No sooner did news break of the cold-blooded killer of UnitedHealth Group executive Brian Thompson than an outbreak of immoral preening did, with approval erupting across social media. Supporters of the assassin justified the act with claims that insurance companies are “murdering people” or that “corporate greed” is driving higher rates of claim denials. It’s a tremendously oversimplified narrative, fueled by ignorance, ideological fervor, and bloodthirstiness, and it blithely ignores the complexities of the healthcare system and the broader economic forces at play. The insurance industry, far from being a monolithic villain, operates within a dense web of regulatory mandates, demographic pressures, and financial realities that shape its actions. Healthcare, too, is among the most heavily regulated industries in the United States. So by reducing the issues to a battle of “greedy corporations” versus suffering patients virtually all of the root problems are ignored, and potential paths to meaningful reform unclaimed.
The denial of healthcare claims has increased markedly in recent years. A 2021 study by the Kaiser Family Foundation (KFF) revealed that insurers operating within the Affordable Care Act (ACA) marketplace denied an average of 17 percent of in-network claims. That figure underscores the growing administrative burden faced by patients and providers alike. More recently, a 2024 survey by Experian Health found that 77 percent of healthcare providers reported an increase in claim denials, with 38 percent experiencing denial rates of at least 10 percent. Far from “greed” however, those trends reflect a system under strain in which tighter economic conditions have led to higher claim scrutiny and administrative errors contributing to rising rejection rates.
Thomas Sowell wrote, in Dismantling America:
The reason so many people misunderstand so many issues is not that these issues are so complex, but that people do not want a factual or analytical explanation that leaves them emotionally unsatisfied. They want villains to hate and heroes to cheer – and they don’t want explanations that fail to give them that.
So before you catch yourself cheering the violent homicide of a perceived villain, let me give you the emotionally unsatisfying factual explanation you almost certainly don’t want to hear. It has the virtue of being the truth and, if I’ve told it correctly, suggests several concrete reforms short of murderous rage.
What drives up rates of claim rejection? Five contributing explanations are cited below.
- The Affordable Care Act (ACA): The ACA sought to expand healthcare accessibility by bringing millions of previously uninsured Americans into the system. But the surge in insured populations did not come with a commensurate rise in resources, and thus insurers’ resources have been strained, leading to stricter reviews. Additionally, while the ACA mandated consumer protections (such as coverage for pre-existing conditions) it also explicitly allowed insurers to scrutinize claims for compliance with policy terms, contributing to higher rejection rates.
- Automation and Artificial Intelligence: Insurers increasingly rely on automated systems to process claims. While this improves efficiency, it has also led to higher denial rates. For example, litigation against UnitedHealthcare revealed that an AI model rejected claims with a 90 percent error rate.
- Administrative Complexity: The intricate nature of modern insurance policies leads to frequent administrative errors, such as incorrect coding or missing documentation. These issues are exacerbated by insurers’ increasingly rigid documentation requirements, which burden both patients and providers.
- Medical Necessity Criteria: Insurers have tightened their definitions of “medical necessity,” often placing an undue burden on providers to justify treatments. This approach, while aimed at cost control, frequently results in delays or denials of critical care.
- Inflation: As I wrote in a recent article on Medicare,
Declining reimbursement rates on top of losses in purchasing power result in reduced access to care, as some physicians have limited the number of Medicare patients they accept or have stopped accepting new Medicare patients altogether … [T]he ultimate result is less care for those most likely to be in the Medicare system: senior citizens and individuals with disabilities. Physicians in smaller practices, or practicing in higher cost-of-living areas (big cities in particular) are likely to compensate for the growing gap between expenditures and reimbursements by capping staff compensation, reducing headcount, delaying or forgoing new equipment/technological investment, and minimizing (or eliminating) office space. In some cases, doctors have wrestled with reimbursement rates lagging behind inflationary pressures by increasing their patient volume, opting instead for shorter appointments, longer hours, increased stress, and burnout.
The ACA — Obamacare — entrenched insurance companies more deeply in healthcare decisions. The lobbying power of insurers ensured that private companies maintained a central role in the system, rather than being supplanted by a single-payer model. The individual mandate, which required Americans to purchase insurance, further stabilized insurers’ revenue streams by mandating broader participation in the market. Demographic trends, such as aging populations and rising healthcare costs, also made private insurers indispensable to the system’s viability. Additionally, while the ACA established Consumer Assistance Programs to help consumers with insurance issues and appeals, the effectiveness of these programs has been limited due to inconsistent implementation and funding across states.
At the same time, inflation has compounded financial pressures on healthcare providers. Between 2021 and 2023, economy-wide inflation rose by 17.1 percent, but Medicare reimbursements for hospital care increased by only 5.2 percent, forcing providers to implement cost-cutting measures. This gap contributes to claim denials and the rationing of care, further straining the system.
Rejecting healthcare claims poses significant risks for insurance firms, as non-compliance with regulations like the Health Insurance Portability and Accountability Act (HIPAA) and the Affordable Care Act (ACA) can result in substantial fines, sometimes reaching up to $25 million. Such penalties directly impact profitability and can erode member trust, leading to decreased retention rates. Additionally, non-compliance may necessitate costly corrective audits, further straining financial resources. Failure to adhere to specific program requirements, such as those outlined in the Medicare Part B Drug Pricing Demonstration Program, can lead to significant payment reductions.
Beyond financial repercussions, non-compliance inflicts reputational damage. Health insurers often score below 30 on the Net Promoter Score (NPS) scale, indicating low customer loyalty, whereas companies with strong reputations score closer to 50. Breaches of compliance erode trust among members and providers, damaging essential relationships. Negative media exposure from non-compliance cases amplifies public scrutiny and harms brand image. Consequently, insurers may experience market share decline due to lost contracts and a weakened market position. These factors underscore that rejecting healthcare claims is far from a risk-free endeavor for insurance firms.
Allegations that health insurers’ margins are being plumped by rising claim rejections are categorically false. Recent data highlights that profit margins in the health insurance industry have experienced fluctuations due to various external pressures. For instance, and as mentioned previously, medical costs have significantly increased, with insurers like Elevance Health reporting a higher-than-expected medical loss ratio of 89.5 percent in the third quarter of 2024, which led to a notable decline in share values. Furthermore, regulatory changes, such as adjustments to Medicare Advantage payment rates and Medicaid enrollment policies, have constrained revenues and increased their volatility for insurers. Additionally, the end of pandemic-related Medicaid enrollment policies has left insurers with a sicker patient pool, exacerbating costs. Rising medical costs and regulatory shifts, rather than rejection rates, are the primary drivers of profit margin changes in the health insurance sector – and those profit margins are under heavy pressure.
Critics who applaud violence against executives like Brian Thompson misunderstand how the healthcare system operates — and seem content to wallow in those adolescent misapprehensions. Decisions about claim approvals and denials are overwhelmingly made through automated processes and actuarial protocols—in any case, certainly not by highly-placed executives. Strangely (but perhaps predictably) the Venn diagram relating people celebrating the death of the insurance executive and those who, for years, have been advocating for greater government intervention—if not the outright state absorption—of the insurance industry approaches the single circle of an identical set. Instead of cheering barbarism, energies should be directed toward addressing the root causes of systemic inefficiencies: government policies and regulatory frameworks that reinforce insurers’ control. The core issue lies not with insurance executives or companies themselves but with government interventions shaped by lobbying interests that distort markets, those subsequently mischaracterized as corporate overreach or simplistically attributed to “greed.” Anyone who understands that resources and time are inherently limited will see why mandating insurers to cover pre-existing conditions would inevitably lead to cost reductions elsewhere.
Building businesses that disrupt the insurance industry or advocating for meaningful policy changes would do far more to improve outcomes than childish tubthumping for blood ever could. They require thought and effort, however. A freer market — with deregulated insurance offerings, transparent pricing, and consumer-driven decision-making — could foster competition, lower costs, and empower patients. Productive action, in particular through entrepreneurship, honors the values of reform and progress while addressing the systemic issues driving healthcare outcomes.
Made available by the American Institute for Economic Research.
