The Convenient Narrative Letting Insurers Off the Hook

Blaming hospitals isn’t wrong. But it’s incomplete—and it’s exactly the story insurers want told.

Zack Cooper argued this week in The New York Times that Americans may be blaming the wrong culprit for rising premiums. In his view, the bigger driver is hospital market power—fueled by years of consolidation that policymakers have done little to stop. On that point, he’s on solid ground saying that hospital prices have climbed steadily, and oversight has lagged.

Where the argument falls short is in how it portrays insurers. It suggests they are largely on the defensive—unable to push back on powerful hospital systems and left to rely on tools like prior authorization and claim denials as a workaround. In that telling, insurers come across less as drivers of the problem and more as constrained players navigating a difficult market.

That’s not consistent with what I saw working inside the industry, or with how the business is structured to operate.

Cooper’s academic work on hospital consolidation is serious and worth engaging with. But the argument he made in the Times—whether intended or not—tracks closely with a line the insurance industry has advanced for years. It’s a familiar frame, and one I recognize because I helped design it.

The industry’s oldest trick

When I was head of corporate communications at Cigna, one of my core job responsibilities was to ensure that the public and policymakers understood what we called the “true drivers” of medical inflation. Those drivers were never us. They were hospitals charging too much, drug companies gouging patients, and — when we needed a villain closer to home — ordinary Americans overusing the health care system. The finger-pointing was deliberate, coordinated, and effective. As any magician will tell you, misdirection is the oldest trick in the book.

AHIP, the industry’s trade and lobbying group, is running that same playbook today with the full force of the industry behind it. In recent months it has blanketed Washington with the message that “hospital costs account for more than 40 cents of every premium dollar” and that hospitals should “stop looking around for someone else to blame.” This is not an inaccurate claim. It is an incomplete one, deployed with the precision of a public relations campaign rather than the rigor of a policy argument. The fact that Cooper’s op-ed reinforces that message — even from an independent and credentialed source — is a gift to an industry that has been under unprecedented scrutiny since the murder of a UnitedHealthcare CEO in late 2024.

I am not suggesting Cooper wrote his piece on AHIP’s behalf. I am suggesting that a structurally incomplete argument, published in arguably the country’s most influential newspaper at this precise moment, serves the insurance industry’s interests whether or not that was anyone’s intention.

Who started the consolidation arms race?

Cooper’s framing also elides a crucial piece of history. Hospital consolidation did not happen in a vacuum. Hospitals began merging in significant part as a defensive response to the growing bargaining power of large insurers. Providers seeking to consolidate often cited a desire to acquire bargaining leverage with market-dominant payers, arguing that their own consolidation could counter the consolidation of increasingly powerful insurers.

Insurer consolidation begat hospital consolidation, which begat higher prices, which begat higher premiums. It is an arms race in which the only losers are patients and employers.

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Cooper is right that hospital market power is now the dominant force driving costs. But the insurers that consolidated first — and that benefited by squeezing providers in the short run — helped create the conditions for the hospital consolidation wave that followed. Neither side’s hands are clean. The arms race, which dates back to the rapid horizontal consolidation that occurred in the insurance industry in the 1990s and early 2000s, is what patients are now paying for.

Now to the incentive problem Cooper’s framing obscures. In commercial insurance — particularly the self-funded arrangements that now cover most large employers — the insurer often earns fees tied to the total size of claims processed. Higher hospital prices mean larger claims. Larger claims can mean higher revenue for the insurer administering the plan. This is not a conspiracy. It is arithmetic. The incentive to hold the line on hospital prices is weaker than Cooper suggests because in many arrangements, higher costs flow through to the insurer’s bottom line.

The Affordable Care Act’s medical loss ratio rules were supposed to fix this by requiring insurers to spend 80% to 85% of premiums on care. What those rules actually do, in a rising-cost environment, is allow absolute profits to grow even as the percentage stays fixed. If the pie gets bigger, the insurer’s slice gets bigger too — even at the same ratio.

The network access trap

In markets where a single hospital system controls the majority of beds, the insurer faces a problem that has nothing to do with negotiating skill. It cannot exclude that hospital from its network and still have a product to sell. Employers and individuals will not buy a plan that locks them out of the dominant regional provider. The hospital knows this. The insurer knows this. What gets called “negotiation” in these markets is often closer to ratification.

The insurer’s response to this trap — when it cannot win at the hospital price table — is not to fight harder. It is to redirect. Costs that cannot be controlled at the source get shifted somewhere more manageable: onto patients, through higher deductibles and narrower benefits; onto providers, through prior authorization burdens and claims denials; onto employers, through premium increases framed as the inevitable result of “medical trend.”

This is the point Cooper comes closest to and doesn’t quite reach. He writes that insurers “are incentivized to lower health spending, but in many markets don’t have the ability to put meaningful pressure on hospital prices.” That’s true. What is also true is that they put pressure on everything else, which all too often has the effect of reducing access to medically necessary care.

Prior authorization, step therapy, utilization management — these are not crude approximations of cost control. They are the rational corporate adaptation to a problem the insurer has decided not to solve at its source. They extract value from the system by making care harder to access rather than cheaper to provide. And they do so in a way that is largely invisible to the public as a cost-shifting mechanism, because each individual denial looks like a clinical decision rather than a financial one.

I spent years inside an industry that refined these tools. I know how the language of medical necessity gets deployed to do the work of financial necessity. I also know that the executives making these decisions were not mustache-twirling villains. They were responding rationally to the incentive structures the market had created — ones that rewarded denying care at the margins while accommodating high hospital prices at the core.

A few years before I left Cigna, I was in a leadership meeting that was typically uneventful until someone asked Ed Hanway, the CEO at the time, what kept him up at night. His answer was not regulators. It was not competition. It was not hospital pricing. What he feared most, he said, was “disintermediation” — the moment when America’s large employers would start seriously questioning insurers’ value proposition and conclude they were paying for an unnecessary middleman.

It was a candid and revealing answer. Because the value proposition of a health insurer rests on a single claim: that they can manage costs more effectively than employers could on their own – or even than the government could do. That the negotiating leverage, network access, utilization management, and administrative infrastructure they provide justifies their cut of the premium dollar.

We might have arrived at the moment Hanway feared. And the question he dreaded is finally being asked openly: if insurers cannot control hospital prices — the largest driver of premium growth — what exactly are we paying them for?

The answer, increasingly, is to administer the complexity they helped create. To process claims in a system so opaque that neither patients nor employers can evaluate whether they are getting a fair deal. To stand between the patient and care in ways that generate savings at the margins while accommodating the structural forces driving costs at the core.

That is not a value proposition. It is a toll booth on a road the toll collector helped make impassable.

Insurers and hospital systems exist in a relationship of mutual dependence that neither has a genuine interest in disrupting. Both need complexity — the opacity of negotiated rates, the labyrinth of prior authorization, the fog of explanation-of-benefits forms — because complexity is what justifies their administrative overhead and makes it nearly impossible for patients, employers, or policymakers to know what anything actually costs.

Price transparency is an existential threat to both. Site-neutral payment is an existential threat to hospital revenue, according to hospital lobbyists. Neither insurer nor hospital system has lobbied seriously for either reform. The posture of public combat between the two industries conceals a quieter alignment of interests at the structural level.

Cooper is right that policymakers should consider regulating hospital prices in monopoly markets, using Medicare rates or competitive benchmarks. But we should not accept the corollary that reforming insurer behavior is a distraction. It is not. High deductibles kill people. Prior authorization delays kill people. And the insurer’s failure to control hospital prices at the source is precisely what drives the cost-shifting onto patients that is making insurance increasingly useless to the people who are paying for it.

What we need is a reckoning with hospital market power, insurer incentive structures and administrative complexity that have co-evolved into something that reliably produces high costs, restricted access and diffuse accountability. Nobody is in charge of the whole thing. Nobody has to be. The design takes care of itself.

That is the conversation we are not having. And until we do, we will keep having the easier one — about which powerful institution deserves more of our rage — while the bills keep rising.