Physician anesthesiologist at Stanford at Associated Anesthesiologists Medical Group
Richard Novak, MD is a Stanford physician board certified in anesthesiology and internal medicine.Dr. Novak is an Adjunct Clinical Professor in the Department of Anesthesiology, Perioperative and Pain Medicine at Stanford University, the Medical Director at Waverley Surgery Center in Palo Alto, California, and a member of the Associated Anesthesiologists Medical Group in Palo Alto, California.

Are doctors the culprits in the rising cost of healthcare? In a word, no. 

Does this story sound familiar? Your health insurance premiums are increasing by 12% each year. You or your employer pays this amount directly to Anthem, United Healthcare, or one of the other major health insurance companies. A drawback is  your health insurance policy comes with a $5000 deductible per person insured, so that you are paying out of pocket to get the first $5000 of each family member’s medical care each year. Because of this deductible cost, you choose to utilize as little health care as possible each year.

The result of this scenario? The insurance company wins in two ways:

1) The insurance company is collecting all time high premiums

2) You and the rest of the insured population are utilizing your insurance less, and choosing less health care visits and procedures because you have to pay cash for the initial expenses. 

Health insurance companies are primary culprits in the rising costs of healthcare.

I’m writing this from the viewpoint of a father who pays for the health insurance for a family of four. I currently pay $2000/month, or $24,000/year, for my group’s Anthem PPO (Preferred provider organization) coverage. My family’s in-network deductible is $5000/person, and our out-of-network deductible is $10,000/person. With this $5000 deductible per person, I may pay $20,000 in deductible payments before I gain any significant insurance coverage. If my family remains healthy, we are paying deductibles all year and gaining very little coverage for our insurance dollars. Our insurance is, in essence, catastrophic coverage in case we incur a major illness. 

I’m also writing this from the viewpoint of a working MD who sees declining payment and increasing difficulty contracting with these same healthcare organizations as a provider. 

The majority of health insurance companies are for-profit, and they are making record profits at this time. Forbes magazine reported that the health insurance industry “is enjoying a Golden Age of growth, sales and profits. ”

The top eight for-profit health insurance companies and their revenue for 2018, as reported by Forbes and Becker’s Hospital Review are listed below:

1. UnitedHealth Group
Membership: 49.5 million 
Revenue: $201 billion 

2. Anthem
Membership: 40.2 million
Revenue: $90 billion 

3. Aetna
Membership: 22.2 million 
Revenue: $60.6 billion

4. Cigna
Membership: 15.9 million
Revenue: $41.6 billion 

5. Humana
Membership: 14 million
Revenue: $53.7 billion

6. Centene
Membership: 12.2 million 
Revenue: $48.3 billion

7. Molina Healthcare
Membership: 4.4 million 
Revenue: $18.8 billion 

8. WellCare Health Plans 
Membership: 4.37 million
Revenue: $16.9 billion

The five largest health insurance or pharmacy benefit management (PBM) companies (Anthem, Cigna, CVS Health, Humana and UnitedHealth Group) in the United States collect revenues as large as the five dominant tech companies (Facebook, Amazon, Apple, Netflix and Google). 

Data: Company filings and FactSet; Chart: Naema Ahmed/Axios

  Data: Company filings and FactSet; Chart: Naema Ahmed/ 

These five health insurance/pharmacy companies had revenue of almost $787 billion in 2019, compared with $783 billion of projected revenue for the five largest tech companies. (Note: health insurers and pharmacy benefit managers pay much of their revenues to hospitals, doctors and drug companies, but these five companies are still recording billions in profit.) TheBest’s Market Segment Report stated that “through third-quarter 2018, health insurers’ net income grew by 19% to $25.8 billion compared with the same prior-year period.”

Los Angeles Times article said, “The truth is that private health insurers have contributed nothing of value to the American healthcare system. Instead, they have raised costs and created an entitled class of administrators and executives who are fighting for their livelihoods, using customers’ premium dollars to do so.”  The same article quoted Wendell Porter who said, “Health insurers have been successful at two things: making money and getting the American public to believe they’re essential.” 

The article went on to say, “The most perplexing aspect of our current debate over healthcare and health coverage is the notion that Americans love their health insurance companies. The increasingly prevalent mode of health coverage in the group and individual markets is the narrow network, which shrinks the roster of doctors and hospitals available to enrollees without heavy surcharges.  . . . Private insurers don’t do nearly as well as Medicare in holding down costs, in part because the more they pay hospitals and doctors, the more they can charge in premiums and the more money flows to their bottom lines. They haven’t shown notable skill in managing chronic diseases or bringing pro-consumer innovations to the table. . . . In reality, Americans don’t like their private health insurance so much as blindly tolerate it. That’s because the vast majority of Americans don’t have a complex interaction with the healthcare system in any given year, and most never will. As we’ve reported before, 1% of patients account for more than one-fifth of all medical spending and 10% account for two-thirds. Fifty percent of patients account for only 3% of all spending.”

(Image source: NIHCM)

Why do Americans want to keep their present healthcare insurers? Because the vast majority of Americans have very little need for medical care in any given year. That’s why most people are satisfied with their coverage. 

When will we see new models for private health insurance? The joint venture of Amazon, Berkshire Hathaway and JPMorgan Chase hired Harvard’s Atul Gawande MD, MPH as their CEO of their medical partnership. Many believe this organization will attempt to contract directly with major health systems, thereby bypassing traditional health insurance companies, in a quest to bring down costs. 

What can Congress do? What if they stipulate that health insurers pay out, for example, 97% of the premiums they collect? This concept, called a “medical loss ratio,” was part of the Affordable Care Act for plans sold on the federal health exchange to people under the age of 65. The Senior Citizens League webpage said, “The medical loss ratio sounds good in theory, but can contribute to rising healthcare costs due to ‘perverse incentives.’ . . If the insurance company has accurately built high costs into the premium, it can make more money.  Here’s how:  Let’s say administrative expenses eat up about 17 percent of each premium dollar and around 3 percent is profit.  Making a 3 percent profit is better if the company spends more.  It’s as if a mom told her son he could have 3 percent of a bowl of ice cream.  A clever child would say, ‘Make it a bigger bowl.’”

I’m not a socialist. I don’t support Medicare-for-all.  I’ve always believed capitalism and free enterprise would solve most economic problems. The current monopolies of health care insurance by a small number of for-profit health insurers is hardly a free market. There is inadequate competition against the Big 8 for-profit insurers, all of whom charge high premiums and bank massive profits. Health insurance companies are well represented in Washington D.C. Healthcare companies spent $3.9 billion dollars lobbying over the past 20 years.  

I encourage voters to pay careful attention to the issue of health insurance profits, and to pay careful attention to where presidential hopefuls and Congressional candidates stand on the issue. If politicians seem to be mouthpieces for the big business of health insurance industry, don’t vote for them. If they are advocates for change that help Americans gain affordable healthcare, I encourage you to vote for them.

As a physician, I’m particularly critical of the argument that doctors are causing the rising healthcare costs in American. The United States has the most expensive healthcare delivery system in the world, and it’s not because doctors make too much money. The administration of each healthcare dollar includes a syphoning off of huge profits by the insurance industry. A fine column by former President of the California Society of Anesthesiologists and UCLA professor Karen Sibert MD cites sources that physician are a mere 8% of America’s healthcare bill.  

Some journalists criticize physicians as an overpaid contingent who are inflating the cost of healthcare in America. Doctors are an essential profession in America. Physicians are suffering from high incidences of student debt, burnout, and premature retirement. As Karen Sibert MD wrote in another excellent column, “Keep up the insults, and good luck finding a physician in 10 years.”

Be informed and wary about the rising cost of health insurance and rising profits of the health insurance industry.

And I hope you stay healthy and don’t need to utilize your health insurance this year. 


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