1135 Malincentives and Internal Profit Shifting: A 20-Year Financial Analysis of Major Health Insurers

INTRODUCTION: Major health insurers have vertically integrated and become the country’s largest physician employers. This vertical integration potentially creates malincentives to preferentially approve and upcharge internal care to internally shift profits (avoiding ACA Medical Loss Ratio (MLR) penalties), while denying/delaying external care, such as surgery. METHODS: Annual 10-K financial statements were analyzed over 20-years for the largest commercial health insurers (UnitedHealth, CVS/Aetna, Elevance, Humana, and Cigna). Analysis included comparisons between each company's income statement and revenues from insurance and noninsurance segments. RESULTS: Major insurers cover 60% of the US population with revenues exceeding $1.2 Trillion. Since 2003, noninsurance segment profits have risen from 10% to roughly 50% of profits. In 2023, 20% of revenues at major health insurers flowed between major insurer segments within their own companies compared to 0% in 2003. Most intersegmental revenues flow from insurance segments toward/within non-insurance segments, evidenced by premium revenue’s close match with insurance segment revenues. Assuming these intersegmental revenues flow toward non-insurance segments, insurers have significantly higher profit margins for non-insurance segments and have internally shifted profits toward non-insurance segments since the MLR. Insurers hold major investments valued at 20% of premiums. The return on these investments, combined with recent inflation, allow major insurers to earn annualized risk-free 9% returns by delaying treatment/reimbursement for surgery. CONCLUSIONS: This is the first analysis to outline 1) internal profit shifts toward non-insurance segments at major insurers that could avoid MLR penalties and elevate premiums, and 2) major financial motivations to deny/delay external care, such as surgery. These malincentives explain much of the dysfunction and waste in modern US healthcare and regulators should require complete internal vs. external pricing/approval rates for each insurance segment to better assess anticompetitive practices.