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Kelly Evans: The implosion of the health insurers

The Implosion of Health Insurers: A Deep Dive into America's Healthcare Crisis

In the ever-turbulent world of American healthcare, a seismic shift is underway that's sending shockwaves through Wall Street and beyond. Health insurance giants, once seen as unassailable fortresses of profit, are now crumbling under the weight of escalating costs, regulatory pressures, and systemic flaws. This isn't just a blip on the stock ticker; it's a symptom of a profoundly broken system that's failing patients, providers, and even the insurers themselves. As we dissect the recent turmoil, it becomes clear that the era of unchecked growth for these behemoths may be coming to an abrupt end, potentially paving the way for radical reforms.

At the heart of this implosion are some of the biggest names in the industry: UnitedHealth Group, Humana, and CVS Health. Their stock performances paint a grim picture. UnitedHealth, the largest health insurer in the U.S., has seen its shares plummet by about 20% year-to-date. Humana, a specialist in Medicare Advantage plans, has fared even worse, with a staggering 40% drop. CVS Health, which owns Aetna, isn't far behind, down roughly 30%. These aren't isolated incidents; they're part of a broader reckoning that's exposing the vulnerabilities in how health insurance operates in America.

The catalyst for this downturn? Skyrocketing medical costs that are outpacing the premiums and reimbursements insurers rely on. For years, health insurers have thrived by acting as intermediaries between patients, doctors, and drug companies, negotiating rates and managing claims. But the math is no longer adding up. In particular, Medicare Advantage plans—privatized versions of Medicare that cover about half of all seniors—have become a flashpoint. These plans were once a goldmine, attracting enrollees with perks like gym memberships and dental coverage while promising cost savings to the government. However, recent data shows that medical costs in these plans are surging far beyond expectations.

Take UnitedHealth, for instance. The company recently reported that its medical loss ratio—the percentage of premiums spent on actual healthcare—jumped to 85% in the latest quarter, up from 82% a year ago. This might seem like a small increase, but in an industry where margins are razor-thin, it translates to billions in lost profits. Analysts point to several factors: an aging population requiring more intensive care, the lingering effects of delayed procedures from the COVID-19 pandemic, and a general uptick in utilization as people catch up on deferred treatments. Add to this the cyberattack on UnitedHealth's Change Healthcare subsidiary earlier this year, which disrupted payments and claims processing nationwide, and you have a perfect storm.

Humana's woes are even more pronounced. As a company heavily focused on Medicare Advantage, it's been hit hard by the government's decision to hold reimbursement rates steady while costs balloon. The Centers for Medicare & Medicaid Services (CMS) sets these rates annually, and for 2025, they're projecting only a modest increase that doesn't fully account for the rising tide of expenses. Humana has warned that it could lose money on these plans for the first time in years, prompting a wave of investor panic. The company's executives have been vocal about the mismatch, arguing that without adjustments, the model is unsustainable. This has led to drastic measures, including pulling out of certain markets and raising premiums where possible—moves that alienate customers and invite regulatory scrutiny.

CVS Health's struggles highlight another layer of the crisis: the integration of pharmacy benefits with insurance. Owning Aetna gives CVS a vertically integrated model, but it's not shielding them from the pain. Pharmacy costs, driven by expensive specialty drugs and supply chain issues, are eating into margins. Moreover, CVS's retail pharmacies are facing their own headwinds, from competition with online giants like Amazon to reimbursement pressures from insurers (ironically, including themselves). The company's recent earnings call was a bloodbath, with downward revisions to guidance that sent shares tumbling.

But this isn't just about individual companies; it's a referendum on the entire U.S. healthcare system. America spends more on healthcare per capita than any other developed nation—nearly $13,000 per person annually—yet outcomes lag behind. Life expectancy is lower, infant mortality higher, and access uneven. Health insurers have long been scapegoats in this narrative, accused of prioritizing profits over people. They deny care through prior authorizations, haggle over reimbursements, and pass costs onto consumers via higher deductibles and copays. Critics argue that this middleman model inflates prices without adding value, creating a bureaucratic nightmare that frustrates everyone involved.

Proponents of reform see this implosion as an opportunity. There's growing chatter about a single-payer system, like Medicare for All, which would eliminate private insurers altogether and have the government directly manage healthcare funding. Advocates point to countries like Canada or the UK, where administrative costs are a fraction of America's 8-10% overhead. Even short of that, ideas like public options or expanded Medicare could gain traction. The Biden administration has already taken steps, such as capping insulin prices for Medicare beneficiaries and negotiating drug prices under the Inflation Reduction Act. But these are Band-Aids on a gaping wound.

Insurers aren't going down without a fight. UnitedHealth, for example, is diversifying into data analytics and home health services through its Optum division, which now generates more revenue than its insurance arm. Humana is doubling down on value-based care models that reward outcomes rather than volume. Yet, these strategies may not be enough if underlying costs continue to spiral. The industry is also lobbying fiercely against rate cuts, warning that reduced payments could lead to benefit reductions or provider shortages—echoing the classic "death spiral" fears from past healthcare debates.

Investors are caught in the crossfire. The S&P 500 Health Care Providers & Services index is down significantly this year, underperforming the broader market. Hedge funds and analysts are divided: some see this as a buying opportunity, betting on a rebound if costs stabilize or regulations ease. Others predict further pain, especially with a potential change in administration that could upend policies like the Affordable Care Act.

Zooming out, this crisis underscores a fundamental truth: healthcare in America is not a free market. It's a tangled web of regulations, subsidies, and incentives that distort prices and behaviors. Hospitals charge exorbitant rates knowing insurers will negotiate them down. Drug companies set sky-high list prices to offset rebates and discounts. Patients, often insulated from true costs by insurance, overutilize services. Breaking this cycle requires bold action—perhaps starting with transparency in pricing or incentives for preventive care.

As we watch these titans falter, it's worth remembering the human cost. Millions of Americans rely on these insurers for access to care, and any disruption could exacerbate inequalities. Seniors on fixed incomes might face higher out-of-pocket costs in Medicare Advantage. Small businesses could see premiums soar, stifling economic growth. And providers, already squeezed, might exit networks or close doors.

In conclusion, the implosion of health insurers is more than a financial story—it's a wake-up call for systemic change. Whether through incremental reforms or a complete overhaul, the status quo is untenable. As Kelly Evans aptly puts it in her analysis, this could be the beginning of the end for the current model, forcing a reckoning that benefits everyone. The question now is not if change will come, but how painful the transition will be. With stocks in freefall and costs unrelenting, the pressure is building toward a tipping point. America’s healthcare future hangs in the balance, and the stakes couldn't be higher.

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Read the Full NBC Chicago Article at:
[ https://www.nbcchicago.com/news/business/money-report/kelly-evans-the-implosion-of-the-health-insurers/3797997/ ]