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“Payviders” Accused of Inflating Healthcare Costs and Evading Regulations
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Major health insurers are facing scrutiny for possibly exploiting a loophole to increase prices and avoid consumer rebates, raising concerns about healthcare affordability.
The lines between healthcare providers and insurers are increasingly blurred, and a new report suggests this “vertical integration” is being used to game the system.Major health insurers – dubbed “payviders” – including UnitedHealth Group (NYSE: UNH), Elevance Health (NYSE: ELV), and CVS health (NYSE: CVS) are reportedly leveraging their provider arms to inflate care prices and circumvent federal regulations designed to protect consumers.
The Medical Loss Ratio Loophole
At the heart of the issue is the medical loss ratio (MLR), a key metric established by the Affordable Care Act (ACA). The MLR measures the percentage of premium dollars an insurer spends on actual medical care and quality improvement, as opposed to administrative costs and profits. The ACA mandates insurers maintain an MLR of at least 80% in small group and individual markets, and 85% in large group markets – meaning 80 to 85 cents of every dollar in premiums must be dedicated to care. Insurers failing to meet these thresholds are required to issue rebates to consumers.
Sence 2012, approximately $13 billion in rebates have been distributed, highlighting the financial incentive for insurers to maximize their MLR. However,the report indicates that payviders are exploiting a loophole to artificially inflate this ratio.
“This dynamic reveals a limitation of the MLR rules,” the report’s authors wrote. “When the insurer is also the provider,there is less transparency into how health care dollars are actually allocated. The vertically integrated insurer and provider entity can also artificially inflate prices for medical services, worsening the nation’s health care affordability problem.”
Funneling Spending to Affiliated Practices
Payviders are allegedly achieving this by directing spending towards their own affiliated provider practices, which can then charge inflated prices for services. This allows the insurer to demonstrate a higher MLR without genuinely increasing investment in patient care or quality improvements. The practice effectively masks price increases and allows insurers to avoid paying potentially costly rebates.
This strategy isn’t limited to traditional healthcare claims. The report also points to a rise in Medicare Advantage non-claims payments. In Oregon, for exmaple, a important portion of UnitedHealthcare’s claims payments were shifted into non-claims spending through its Optum subsidiary.
“These trends are not limited to Medicare Advantage, however,” the authors wrote. “UnitedHealth and other major insurers such as Elevance and Aetna operate across multiple markets, raising concerns about similar dynamics in the commercial market.”
Calls for Increased Oversight
The findings have prompted calls for greater scrutiny from lawmakers. In 2023, Senators Elizabeth Warren (D-MA) and Mike Braun (R-IN) urged the Department of Health and Human Services (HHS) Office of Inspector General (OIG) to investigate the extent to which vertical integration is driving up costs and enabling insurers to bypass MLR requirements.Similar requests have been made regarding Medicare Advantage plans.
Policy makers are being urged to assess the adequacy of existing regulatory tools, like the MLR, and for states to increase oversight of vertical integration
