Your Insurance Carrier Owns the Hospital. That's a Problem.

How Does Vertical Integration Work in Health Insurance?

The ACA's medical loss ratio rules were supposed to keep insurers honest. Spend at least 80-85 cents of every premium dollar on care, or refund the difference. Simple enough.

But the Virginia Joint Commission on Health Care found something important. The MLR only limits what a carrier can keep as profit on the insurance side. It doesn't touch the subsidiaries.

So if the carrier owns the hospital, the pharmacy, and the PBM, every dollar flowing to those entities counts as a medical expense on the MLR calculation, and as revenue somewhere else in the same corporate family.

As Drug Channels (Adam J. Fein, Ph.D.) put it, a cost in the MLR computation becomes revenue to a related business within the same vertically integrated enterprise. The regulation designed to constrain insurer profit became a roadmap for capturing more of it.

How Big Are the Major Carriers Now?

Bigger than most employers realize. These aren't insurance companies anymore. They're healthcare conglomerates.

UnitedHealth Group reported $447.6 billion in revenue for 2025. Optum, its services arm, accounted for $270.6 billion of that, roughly 60%. OptumRx alone did $154.7 billion. Optum employs or affiliates with approximately 90,000 physicians, about 10% of the entire U.S. physician workforce, and operates 2,200-plus clinics.

CVS Health hit $402.1 billion in 2025 revenue. That's Aetna (insurance), Caremark (PBM), Oak Street Health (primary care clinics), Signify Health (home evaluations), and MinuteClinic all under one roof.

Cigna Group posted $274.9 billion. Evernorth, its services arm, grew 16% and includes Express Scripts (PBM), Accredo (specialty pharmacy), and eviCore (prior authorization).

Elevance Health reached $197.6 billion. Carelon, its services division, surged 33% to $71.7 billion, expanding into behavioral health, home-based care, and risk-based specialty services.

These four companies combine for over $1.3 trillion in annual revenue. Their PBMs alone control roughly 80% of all prescription claims in the United States. And according to the AMA's December 2025 competition study, 97% of 384 metro-area commercial insurance markets are "highly concentrated" under federal antitrust guidelines.

There's a reason your broker recommends the same three carriers every year. There aren't many left to choose from.

Does Vertical Integration Actually Raise Costs?

Yes. And now we have the data to prove it.

A 2025 Health Affairs study from researchers at Brown University and UC Berkeley found that UnitedHealthcare pays Optum-owned providers 17% more than non-Optum providers for comparable services. In markets where UnitedHealthcare holds 25% or more market share, that premium spikes to 61%.

A separate STAT investigation examined UnitedHealth's own federal transparency data. Of 16 Optum-branded physician groups, UnitedHealthcare paid 13 of them more than competitors in the same market. Some common services were reimbursed at roughly double the market average.

The researchers suggest UnitedHealth may be circumventing MLR rules by routing premium dollars to owned subsidiaries at inflated rates. It counts as medical spending on the MLR. It counts as profit on Optum's books.

And it's not just the insurance side. The MedPAC Report to Congress (March 2026) found that vertical integration shifts physician-administered drug spending from lower-cost physician offices to higher-cost hospital outpatient departments. As RAND Health has documented, other payers follow Medicare's pricing lead. Your network steers employees toward facilities your carrier owns.

What Is the DOJ Doing About It?

More than at any point in the past two decades.

The Department of Justice filed an antitrust lawsuit targeting UnitedHealth Group's core vertical structure, specifically the relationship between UnitedHealthcare (insurance) and Optum (services). The case focuses on "patient steering," funneling UnitedHealthcare members to Optum-owned clinics and surgical centers.

A February 2026 supplemental filing targeted OptumInsight, alleging an "informational monopoly." The claim: Optum uses claims data from rival insurers to give Optum providers an unfair competitive edge. The DOJ is seeking structural remedies, including potential divestiture of primary care practices and data assets.

Separately, the DOJ launched a criminal investigation into possible Medicare fraud at UnitedHealth, questioning employees about diagnosis documentation practices. And it sued to block UnitedHealth's $3.3 billion acquisition of Amedisys, a home health and hospice provider.

Three parallel federal actions against a single company.

How Are PBMs Part of the Problem?

Each of the Big 4 carriers owns a PBM. And those PBMs don't just process prescriptions. They set formularies, negotiate rebates, own specialty pharmacies, and steer utilization toward affiliated dispensing channels.

The FTC's January 2025 interim report found that the Big 3 PBMs generated an estimated $1.4 billion in income from spread pricing on just 51 generic specialty drugs over approximately five years. Spread pricing is the difference between what PBMs charge health plans and what they pay pharmacies. Self-funded employers bear that cost directly.

In February 2026, the FTC secured a landmark settlement with Express Scripts (Cigna/Evernorth), requiring ESI to stop favoring high-list-price drugs, base member costs on net prices, and delink manufacturer payments from list prices. The FTC estimates $7 billion in patient savings over 10 years. Cases against CVS Caremark and OptumRx are still pending.

If your PBM is vertically integrated with your insurer, the margin you can't see is likely bigger than you think. And a carved-out pharmacy benefit is one of the few ways to break the loop.

Is Congress Going to Break Them Up?

They're trying. The Break Up Big Medicine Act, introduced in February 2026 by Senators Warren and Hawley, would prohibit common ownership between PBMs/insurers and medical providers. Violators would have one year to divest or face automatic penalties.

The Patients Before Monopolies Act, reintroduced May 2026 with bipartisan support, would ban PBM/insurer parent companies from owning pharmacy businesses entirely.

Neither has passed. But pieces of PBM reform already have. The Consolidated Appropriations Act of 2026, signed February 3, includes the most significant PBM reform in decades:

• 100% rebate pass-through to employer health plans. Mandatory.
• Semiannual reporting to plan sponsors on net drug spending, rebates, spread pricing, and affiliated pharmacy arrangements.
• Annual audit rights with a fiduciary-chosen auditor.
• PBM compensation must be flat fees, not tied to drug price.

These provisions won't break up the conglomerates. But they make it harder to hide the money. If you're renewing a PBM contract, these are the terms worth renegotiating. And your rebate language needs to reflect the new 100% pass-through requirement.

The Benefits Blake Compliance Calendar tracks every CAA deadline so nothing slips through.

Some Carriers Are Pulling Back. Don't Confuse That With Reform.

There are cracks in the vertical integration story. The Drug Channels Institute 2026 update notes that Centene outsourced its PBM operations to Express Scripts in 2024 and sold off multiple subsidiaries, including Magellan Rx, PANTHERx Rare, and a majority stake in U.S. Medical Management.

Cigna sold its Evernorth Care Group, which had operated 18 primary care clinics, to HonorHealth in 2025. These moves reflect market pressure and operational complexity, not a philosophical shift. The underlying incentive structure hasn't changed.

Other carriers are still building out, buying up, and steering utilization toward owned assets. Even when a subsidiary gets sold, the network design built around it often stays in place.

What Can Self-Funded Employers Actually Do?

If you're on a fully insured plan with a major carrier, you're funding a vertically integrated system without knowing it. Your premium dollars flow to the insurer, then cycle through subsidiaries in hospitals, pharmacies, and specialty care. Each handoff generates profit that's invisible to you.

Self-funded employers have more power here. You can see the claims data. Here's where to start.

1. Find out where your dollars go. Ask your broker which of your carrier's subsidiaries are touching your plan spend. If they can't answer, that tells you something about whose interests they're serving.
2. Benchmark your network. Are your employees being steered to carrier-owned facilities at higher reimbursement rates? Centers of excellence and independent ambulatory surgery centers often deliver the same care at a fraction of the cost.
3. Own your claims data. If you can't access your claims data, you can't evaluate whether your carrier's network is designed to benefit your employees or their subsidiaries.
4. Evaluate a pharmacy carve-out. A carved-out PBM breaks the vertical loop. You get independent formulary design, transparent pricing, and no affiliated pharmacy steering.
5. Model the five-year impact. Carrier trend assumptions often bake in the cost of vertical integration without calling it that. The 5-Year Benefits Blueprint projects where your plan spend is actually heading.
6. Simplify your vendor stack. If your insurer also controls your PBM, specialty pharmacy, prior auth vendor, and care delivery, how many checks and balances are left? The Benefits Control System scores your setup and flags conflicts.

The question isn't whether your carrier is vertically integrated. Most are. The question is whether you know where your dollars actually go once they leave your account. And whether anyone in the chain is working for you instead of around you.