UnitedHealth, CVS/Aetna, Cigna pulled in close to a trillion dollars last year, mostly as drug middlemen

The three companies’ PBM businesses now collectively generate more profits than their health insurance units.

The next time you’re at the pharmacy counter and find out that, even with health insurance, it will cost you a king’s ransom to go home with your meds, you should know that three giant corporations are largely responsible for your financial pain. 

We still think of those three companies – UnitedHealth Group, CVS/Aetna, and Cigna – as health insurers. I certainly did when I worked at Cigna. But a few years ago, all three realized there is a lot more money to be made as a middleman between you and drug makers than selling health insurance. 

Over the past few days, all three released their 2022 financials, and every one of them showed much more robust growth in the divisions that operate their pharmacy benefit management (PBM) businesses – which determine which drugs they’ll cover and how much Americans with insurance have to pay out of their own pockets – than their health plan operations. 

Collectively, those three companies reported that their PBM business units – which control 80% of the U.S. prescription drug benefit market – contributed a staggering $492.3 billion, almost half a trillion dollars, to their total revenues during 2022. That’s up nearly 12% from the $440.5 billion they reported in 2021. 

Another way of looking at this is that combined, those companies are now getting 60% of their revenues from their PBM divisions. Health insurance is still important to them, but it provides diminishing opportunities for profitable growth.

Closing in on a trillion dollars in revenues

Together, those three companies took in a total of $827.2 billion from us last year in one way or another. To be sure, they’re still collecting boatloads from our premiums, fees, and taxes for health insurance – $386.1 billion last year, up 10% from $349.8 billion in 2021 – but they’re getting far more money as middlemen in the pharmacy supply chain than from their health-plan operations.

Accordingly, their PBM businesses now generate more profits than their health insurance units. The three companies’ combined profits last year totaled $53.2 billion, up 10% from the $48.3 billion they reported in 2021. More than half of that – $27.3 billion – came from the divisions that operate their PBMs (Cigna’s Evernorth, which encompasses the PBM Express Scripts; CVS’s Caremark; and UnitedHealth’s Optum). That’s up 11% from the $24.7 billion in profits they reported in 2021. 

It’s important to note that those divisions have also grown (or bought) octopus-like tentacles that reach deeper and deeper every year into other areas of health-care delivery. UnitedHealth, in particular, has been on a spree buying physician practices. With around 70,000 doctors, it is now the nation’s biggest employer of physicians. It also owns clinics and other facilities.

CVS, of course, has thousands of retail stores in the United States – 9,648 at last count – but its PBM division now contributes more to revenue and profits than all those stores. It also generates more revenue and profits than its Aetna health plans. But CVS is following UnitedHealth and Cigna into other corners of health-care delivery – primary care and urgent care centers in particular.

Smelling big bucks in primary care

CVS announced yesterday it will buy Oak Street Health, a for-profit chain of 160 primary-care centers, for $9.5 billion.

As Reuters reported, CVS is “joining rivals in adding primary care to its portfolio as pressure mounts on its health insurance business.” (Emphasis added.)  It noted that even though Oak Street is losing money and is not expected to contribute to CVS earnings for years, “analysts said the deal is strategically sound, and shares of the multi-business company were up 4.5%” yesterday.

In other words, Wall Street cheered the deal (which must be approved by regulators).

(To be more precise a small group of “buy side” and “sell side” financial analysts you likely have never heard of cheered. This tiny club is arguably the most powerful group of folks in all of U.S. health care. If you’re a Big Insurance executive, what those analysts write about your company’s financials and deals will determine whether your net worth rises or falls on any given day. I’ll pull the curtains back on this largely unknown little club in the coming weeks.)

Anemic health plan growth

Over on the health-plan side of these big companies, growth in “covered lives” has been anemic for years. CVS/Aetna actually reported 122,000 fewer people enrolled last year in its individual health-plan business, which includes the Affordable Care Act-created “marketplaces.” That decline was offset by a modest increase in enrollment in the health plans it manages for employers and unions. Together, those two buckets, which comprise the company’s “commercial” health-plan business, added 244,000 covered lives in 2022, bringing the total to 17,032,000, up 1.5% from the 16,788,000 the company reported in 2021.

UnitedHealth reported slight gains in both buckets, but its commercial enrollment grew just .4%, from 26,580,000 in 2021 to 26,685,000 in 2022.

Cigna reported more substantial growth in its commercial business with enrollment growing from 13,854,000 in 2021 to 14,852,000 in 2022. Most of the growth came from health plans it manages for mid-sized, self-insured employers.

But unlike its two big competitors, Cigna lost enrollment in its Medicare Advantage and other government programs, from 1,510,000 in 2021 to 1,349,000 last year.

Cigna will be under the gun from investors and those Wall Street financial analysts to turn that around. Medicare Advantage, in particular, has become an engine of profitable growth for most of Big Insurance, thanks largely to tens of billions of dollars in overpayments from the Center for Medicare and Medicaid Services. UnitedHealth posted a 9.5% increase in Medicare Advantage enrollment during 2022, from 6,490,000 to 7,105,000. CVS/Aetna posted a 10% increase in Medicare Advantage enrollment, from 2,971,000 in 2021 to 3,270,000 last year.

Next week, I will dig in and report on the collective fortunes of all seven for-profit companies that comprise Big Insurance (Centene, Cigna, CVS/Aetna, Elevance/Anthem, Humana, Molina, and UnitedHealth). As you’ll see, most of them are growing at taxpayers’ expense.

Big Fortune

FUN FACT: CVS/Aetna and UnitedHealth Group have grown so much in recent years that they have become the fourth and fifth largest companies, respectively, on the Fortune 500 list of American companies, based on total revenues. Only Amazon, Apple, and Walmart are bigger. When Fortune compiles its 2023 list, UnitedHealth is poised to move ahead of CVS/Aetna by a hair. UnitedHealth’s revenues grew an astonishing 13% last year, to $324.2 billion. CVS/Aetna’s revenues grew “only” 10.4%, to $322.5 billion. So those two companies alone took in more than three-fifths of a trillion dollars last year.