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Insurers aren't the main villain of the U.S. Health care system

Noah Smith · Noahpinion · ·15 min read
Commentary by Hex Index staff

In a climate where public fury has turned lethal against corporate executives, Noah Smith offers a jarring counter-narrative: the people we are screaming at are not the ones stealing our money. While social media celebrates violence and progressives target insurers as the primary villains of American healthcare, Smith argues this rage is misdirected, blinding us to the actual source of exorbitant costs. This piece forces a difficult reckoning with where the real financial bleed occurs in the system.

The Misplaced Target of Public Rage

Smith opens by confronting the visceral anger following the assassination of UnitedHealthcare CEO Brian Thompson. He notes how the public reaction has been disturbingly celebratory, with users joking about denied coverage and wealth inequality. "I think this kind of thing is a sign of how stressed-out and mentally unbalanced our country is after an era of unrest," Smith writes. While acknowledging the horror of the violence, he pivots to the underlying economic misconception driving it: the belief that insurance companies are the main extractors of value.

Insurers aren't the main villain of the U.S. Health care system

The author's central thesis rests on a simple but often ignored metric: profit margins. He points out that while insurers face intense scrutiny, their financial returns are meager compared to other sectors. "Private insurers may be an unnecessary middleman, but the amount they extract from the system is not large compared to the amount that gets either appropriated or wasted by the people providing the care." Smith marshals data showing UnitedHealth Group's net profit margin at roughly 6%, half the S&P 500 average, and other major players hovering near 1-2%.

"The actual health insurance business — taking premiums and paying out claims — is even less profitable than these numbers might suggest. As Axios recently reported, insurers' profits are increasingly coming from other lines of business."

This framing is effective because it strips away the moral outrage to reveal a cold financial reality. If all insurer profits were donated to healthcare, Smith calculates, they would only cover about 9% more care. The argument suggests that even if we eliminated every insurance company tomorrow, the cost of American healthcare would remain astronomically high.

However, critics might argue that low profit margins do not equate to efficiency or fairness. An intermediary can be "inefficient" without being "profitable," siphoning resources through bloated administrative overhead rather than shareholder dividends. Smith addresses this by noting that even total operating costs for insurers are dwarfed by the actual medical bills they pay out, but he may understate how complex billing structures allow these middlemen to obscure pricing transparency from patients.

The "Sin-Eater" Dynamic

Why, then, do Americans direct their hatred at insurers? Smith draws on a compelling sociological concept: the insurer as the "sin-eater." He references his previous work suggesting that because providers are often friendly and caring during treatment, they escape blame for the system's failures. Conversely, insurers are the ones who say "no," making them the natural target for frustration.

"Insurers have thus become what Jeremiah Johnson calls 'sin-eaters' — the hapless fall guys who bear the brunt of all Americans' rage, despair, and frustration at a broken system in which the insurers play only a very minor role." Smith argues that this dynamic is dangerous because it misallocates political energy. By focusing on the middleman, we ignore the entities actually setting the prices.

He highlights a stark contrast: while Australians sing lyrics about fearing hospital bills due to high out-of-pocket costs, Americans pay a lower percentage of their healthcare directly but face much higher total bills. "The only reason Americans' bills are higher is that U.S. health care provision costs so much more in the first place." This distinction is crucial for understanding why simply expanding insurance coverage without addressing provider pricing fails to solve the affordability crisis.

"So you get to hate UnitedHealthcare and Cigna, while the real people taking away your life's savings and putting you at risk of bankruptcy get to play Mother Theresa."

This section lands with particular force because it reframes the patient experience. The friendly nurse or doctor is not the villain; they are often unaware of the true cost of a single dose of medication or an MRI. Smith suggests that providers have successfully outsourced the "bad guy" role to insurers, allowing them to maintain a benevolent public image while charging predatory prices.

Where the Money Actually Goes

The piece concludes by shifting the focus to the actual drivers of cost: hospitals, pharmaceutical companies, and medical suppliers. Citing the Kaiser Family Foundation, Smith notes that most excess spending in the U.S. compared to other developed nations comes from provider pricing, not administrative waste. "Excessive prices charged by health care providers are overwhelmingly the reason why Americans' health care costs so cripplingly much."

He references the concept of "loss ratios" and historical context where insurers were once more tightly regulated or integrated, noting that even eliminating all administrative waste in the U.S. system would save only about $680 per person annually—a fraction of the thousands we pay extra compared to other nations. The solution, Smith posits, lies in government leverage against providers. "One idea is to have the government insurance system play hardball with providers, negotiating lower prices," he suggests, pointing to recent executive branch efforts to negotiate drug prices as a model.

"The way to make our health care system affordable is not to browbeat insurers... Insurance companies simply do not have the power to do that, even if you threaten to shoot them."

This is a sobering conclusion for an audience accustomed to blaming corporate greed in the abstract. Smith forces the reader to confront the uncomfortable truth that the "nonprofit" hospitals and specialized equipment suppliers are the primary beneficiaries of the system's dysfunction. While some may argue that administrative simplification could yield greater savings than KFF estimates, the sheer scale of provider pricing power is undeniable.

Bottom Line

Noah Smith delivers a vital corrective to the current political discourse: the insurance industry is a convenient scapegoat for a much deeper structural rot in American healthcare provision. The argument's greatest strength is its reliance on hard financial data to dismantle emotional narratives, yet it risks oversimplifying the role of administrative complexity in driving up costs. For busy readers seeking clarity, the takeaway is clear: anger at insurers is a distraction; the real battle for affordability lies in confronting the pricing power of hospitals and medical suppliers.

Deep Dives

Explore these related deep dives:

  • Loss ratio

    This regulatory metric defines the specific percentage of premiums insurers must spend on care versus overhead, directly validating the article's argument that low profit margins reflect operational costs rather than monopoly extraction.

  • Health care prices in the United States

    While the article claims providers waste more money than insurers, this topic details the complex billing and coding inefficiencies unique to the U.S. provider system that drive the bulk of excess spending compared to other nations.

  • Sin-eater

    The author explicitly uses Jeremiah Johnson's metaphor of the 'sin-eater' to explain why insurers absorb public rage; understanding this obscure folkloric role clarifies the psychological mechanism behind the political scapegoating described in the text.

Sources

Insurers aren't the main villain of the U.S. Health care system

by Noah Smith · Noahpinion · Read full article

In a post last week, I wrote about the progressive anti-monopoly movement’s increasing disconnect from reality. I wrote:

[C]onsider the movement’s choice of targets. These include some industries with high profit margins, but also some with very low margins. These include grocery stores, airlines, and health insurers. Grocery stores and health insurers both consistently have much lower profit margins than American corporations in general, often hovering near the zero mark.

Commenter Matthew argued that the low profit margins of insurers are not a reason not to worry about their market power:

The idea that health insurers have “low margins” so they are OK is nuts…Private health insurers in the US do not lower costs and do not improve patient care…In the flow of money between patients and providers, private insurers just sit in that flow like a tapeworm and take money out to sustain themselves…

There is a lot of evidence…[W]ith the current status quo, 10 -15$ out of every 100$ of healthcare premiums a person spends is just going to the private insurer….That would be fine if the insurance companies secured lower costs for their members; it would be the useful service they provide…But there is no evidence that they do.

Matthew’s argument doesn’t really address the point of my post. Private insurers might be inefficient, or even unnecessary, but this is very different from them being extractive monopolies. It is absolutely incredibly relevant that health insurers have very low profit margins. If $10 of every $100 spent on health care premiums goes to the insurer, but the insurer isn’t profitable, this just means that the $10 is going to cover the insurer’s operating costs. It is not money being funneled into the pockets of the people who own the insurance companies.

In fact, the more general fact here is that private insurers are not the main reason why American health care costs so much more than health care in other developed nations. Almost all of the excess cost goes to providers rather than to insurers. Private insurers may be an unnecessary middleman, but the amount they extract from the system is not large compared to the amount that gets either appropriated or wasted by the people providing the care.

So why do Americans — especially American progressives — focus so obsessively on health insurers instead of health providers? In a post two years ago, I hypothesized that it’s ...