Health insurance companies are squeezed

Investment Analysis Clubs Macro Economic Trends and Risks
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METARs often bash health insurance companies. But they are part of our economic landscape. If a health insurance company can’t make a profit it may drop a marketplace, leaving people with fewer options. And the investors will suffer, too.

https://www.wsj.com/health/healthcare/health-insurers-are-becoming-chronically-uninvestable-c0b5be8c?mod=hp_lead_pos5

Health Insurers Are Becoming Chronically Uninvestable

Companies like UnitedHealth, Centene and Humana are getting squeezed between rising costs and a stingier government

By David Wainer, The Wall Street Journal, July 10, 2025

Health insurance has never been a flashy, high-growth business. But for many years it offered something nearly as good: steady, dependable returns, fueled by the expansion of government programs such as Medicare, Medicaid and the Obamacare exchanges…

Lately, though, Wall Street has a problem with America’s health insurers: They keep missing their numbers. What began as trouble in Medicare Advantage has now spread across nearly all government-backed plans, signaling deeper issues in the model itself…

The trouble has sent shares of insurance companies plunging. This also comes as the recently passed tax-and-spending package is set to cut more than $1 trillion in healthcare spending over a decade. …

The core problem is that the assumptions insurers rely on to price plans—how many people will enroll, how sick they will be and how much care they will use—are no longer holding up. Medical usage has surged and become more volatile in the postpandemic landscape. Changes to how insurers and providers are allowed to bill and code care have eroded margins for payers. And the mix of healthy and sick enrollees in government-sponsored plans is shifting, as millions fall off insurance rolls…

On one hand, insurers are facing skyrocketing expenses—from costlier procedures and rising nurse wages to expensive drugs such as GLP-1s. On the other hand, they can’t pass those rising costs along to the government as easily as they once could, with healthcare already accounting for an exorbitant 17% of gross domestic product. …[end quote]

The people who choose to drop health insurance are likely to be relatively healthy, leaving a smaller pool of sicker insured people.

Medicare Advantage plans cost the government and taxpayers billions of dollars more than traditional Medicare. After years of reports, lawsuits and whistleblower accounts accusing big insurers of gaming the system and overcharging the government, the Biden administration made a series of policy changes that have negatively affected what the plans get paid. Meanwhile, a post-Covid surge in seniors’ medical costs caught insurers by surprise.

The big health insurers are industry giant UnitedHealth Group, Centene, Humana, Cigna and CVS. I owned CVS for a while but sold it when its drop didn’t seem to be reversing.

The entire health insurance market will be in flux due to the OBBBA whose health insurance laws don’t come into effect until 12/31/2026 (after the midterm elections). It’s highly uncertain what will happen.

Wendy

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Once again “send more money!!” Some may prefer universal health care paid by govt, but that too is “How do you pay for it?”

Saving money in health care results in less care and worse outcomes.

How do you improve healthcare efficiencies to reduce costs while providing quality healthcare?

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Same as now, except at lower cost.

How do you like your Medicare?

Or did you pass on Medicare and buy insurance in some other market?

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Cost is the right word. Paying for it with higher deficits is not acceptable.

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Three questions for you.

Or are you on ACA?

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Yes, I have Medicare Advantage. So far it works fine. Both Social Security and Medicare will run out of funds in a decade or so. Then tough decisions must be made.

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Then clearly someone (patient, provider, insurer, pbm, pharma, admin, other) is receiving more benefit than what was paid in.

This is a po-liti-cal problem, not a math problem.

As a Medicare beneficiary, do you want to pay more, receive less, or do you want someone else to cover it, or some of each?

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We know how to do this. It has been done many times before.

I expect Congress to take action. Rather than sit on their hands.

All participants may end up paying more and with trimmed benefits.

Improving healthcare efficiency is still an obvious goal. I think a necessity.

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Just like ML said, the same way we do now.

Right now, most people not on Medicare or Medicaid get their health insurance through their employer. So charge all employers a monthly per-employee fee for health insurance. Let employees choose to add their family to their insurance via payroll deduction, and give employers the option of paying part or all of the family cost as an employee benefit.

In short, do exactly what we do now, except the insurer is the federal government.

—Peter

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Medicare Advantage was originally meant to save money for the government. But time has shown that Medicare costs less than Medicare Advantage (considering that government Medicare overhead is 2% while Medicare Advantage overhead/ profit is 20%).

My first step would be to cancel Medicare Advantage and put everyone back on standard Medicare. My second step would be to ask other countries how they do it.
Wendy

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Just looking at $UNH, from 2015 to 2024, the revenue grew from $157 to $400 B, that is 11% growth, and net income grew slightly faster, around 15%+, if you adjust for one time events in 2024 and the share price moved from $75 to $615 (the all time high) before dropping, along the way paying $47 in dividends.

So a steady grower in revenue, dividends and share price declining over 50% is a bit of a shock.

Now, there are issues ranging from procedure costs, models, coding, etc. I am not saying these things will be resolved in 1 or 2 quarters, but give them few more quarters they may solve it. This business will become profitable again.

In the panic drops, I have sold some Jan 26 $130 puts, that was the lowest available at that time. I am waiting for the quarter earnings report and wanted to see if there is going to be any kitchen sink quarter. Will slowly initiate a position.

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Yup. I currently pay $85 per week for a high deductible family medical, dental, and vision plan. My employer kicks in another $365 per week. That’s almost 8x what I pay into Medicare each week.

If all companies providing healthcare to their employees were required to participate in a universal healthcare program, it would solve funding and widen the risk pool…saving cost.

It’s not brain surgery.

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Plenty of data was published, during the debate on the ACA. The US is paying more than enough to provide health care to everyone, now. It’s just that so much of the money vanishes into administrative overhead, and profits, instead of into patient care.

Nope. The data does not support that. Compare life expectancy, and healthy life expectancy, of most “first world” countries, to the US. Most countries are realizing better outcomes, at less cost, than the US is spending now.

First thing, go after administrative overhead. There used to be a member of this board, who was a Brit ex-pat, living in France. He talked about the French system from time to time, and how the French health system has wrung overhead costs, and costs of underutilized facilities, out of the system. Other countries have had national health systems for decades. Seems that, if the special interests were hog-tied, and locked in the cellar, it would then be a simple matter to pluck the best practices from other systems, and adopt them in the US. But no. Ideology dictates that everything must be rationed by ability to pay, and every “JC” must be cared for and protected.

By the way, the Gov of Kentucky was on Amanpour last night, talking about the cuts to Medicaid and the impact on the residents of his state. Here’s one tidbit: in his state, 40% of childbirths are paid for by Medicaid.

Steve

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That gets things started without making serious changes to the health care system. Gov’t is acting like just another insurer - much like Medicare. Heck, I’d probably just expand the Medicare system to handle all of the back end insurance work.

But if you really want to shake things up, let this new Medicare system start opening clinics and hospitals and directly hiring doctors, nurses and all of the other folks needed to provide health care. Then let anyone who has the government insurance use the government clinics and hospitals. Make your same co-pays, but know that there is no additional cost for any services provided at these facilities. On the service provider side, no need to deal with insurance coding or any of that garbage. Patient comes in, you provide the care they need, end of story.

There’s another cost saving. Every doctor and hospital and clinic has medical billers on staff to handle billing all of the work done to the insurance company. Eliminate that entirely. Doctors and nurses and xray operators and lab techs and everyone else just gets their salary and no one has to worry about billing and getting permission from insurance to do anything. The only people looking over your shoulder (professional and non-professional alike) are your peers/immediate supervisors who do performance reviews just like any other job. No insurance administrators (or soon, if not already in testing - insurance AI bots) telling you they won’t pay for the thing your professional judgement says is what the patient needs.

How many folks will jump at the chance to work in a place where you don’t have to worry about medical billing? All you have to do is take care of patients. My guess is that would be an attractive job for quite a few folks.

I wouldn’t get rid of the existing system. Just add the government insurance and health care services along side the existing insurance and health care. Let folks choose.

–Peter

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Cutting out insurance companies and letting govt do it in the style of the Veterans Administration Hospitals could be much more efficient. But when they tried Hillary Care the response of the opposition was very well funded. Thereafter until Obama Care, people thought health care was the third rail of politics.

Negotiated prices for drugs is a step in the right direction.

We know what needs to be done. This is mostly a political issue with very strong support for our current system which some find very profitable–in spite of its flaws.

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We do know how Canada, Britain, and Germany do it. Germany has a two tier insurance system. Everyone must carry basic care insurance. For more you can have a second tier policy that pays for a private hospital room.

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I didn’t suggest cutting out insurance companies. Just adding a government insurance option. For those getting insurance through an employer, I’d actually have the government charge be something comparable to the competing insurers. (Maybe equal to the second lowest cost option, kind of like ACA policies.) Use the additional funds that would go to profits and high executive compensation in a competitive insurer to provide low or no cost insurance to the poorest among us.

Immediately cutting out all insurers is going to be a political non-starter. And there would always be room for insurance to supplement the government insurance. So private insurance isn’t going to go away.

I agree with that whole heartedly.

–Peter

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True dat. Even in Sweden, private insurance options exist for supplemental care and those not eligible for public health care. Cost? Less than $500 per year…ugghh.

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Tim, having worked for NATO, in Germany, used to talk about the German system, and not in a good way. He felt that you really did not want to use the default system.

The guy in France talked about how simplified the billing was. Without multiple insurance companies, there was no blizzard of forms. The clerk at his doc’s office would swipe his national health card, type a few codes into her terminal, and done. The doc didn’t need to wait weeks or months for payment. By the time the guy was out of the office door, the money had been deposited in the doc’s bank account. iirc, he also talked about facility utilization. National Health had a maximum allowable wait time for access to an MRI, for instance. When the wait time in a particular district hit that limit then the health system would pay for another one.

Remember Tim talking about his gall bladder? iirc, he was rolled into the ER at something like 2 or 3 in the morning (maximizing use of facilities again). The only time anyone said anything about money, was when he went to pick up a prescription, after the surgery. But we never hear about performance like that. All we Proles hear is luminaries like Sean Hannity bellowing about how Canadians flood to the US because they can’t get care in Canada.

Steve

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Steve, a great summary of a situation that is hard to understand because it is so freaking obscene.

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