In testimony before the US House Energy and Commerce Subcommittee on Health, Stephen Hemsley, chairman and CEO of UnitedHealth Group (NYSE: UNH), presented a detailed account of the main factors driving health care cost escalation in the United States. Hemsley emphasized that the chief contributors to rising expenditures are not insurance companies themselves, but rather the increasing prices set by hospitals, industry consolidation, growth in specialty services, and elevated prescription drug costs.
Hemsley, appearing alongside other health insurance executives from Cigna Group (NYSE: CI), Elevance Health Inc. (NYSE: ELV), and CVS Health Corp. (NYSE: CVS), addressed lawmakers on Thursday, outlining the complexities behind premium rate determinations. He explained that premiums are influenced predominantly by two variables: the volume of care accessed by patients and the pricing charged for that care. When both the utilization of care and the prices charged increase simultaneously, the escalations inevitably transfer to higher health coverage costs.
The CEO acknowledged that while the insurance industry plays a role in the overall health care system, the challenges extend beyond insurers. He stated, "The health care system is not as good as it should be," indicating a shared responsibility for its shortcomings. Nevertheless, Hemsley highlighted the insurers' efforts in containing costs through strategies such as negotiating discounts with providers, coordinating care to avoid unnecessary services, and focusing on preventive care to reduce hospital admissions and manage chronic diseases more effectively.
UnitedHealth serves a broad patient population, including nearly 10 million Medicare Advantage members, about 1 million enrollees in ACA marketplace plans, and Medicaid beneficiaries across 32 states. Though UnitedHealthcare holds a relatively small share of the individual ACA market, Hemsley made a significant commitment, announcing that the company will voluntarily forgo and rebate its profits from ACA exchange coverage for the current year. However, the testimony did not disclose specific details regarding the structure of these rebates or the expected financial impact on the company.
This voluntary rebate initiative was noted by Bloomberg as a potentially strategic response to ongoing criticism that UnitedHealth may be unduly benefiting from taxpayer-funded subsidies designed to support ACA enrollees.
In 2022 alone, UnitedHealth negotiated nearly $300 billion in provider discounts and identified approximately $35 billion in savings by curbing fraud and waste within the health care system. Hemsley underscored the effectiveness of value-based payment models and Medicare Advantage arrangements, which, according to him, provide improved patient outcomes at reduced costs, evidenced by fewer hospitalizations and better chronic illness management.
The hearing also reflected prior scrutiny of UnitedHealth’s Medicare Advantage practices. A Senate Judiciary Committee report had uncovered that the company employed assertive tactics to document patient diagnoses that elevated federal Medicare Advantage payments, turning this adjustment mechanism into a profit center in ways considered beyond its intended scope.
In addition to cost drivers, Hemsley proposed a series of policy reforms to facilitate greater affordability and consumer choice. Suggestions included adopting site-neutral payment methodologies to eliminate price disparities based on care settings, reforming patent rules to encourage competition, and imposing limits on direct-to-consumer pharmaceutical advertising. Enhancing consumer options in ACA plans was also advocated as a way to empower patients.
Hemsley further recommended that lawmakers standardize broker compensation structures within the ACA marketplace. Currently, variable commissions can incentivize brokers to steer consumers toward higher-paying plans, potentially misaligning with the consumers’ best interests. He highlighted that Medicare Advantage already employs standardized broker payments, which helps promote impartial plan selection. Aligning compensation in the ACA marketplace, he argued, would encourage decisions based on value, affordability, and accessibility rather than commission differentials.
Complementing these efforts, UnitedHealth announced in January the launch of a Rural Payment Acceleration Pilot designed to improve cash flow for rural hospitals by halving the payment collection duration from under 30 days to fewer than 15 days. This pilot program, spanning states like Oklahoma, Idaho, Minnesota, and Missouri, represents a six-month initiative targeting financial relief for independent rural providers.
Despite these initiatives, shares of UnitedHealth Group experienced a modest decrease of 0.5%, trading at $346.00 in premarket activity as of Thursday, a movement tracked by Benzinga Pro.