Education

How To Explain What’s Wrong with US Healthcare to Your Family Over the Holidays

Written by

Sam Slaughter

December 21, 2023

Every American knows that our healthcare system is broken. We all feel the frustration of dealing with the confusing paperwork, archaic systems, and ever-increasing costs. Why is this happening?

One could fill a bookshelf explaining all of the details, but it essentially comes down to one simple point: Big Health has taken over and is aggressively increasings costs. 

Big Health, a term fittingly coined by The Economist, describes giants like UnitedHealth, CVS/Aetna, and Cigna. These companies started out as health insurance providers but have grown into something much bigger. Now, they're not just about insurance; they own a variety of businesses including everything from managing pharmacy benefits and doctor's networks to running mail order and retail pharmacies. They even handle data services and offshore rebate groups. It's a huge change from their original roles, making them more like healthcare empires.

Big Health companies UnitedHealth Group and CVS Health are the 5th and 6th largest companies in America (Fortune 500)

The Big Health Dilemma: Increasing Costs for Employers and Patients, Decreasing Compensation for Care Providers

Leveraging their considerable scale, Big Health is reshaping the economic landscape of healthcare in the United States. This shift has led to rising costs for both employers and patients, while paradoxically diminishing the financial compensation to those at the heart of healthcare: doctors and pharmaceutical companies. 

A significant portion of the financial gains from this restructuring flows towards Wall Street shareholders, creating a stark contrast where the interests of investors are increasingly prioritized over the well-being of the American populace. This situation underscores a critical issue: the financial resources intended for healthcare provision are being diverted. Rather than adequately compensating those directly engaged in patient care, a substantial amount of healthcare spending is being absorbed by intermediaries. 

In other words, large healthcare corporations are raising costs for all, mainly to benefit their shareholders, while simultaneously reducing payments to doctors and pharmaceutical companies. 

The Impact on American Healthcare Affordability and Choice

Big Health's central position in the healthcare system enables them to control the flow of funds. And unlike doctors providing care and pharma companies researching new drugs, Big Health doesn’t actually do much productive work - they’re just very expensive administrators. 

Furthermore, their ownership of medical facilities consolidates their power, leading to reduced competition in the healthcare sector. This lack of competitive alternatives typically drives up healthcare costs without a corresponding enhancement in the quality of care provided. Consequently, administrative overheads overshadow the critical roles of hands-on care and medical advancement.

The net effect is an increasingly heavy financial burden on American citizens and businesses. Think of it like an indirect 'Wall Street tax', levied through the Big Health-controlled healthcare system. 

To put the cost into perspective, American businesses paid $734B to sponsor employee healthcare in 2021, which was twice what they paid in corporate taxes ($370B). In that year, UnitedHealth alone booked $287B of revenue.

Meanwhile, household costs for healthcare have risen from $725B in 2010 to $1.1T in 2021, an increase of almost 60%.

Shaping the Future of Healthcare: Unbundling Big Health

This Big Health-controlled system will not work in the long term. If the private sector can’t fix it, American citizens and employers will eventually decide they prefer Medicare for All or fully government-sponsored healthcare rather than Big Health extracting ever-increasing margins at their expense. After all, if you’re going to overpay someone, most people would rather fund the government versus paying for a Wall Street banker’s fifth house.

Hopefully it doesn’t come to that, and US healthcare can remain private sector-driven. The best path to reform is a combination of:

  1. Private sector companies like SmithRx who “unbundle” the Big Health offering and provide a better option for Employers and Patients
  2. Targeted government regulation that prevents some of the more egregious anti-competitive actions perpetrated by Big Health

If you’re an employer, broker, or policymaker who is interested in exchanging ideas on fixing healthcare, we’d love to hear from you at SmithRx.

Data sources: 

Written by

Sam Slaughter

SVP, Revenue, SmithRx

A new type of pharmacy benefits manager, SmithRx is working to reduce pharmacy costs by reimagining the traditional PBM as a Drug Acquisition Platform built on transparent modern technology that aligns with the needs of our customers.