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Government-Created Consolidation in Health Insurance Industry Hurts Hospitals and Patients


By Matt Soper, Colorado House of Representatives

Hospitals form an essential component of the health delivery system in America, but systemic issues in the marketplace underpinning healthcare today have led to accumulating financial pressures that are putting many of them – especially in rural areas – at risk of severely cutting services or even closing altogether. The risk is not merely hypothetical, as over the last decade, nearly 200 rural hospitals have closed, with many more teetering on the brink. 

The negative impact when this happens in a local community cannot be overstated. The most obvious and immediate, of course, is on the health of residents who depend on their community hospital. Millions of Americans live outside the dense urban areas, and for these people access to a rural hospital is critical. The nearest emergency room can already be over an hour or more away, and if that one closes the next best option could be 3 hours away. 

Even if these rural hospitals manage to keep their doors open, the financial burdens they struggle with are forcing many to cut services that are already limited, further restricting local access to quality medical care. The situation is so dire that some have even suggested that simply living in a rural area is potentially an inherent health risk

Beyond the risk to individual access to health care, the overall economic impact on a community that loses its hospital is enormous. Studies have shown that when a local hospital closes, the community suffers with an increase in the unemployment rate of 1.6 percentage points or more, and a corresponding decrease in per capita income of 4%. Furthermore, new businesses are less likely to relocate to areas in which have limited access to emergency medical care. 

Several factors are contributing to the financial strain hospitals are feeling. General inflationary trends which affect every person in this country do not bypass the health care world – everything from high-tech diagnostic equipment, to bandages, to cafeteria food is more expensive. The supply chain challenges that impact every sector of the economy also bear down on hospitals in the same way. But one of the biggest – and most avoidable – cost burdens being placed on hospitals and other providers is that imposed by the hyper-consolidation within the health insurance industry, brought on by the passage of the Affordable Care Act (“Obamacare”) back in 2009. 

While patients and health care providers have struggled over the years, insurance profits have skyrocketed. Why? The regulations and mandates brought on by Obamacare’s policies, such as medical loss ratios, proved unaffordable to many smaller insurance companies and over time they left the market. This eventually consolidated nearly the entire insurance industry into the hands of five large companies. 

This is, incidentally, the same thing happening in Colorado. Under the so-called “Colorado Option,” a government-backed health insurance plan loaded with mandated coverages insurance companies are required to carry, a mandate to artificially reduce premiums by 5% per year also exists. Four insurance companies have left the state since the implementation of this policy, reducing consumer choice.

Allowing so much control to be accumulated in the hands of so few insurers reduces competition, and thus effectively neutralizes the market’s ability to control costs – both for patients and providers who are forced to deal with higher premiums, lower reimbursements, claim denials, and prior authorization requirements that drive both into bankruptcy and degrades the overall American healthcare system. 

And now some members of this massive, artificially created health insurance oligopoly are taking advantage of this situation by consolidating even further. UnitedHealth, for example, has been steadily acquiring businesses in other parts of the healthcare sector, including Change Health, the largest claims processing servicer in the country. The company is now undergoing what some have deemed “the most significant cyberattack on the U.S. health care system in American history,” stopping billions of dollars from following to providers and patients. Meanwhile, United Health’s Q1 earnings exceeded analysts’ expectations and grew 8.6% to $99.8 billion dollars.

Such incidents show how placing so many different parts of the healthcare supply chain under one corporate point of failure can wreak havoc on the entire healthcare system and create outsized influence on the market. If the government did this, we’d call it socialized medicine. It is close enough to a medical monopoly that the Department of Justice recently launched an antitrust investigation into UnitedHealth and its acquisitions. 

There can never be a true free market in health care because as a society we will never accept denying anyone emergency treatment or other lifesaving care for inability to pay – and that’s ok. But to the extent that we can apply the principles of free-market economics, the outcomes in healthcare will be improved, and costs reduced, from what they are now. One of those key principles is competition, something the health insurance industry needs a healthy reinjection of; because hospitals and patients cannot keep footing the bill for the policy mistakes that got us where we are today. 


Matt Soper represents Mesa and Delta Counties in the Colorado House of Representatives and serves on the Board of Directors for Delta County Memorial Hospital. He previously served as ranking member on the Colorado State House Health and Insurance Committee.