buying and selling the drugs themselves. It might feel like they do that, but this is actually done by the healthcare providers and pharmacies, with the costs merely covered by the insurance fund.
Grocery-Bagging Analogy: Imagine you pay a teenager $10 an hour to help bag customers' groceries. In that hour, $2000 worth of groceries get bagged, and your business takes a $100 fee from the store for the service. After paying the teenager, you pocket $90.Do you claim a 90% profit margin on your $100 service fee? Or do you claim that your "costs" were $2010 because you included the value of the customers' groceries, pretending your margin was a measly 4.3% while walking away with almost all the fee?
1) medical loss ratio rules mean insurers are expected/required to pass a certain percent of premium on as payment for medical services, in a way that a grocery store is not required
2) insurer is selling you a contract that they will pay your medical bills if you have any - they are NOT retailing you medical services
3)
You're saying that insurers aren't retailing you healthcare services despite the fact they are actually retailing you healthcare services, but in some cases you can choose to not use your insurance and buy healthcare from someone else?
Brokers quite correctly do not count the value of the shares because they never actually see it. But that's not the way insurance works--while dollars flow in and dollars flow out they are not remotely the same dollars. This feels like someone is trying to lie with statistics.
If you don't understand why are you commenting?
Your response makes absolutely no sense at all.
That being said, while $UHG has had a good year, the stock is still underwater from where it's been since 2021, and no noticeable movement from this report.
I don't think there's much you can look at with the Affordable Care Act and think that it was a success.
* https://ysph.yale.edu/news-article/universal-health-coverage...
Study:
* https://doi.org/10.64898/2026.07.22.26358689