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The Insurance Watchdog Coalition’s mission is to educate legislators, regulators, key opinion leaders, the media, and the Americ an people about the harmful impacts of vertically integrated insurance monopolies, especially in our healthcare system, which in turn will help create more competition in the marketplace, lower healthcare costs, and ensure that healthcare savings go to patients, not big insurers.
Mark Merritt, Executive Director
Healthcare Should Work for You, Not Just Insurance Giants.
INSURANCE WATCHDOG COALITION
About Us
A small group of health insurance companies are growing larger by the day. These companies are gobbling up doctors’ offices, pharmacies, pharmacy benefit managers, urgent care clinics, and big data companies as they seek to control every piece of patient care outside of the hospital.
The end result – more control by big insurance companies over your personal health data, your doctors, and your access to medical care.
The Insurance Watchdog Coalition will educate Americans and elected officials on the dangers posed by Big Insurance, and work to hold the conglomerates accountable.
Mark Merritt, Executive Director
Latest News
It’s Tough to Stay Healthy When You Can’t Afford Insurance
By Mark Merritt, Executive Director, Insurance Watchdog Coalition
The MAHA Summit should tackle one of health care’s toughest challenges: reining in insurance costs so patients can afford the care they need.
Insurance costs are rising far faster than the cost of underlying medical care.¹ Yet insurers often point to hospitals, doctors, drug companies and others when explaining why Americans keep paying more.
But insurer practices are part of the affordability problem too.
SHOULD HEALTH INSURANCE COST MORE THAN YOUR MORTGAGE?
The average family health plan now costs more each month than the median mortgage payment on a newly purchased home.²
Meanwhile, America’s largest health insurers generate billions of dollars in profits.³
That’s unsustainable.
| HOW INSURERS DRIVE UP HEALTH CARE COSTS: OVERCHARGING EMPLOYERS MEDICARE UPCODING HIDDEN PBM FEES STEERING PATIENTS TO EXPENSIVE SUBSIDIARIES GENERIC DRUG MARKUPS |
INSURERS SHOULD ANSWER FOR THEIR OWN COSTS
Today’s largest insurers increasingly own physician groups, pharmacies, PBMs and other businesses that receive health care dollars.
That raises an important question: Are insurers lowering costs — or steering more health care dollars through businesses they own?
Insurer practices deserve scrutiny too. Medicare pays more when insurers make patients look sicker than they are, while billions counted toward insurers’ medical spending requirements never pay a medical or prescription-drug claim.⁴
Those are just two examples of why insurers themselves belong at the center of the affordability debate.
AFFORDABILITY REQUIRES INSURER ACCOUNTABILITY
MAHA is right to focus on making Americans healthier. Reining in insurance costs should be job one.
Insurers often blame hospitals, doctors, drug companies and others for rising health care costs. Their own practices deserve scrutiny too.
Where is the money going? Why are insurance costs rising? And what are insurers doing to bring them down?
Those are questions worth asking as America looks for ways to make health care more affordable.
It’s tough to stay healthy when you can’t afford insurance.
¹ KFF, 2025 Employer Health Benefits Survey; BLS medical-care CPI and Altarum Health Sector Economic Indicators.
² KFF, 2025 Employer Health Benefits Survey; Mortgage Bankers Association, Purchase Applications Payment Index, August 2026.
³ Insurance Watchdog Coalition, insurer profitability analyses and research library.
⁴ Insurance Watchdog Coalition, The Medicare Advantage Spending Gap (September 2026); MedPAC and Committee for a Responsible Federal Budget analyses of Medicare Advantage coding and overpayments.
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Insurance Watchdog Coalition’s mission is to educate legislators, regulators, key opinion leaders, the media and the American people about the harmful impacts of vertically integrated insurance monopolies, especially in our healthcare system, which in turn will help create more competition in the marketplace, lower healthcare costs, and ensure that healthcare savings go to patients, not big insurers.
John Oliver Exposes How UnitedHealth Is Failing Patients
In a recent segment, TV host John Oliver pulled back the curtain on UnitedHealth, America's largest health insurer, describing the company as “algorithmically driven, ruthless arbiters of who lives and who dies.”
Patients and families deserve to know how decisions about their healthcare are being made. Lawmakers must hold UnitedHealth accountable for rising premiums, coverage denials, and bureaucratic barriers that stand between patients and their care.
▶ Watch the Video Read the ReportWatch the Video That Sparked a National Conversation
The Questions Don't Stop with Coverage Denials
The concerns raised in John Oliver's report are part of a much larger conversation about transparency and accountability in the health insurance industry.
A recent study commissioned by the Insurance Watchdog Coalition found that UnitedHealth's actual profit margin may be more than four times higher than what the company publicly claims.
According to the report, UnitedHealth excludes key sources of income when calculating the profit figures it presents to policymakers and the public, creating a potentially misleading picture of its financial performance.
“Money-Sucking Insurance Companies”
President Trump has rightly sounded the alarm over how large health insurers are putting profits over patients. These “money-sucking insurance companies,” as the president has called them:
“HAVE MADE $TRILLIONS, AND RIPPED OFF AMERICA LONG ENOUGH.”— President Donald J. Trump
Patients Deserve Transparency
When Big Insurance companies like UnitedHealth make decisions that negatively impact access to care, patients deserve clear answers. They have a right to know:
How coverage decisions are made.
Why medically necessary care is denied or delayed.
How much insurers are profiting from the healthcare system.
Whether patients' interests are being put ahead of corporate profits.
For too many Americans, these questions remain unanswered.
Put Patients First
The Insurance Watchdog Coalition is committed to bringing greater transparency and accountability to the health insurance industry.
Patients, families, employers, and healthcare providers deserve a system that puts people first, not Big Health Insurer profits.
Watch the video. Read the facts. Help demand accountability from the nation's largest health insurance companies.
▶ Watch the Video Read the ReportInsurance Watchdog Coalition's mission is to educate legislators, regulators, key opinion leaders, the media and the American people about the harmful impacts of vertically integrated insurance monopolies, especially in our healthcare system, which in turn will help create more competition in the marketplace, lower healthcare costs, and ensure that healthcare savings go to patients, not big insurers.
NEW REPORT: Medicare Advantage Insurers Spend Billions Less on Health Care Than They Claim
Plans reported an MLR near 90% in 2023. But an Insurance Watchdog Coalition analysis reveals, by insurers own filings, medical and prescription-drug claims were 82.5% of revenue — below the 85% federal requirement, and $36 billion below the figure they reported.
WASHINGTON, DC — The Insurance Watchdog Coalition (IWC) today released a new report finding that Medicare Advantage insurers are spending billions less on health care than what they’re reporting. Plans reported a Medical Loss Ratio (MLR) near 90% in 2023 — but by their own filings to the Centers for Medicare & Medicaid Services (CMS), only 82.5% of revenue actually paid a medical or prescription-drug claim.
“For years, policymakers thought Medical Loss Ratio (MLR) meant insurers paid 85% of every dollar on health care. But insurers rigged the system, counting billions in overhead, marketing and of other costs as ‘medical’ expenses. We need real transparency to make sure health dollars go to patients — not just insurers’ bottom line,” said Mark Merritt, Executive Director of the Insurance Watchdog Coalition.
The $36 billion gap includes administrative costs that insurers classify as “quality improvement,” non-medical extras such as prepaid “Flex Cards,” bonus payments to providers, and premium subsidies that never touch a claim.
Flex Cards operate more like SNAP cards than health care benefits — cash for everyday living expenses, not medical costs like co-pays. MedPAC’s own research found they’re a key reason low-income, dual-eligible seniors enroll in Medicare Advantage in the first place.
The report also finds that insurers can meet the 85% MLR minimum by paying their own affiliated physician practices more than they pay independent providers:
- Up to 61% more for identical services in some markets, with every dollar of that markup still counting as medical spending
- CMS does not require insurers to disclose what they pay their own affiliates
Bipartisan, Cross-Industry Concern
The American Hospital Association, representing the nation’s community and nonprofit hospitals, and the Federation of American Hospitals, representing investor-owned hospital systems, have both told Congress they are concerned insurers are gaming MLR by directing payments to their own affiliated entities. A Democrat and a Republican on the House Ways and Means Committee have jointly asked the Government Accountability Office to investigate.
Key Findings
- CMS conducts only “selected review” of insurer-submitted MLR data, not an audit — insurers classify their own spending with no independent verification.
- Research on the ACA’s own commercial MLR requirement found that once insurers hit the required floor, claims costs rose while premiums did not fall.
- CMS does not require Medicare Advantage insurers to disclose what they pay their own affiliated providers, so the affiliate-markup problem cannot currently be measured in this program.
Recommended Reforms
The report calls on policymakers to consider three reforms:
1. Count only medical and prescription-drug claims toward the 85% test. CMS can do this by regulation; no new law is required.
2. Require insurers to report MLR by plan, not by contract, so a strong plan and a weak plan can no longer be blended into one number.
3. Require insurers to disclose what they pay their own affiliated providers, in dollars, benchmarked against independent-provider rates.
None of these reforms cost taxpayers a dime. They just make the number tell the truth.
The full report, “The Medicare Advantage Spending Gap: What Insurers Actually Spend on Health Care” is available at insurancewatchdogcoalition.com.
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Insurance Watchdog Coalition’s mission is to educate legislators, regulators, key opinion leaders, the media and the American people about the harmful impacts of vertically integrated insurance monopolies, especially in our healthcare system, which in turn will help create more competition in the marketplace, lower healthcare costs, and ensure that healthcare savings go to patients, not big insurers.
PBMs: MILKING THE GPO CASH COW
How PBM Group Purchasing Organizations Retain Rebates and Fees — and Why They’re Being Investigated
By Mark Merritt
Executive Director, Insurance Watchdog Coalition
Congress is tightening the rules for pharmacy benefit managers (PBMs), including greater transparency and requirements that negotiated drug rebates be passed through to employer health plans. But reform can miss an increasingly important part of the business: PBM-owned Group Purchasing Organizations, or GPOs.
These are not traditional hospital purchasing groups. PBM GPOs sit between PBMs and drug manufacturers and negotiate rebates and other payments — work PBMs historically performed themselves.
Why does that matter? Follow the money. The FTC quoted a former OptumRx representative saying PBM GPOs were created to establish fee structures that could be retained rather than passed through to clients.
Investigators are already raising red flags:
• FTC: GPO fees may keep rebates from being passed through. A former OptumRx representative said GPOs were created to establish fee structures that could be retained rather than passed through.
• FEDERAL AUDITS: Billions in rebates were retained by a GPO rather than passed through to the carrier or federal government.
• STATE LAWSUITS: Rhode Island alleges PBMs and GPOs recategorized income and redefined rebates; Virginia, Hawaii and Vermont have made similar claims.
Congress shouldn’t allow a PBM to accomplish through an affiliated GPO what policymakers are trying to prevent the PBM from doing itself. Transparency and rebate pass-through rules should follow the money into affiliated GPOs, regardless of what manufacturer payments are called.
VOTERS WANT ACTION
88% OF VOTERS SUPPORT ACTION TO REFORM BIG INSURANCE
*Insurance Watchdog Coalition national survey of 1,000 likely voters, April 2026.
IT’S TIME TO REGULATE GPOs LIKE PBMs.
Sources: Federal Trade Commission; federal employee health-benefit audits; state litigation cited in PhRMA GPO policy materials.
insurancewatchdogcoalition.com • Exposing Insurance Monopolies. Protecting Patients.
Study Reveals UnitedHealth Group’s Actual Profit Margin Is More Than Four Times Higher than it Claims
| Analysis finds that excluding pass-through medical costs puts UnitedHealth’s operating margin on par with leading biopharmaceutical manufacturers – but spends more on overhead and not on R&D |
WASHINGTON, DC – A new study commissioned by Insurance Watchdog Coalition found that actual profit margins for the nation’s largest health insurer are more than four times what it has claimed in public reporting. The study by economist Nam D. Pham, Ph.D., analyzed six years of annual corporate reporting by UnitedHealth Group. When pass-through medical costs (claims reimbursements paid to health care providers that are not retained by the insurer) are excluded from its revenue, UnitedHealth’s operating profit margin averaged 33.0% of gross profit from 2020 to 2025, compared with its average 7.6% net margin.
UnitedHealth Group claims that their profit margins are low while their health insurance premiums have sky-rocketed, with the costs of premiums now higher than most home mortgage payments. Yet standard accounting practices have allowed the insurer to include the full value of health insurance premiums as revenue, including the portion paid out as medical claims and never retained by the company. “Because these pass-through costs are neither retained by the health insurer nor reflect added value of the business, excluding these pass-through costs from revenues offers a more meaningful reflection of profit margins,” Dr. Pham states in the study.
Using this method, UnitedHealth’s actual profit margins are on par with the nation’s top pharmaceutical companies, despite the fact that the insurer performs no research and development. According to the study, UnitedHealth’s average annual gross profit from 2020 to 2025 was $79.9 billion, compared with an average of $29.9 billion for the 10 largest U.S. biopharmaceutical manufacturers by revenue. Operating profit as a share of gross profit averaged 33.0% for both UHG and the biopharmaceutical group over the period.
The study also compares how the two groups allocate operating costs. Biopharmaceutical manufacturers directed an average of about 52% of operating costs, or nearly 35% of gross profit, to research and development. UHG directed none of its operating costs to R&D; more than 93% of its operating costs, or 62.4% of gross profit, went to selling, general, and administrative expenses, including employee compensation, broker commissions, marketing, and administrative functions.
The full study, “What Health Insurance Companies Do Not Tell You About Their Profits,” and a one-page summary are available online at www.insurancewatchdogcoalition.com.es them. Patients should know this information before choosing a plan.
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Insurance Watchdog Coalition’s mission is to educate legislators, regulators, key opinion leaders, the media and the American people about the harmful impacts of vertically integrated insurance monopolies, especially in our healthcare system, which in turn will help create more competition in the marketplace, lower healthcare costs, and ensure that healthcare savings go to patients, not big insurers.
What Health Insurance Companies Do Not Tell You About Their Profits
Nam D. Pham, Ph.D.[1]
ndp | analytics
August 2026
Summary
Conventional accounting measures portray large health insurers such as UnitedHealth Group (UHG) as earning relatively low profit margins because they treat premium dollars that are subsequently paid out in medical claims as revenue. However, these medical claims are pass-through costs, not income retained by the insurer. Because these pass-through costs are neither retained by the health insurer nor reflect added value of the business, excluding these pass-through costs from revenues offers a more meaningful reflection of profit margins. This approach mirrors the treatment of other financial intermediaries, such as brokerage firms, which do not report on the value of their clients’ trades as revenue, only the fees they retain for facilitating transactions.
When these pass-through costs are appropriately excluded from profit calculations, UHG’s profit margins are comparable to the average among the top ten innovative biopharmaceutical manufacturers, at about 33% of gross profits in 2020-2025. This comparison is striking because these ten biopharmaceutical manufacturers collectively reinvested nearly 52% of operating costs (nearly 35% of their gross profits) into research and development (R&D) to discover new treatments despite significant financial risk, while UHG operates a low-risk, high-volume business model in which 93% of operating costs (more than 62% of gross profit) were devoted to selling, general, and administrative (SG&A) expenses to build a giant healthcare conglomerate, with none of its gross profits invested in R&D.
These findings suggest that common comparisons of profit margins can understate the profitability of health insurers relative to biopharmaceutical manufacturers by failing to account for the large volume of pass-through cost items embedded in insurer revenue.
Background
Recent reports and analyses, including UnitedHealth Group’s report, suggest that the U.S. health insurance industry’s profit margin is low due in part to increased pressure on the industry in recent years. In its January 27, 2026 press release, UnitedHealth Group reported $19.0 billion in earnings from operations and a net margin of 2.7% (net earnings attributable to common shareholders / total revenues) for 2025.[2] Industry analysts similarly subsequently highlighted the company’s continued revenue growth but that profitability has declined relative to prior years.[3]
Although standard financial accounting rules require insurers to record health insurance premiums as revenue on their books, this requirement distorts the total revenue line for publicly traded health insurance companies and, consequently, some profitability metrics used to compare health insurers with other manufacturing sectors, such as biopharmaceuticals. As a result, health insurance companies are misled as a low-margin industry when profitability is measured as operating income relative to total revenue, which includes all pass-through cost items such as claims reimbursements for prescription drugs and healthcare service providers. This measure, while a standard accounting metric, obscures the strong financial performance of financial intermediaries such as health insurance companies, whose revenues are mostly pass-through payments between insured individuals and their health service providers. The metric becomes even less meaningful when health insurance companies are compared with manufacturing companies, such as biopharmaceutical innovators, whose revenue largely reflects the value of their products sold.
This intermediary role has expanded in recent years, particularly for UnitedHealth Group, whose pharmacy benefit manager (PBM) Optum Rx has grown into a major driver of company revenue and profit. Optum Rx has extended UHG’s reach from the traditional insurance broker function into adjacent parts of the healthcare supply chain. In these expanded roles, Optum Rx generates income not only through disclosed fees but also through mechanisms such as spread pricing, patient steering to affiliated pharmacy groups, and newly developed PBM “group purchasing organizations”. These sources of profit are often less visible in public financial reporting than the brokerage fees. As such, understanding the profitability of UHG’s business requires accounting for additional revenue streams alongside the core insurance brokerage, as discussed here.
As financial intermediaries, health insurance companies mediate covered healthcare users with healthcare providers, acting as brokers, negotiating payments for care, and collecting fees for these services. Correctly assessing health insurer revenue should include only the fees these entities collect for payment processing and negotiation services, not the value of the healthcare provided by doctors and hospitals to cover individuals through medical cost pass-through payments.
In the same sense, financial brokerage firms do not count the notional value of a client’s security purchase as their own revenue but only count the brokerage fee (or “industry fee”) they might collect for matching buyers and sellers of securities. In fact, the average daily notional value of U.S. equities traded in 2025 exceeded $1 trillion, which is clearly not an accurate reflection of brokerages’ far lower actual revenue. Similarly, the sports betting industry in the U.S. counts only the service fees charged by sportsbook operators as revenue, not the total value of wagers placed by bettors; in 2025, U.S. sports betting revenue totaled almost $17 billion on a total handle of almost $167 billion. These examples demonstrate the measurement distortion that can result from including underlying values in intermediaries’ transactional facilitation revenue.
A more accurate measure for comparing health insurance and biopharmaceutical industry profit margins is operating profit as a percentage of gross profit, which subtracts the cost of goods sold and, more importantly, pass-through medical costs, which distort operating profit as a percentage of revenue. Applying this more appropriate metric to UnitedHealth Group and the top ten biopharmaceutical manufacturers by revenue shows that health insurer profit margins are similar to those of innovative biopharmaceutical manufacturers, at 33%. While profitability is similar, the sources and uses of profits for UHG and biopharmaceutical manufacturers differ significantly. Insurance companies avoid the high financial and scientific risks that innovator companies must factor into their operations. During 2020-25, more than 93% of UHG’s operating expenses (62.4% of gross profit) are selling, general, and administrative (SG&A) expenses, including employee compensation and benefits, agent and broker commissions, and advertising. In contrast, more than half (52%) of biopharmaceutical manufacturers’ operating expenses (34.6% of gross profit) are R&D, while only 45% are SG&A, less than half of UHG’s proportion.
Data
This analysis uses 2020-2025 financial data from the official corporate annual reports of the largest U.S. health insurance company (UnitedHealth Group) and the ten largest U.S. biopharmaceutical manufacturers by revenue in 2025 (Johnson & Johnson, Eli Lilly, Merck & Co, Pfizer, AbbVie, Bristol Myers Squibb, Amgen, Gilead, Vertex, and Regeneron). The combined revenue of the top ten U.S. biopharmaceutical manufacturers accounted for approximately 77% of the U.S. biopharmaceutical industry; UHG’s revenue accounted for approximately 28% of the U.S. health insurance industry.
Financial line items such as revenue, cost of goods sold, and gross profits were estimated from the companies’ annual financial reports. The average for each financial line item was calculated to show the average across the ten biopharmaceutical manufacturers. An annual average was then calculated for each industry over the time period. (Table 1) (see Appendix for more details on the definitions of the financial categories)
Table 1.
Consolidated Financial Statements, 2020-2025 (annual average, $ billion)
| UnitedHealth Group | Average of 10 Biopharmaceutical Companies | |
| (1) Total revenue | $348.1 | $43.3 |
| Insurance premiums | $272.8 | — |
| Products | $42.0 | $43.3 |
| Services | $30.1 | — |
| Investment income | $3.2 | — |
| (2) Medical costs and cost of goods sold | $268.1 | $13.4 |
| Medical costs (pass-through) | $229.5 | — |
| Cost of goods sold (COGS) | $38.6 | $13.4 |
| (3) Gross profit (1) – (2) | $79.9 | $29.9 |
| (4) Operating costs | $53.5 | $20.0 |
| Selling, general, and administrative (SG&A) | $49.9 | $9.1 |
| Research and development (R&D) | — | $10.3 |
| Depreciation and amortization | $3.6 | — |
| Other | — | $0.6 |
| (5) Operating profit (3) – (4) | $26.4 | $9.9 |
| as % of gross profit | 33.0% | 33.0% |
Analysis and Discussion
Over the 2020-2025 period, UHG’s total revenue (including insurance premiums, products, services, and investment income) averaged $348.1 billion per year, compared with an average of $43.3 billion for the ten largest U.S. biopharmaceutical manufacturers. Total expenses, including pass-through medical costs, cost of goods sold, and operating costs, averaged $321.7 billion per year for UHG, compared with an average of $33.4 billion for the ten largest U.S. biopharmaceutical manufacturers. (Table 1 above)
The largest category of revenue is medical costs paid on behalf of covered individuals. These are the pass-through costs of insured clients’ premiums paid to healthcare service providers, or the unretained portion of health insurance premiums. The retained portion of premiums represents the fees UHG earns for providing its services and is considered UHG’s revenue, in addition to the other revenue line items listed above. The pass-through medical costs amount to more than 84% of UHG’s insurance premiums collected, in line with Affordable Care Act mandates for large-group market insurers (requiring at least an 85% medical loss ratio (MLR) or a rebate of the difference). As with the financial brokerage and sports betting industry examples mentioned above, where intermediaries recognize only the fees they retain rather than the full value of the underlying transaction, UHG’s medical costs should not be considered part of UHG’s revenue for meaningfully measuring UHG’s profitability.
This distinction is particularly important for vertically integrated healthcare companies such as UHG, which operate across insurance, pharmacy benefit management, pharmacy, provider, and other health services businesses. Because revenues, costs, and profits are generated across multiple affiliated entities, reported results for any single business segment may not fully reflect the enterprise’s overall profitability. This makes it especially important to use profitability measures that distinguish retained earnings from pass-through spending when evaluating companies such as UHG.
Counting the pass-through medical costs (or the unretained premium revenue) in UHG’s total revenue line item explicitly inflates the revenue denominator and understates UHG’s profit margin. UHG’s seemingly single-digit profit margin of 7.6% ($26.4 billion / $348.1 billion) is an artifact of including pass-through medical costs in its total revenue basis. It is more accurate to calculate UHG’s profit by removing these pass-through medical costs to reflect actual financial performance and provide a meaningful comparison to the biopharmaceutical industry. (Figure 1)
Figure 1.
Operating profit and total expenses, 2020-2025 ($ billion)
Looking more closely at their expenses, UHG’s cost structure differs fundamentally from the biopharmaceutical industry. UHG’s total expenses during 2020-2025 included $229.5 billion in pass-through medical costs, $38.6 billion in cost of goods sold (COGS), and $53.5 billion in operating costs, while the ten largest U.S. biopharmaceutical manufacturers incurred an average of $13.4 billion in COGS and $20 billion in operating costs, with zero pass-through costs. (Figure 2)
Figure 2.
Operating profit, expense items, and total revenue, 2020-2025 ($ billion)
During 2020-2025, UHG’s operating profit averaged 33.0% of gross profit ($26.4 billion / $79.9 billion), comparable to the 33.0% for the ten largest U.S. biopharmaceutical manufacturers ($9.9 billion / $29.9 billion). (Figure 3 and Figure 4)
Figure 3.
Operating profit, operating costs, and gross profit, 2020-2025 ($ billion)
While operating profit as a percentage of gross profit is equivalent for UHG and the average of the ten largest U.S. biopharmaceutical manufacturers, the resources used to generate those profits differ substantially. Indeed, UHG devoted more than 93% of its operating costs ($49.9 billion of $53.5 billion), or 62.4% of gross profits, to SG&A, including employee compensation, broker commissions, marketing, and administrative functions, to build its half-trillion-dollar healthcare conglomerate. In contrast, the ten largest U.S. biopharmaceutical manufacturers devoted about 52% of operating costs, on average, to R&D to discover new therapies to cure and prevent diseases. SG&A for the ten largest U.S. biopharmaceutical manufacturers averaged only 45% of operating costs and less than 35% of gross profits, less than half of UHG’s relative expenditure. (Figure 4)
Figure 4.
Operating profit, expense items, and gross profit, 2020-2025
In $ billion
As a percentage of gross profit
Conclusion
This analysis highlights the fundamental difference between the business models of health insurers and biopharmaceutical manufacturers and underscores the importance of accounting for those differences when evaluating profitability. Health insurers primarily serve as a conduit for healthcare services provided by doctors and hospitals, with most of their reported revenue and expenses representing pass-through medical costs from administering and financing care provided by others.[4] Biopharmaceutical manufacturers, on the other hand, discover, research, develop, and produce the medicines and treatments they provide to the healthcare system.
Because of financial accounting rules, health insurers such as UnitedHealth Group can portray themselves as low-margin enterprises. Their reported revenue includes large volumes of pass-through medical spending that are ultimately paid to providers rather than retained by the insurers. Using a more accurate revenue basis that subtracts pass-through medical costs, UHG’s operating profit margin is equivalent to the average across the top ten biopharmaceutical manufacturers. Although UHG has similar profitability, it allocates its resources to administration and incurs no risky R&D. As a financial intermediary, UHG’s expenses are largely bureaucratic and procedural, such as running utilization management programs or negotiating coverage and payment policies, rather than related to the direct provision of tangible healthcare goods or services. More than 93% of UHG’s operating expenses are SG&A, reflecting spending on marketing, claims processing, administration, and operational activities. In contrast, R&D accounts for nearly 52% of average operating expenses of the ten largest biopharmaceutical manufacturers, underscoring the investment required to discover new medicines.
The results suggest that conventional accounting measures may obscure the extent to which health insurers generate profit margins comparable to those of innovative biopharmaceutical manufacturers, even though health insurers primarily perform administrative and management functions, while manufacturers assume substantial scientific, regulatory, and financial risk.
Appendix
Financial Definitions[5]
| UHG | Biopharmaceutical Companies |
| Revenue by business segment Optum Health: Service revenues include net patient service revenues, financial services offerings, and earns investment income on managed funds. Optum Insight: Service revenues include advisory consulting and managed services to help administer health plans, health systems, and Medicaid programs. Optum Rx: Product revenues include the cost of pharmaceuticals (net of rebates), negotiated dispensing fees, and customer co-payments. Service revenues include administrative services, including claims processing, formulary design, and utilization management and clinical services. UnitedHealthcare: Revenue (and costs) are aggregated for three units within this segment: (i) UnitedHealthcare Employer & Individual, (ii) UnitedHealthcare Medicare & Retirement, and (iii) UnitedHealthcare Community & State. Revenue also includes fees derived from administrative services performed for customers who self-insure the health care costs of their employees and employees’ dependents. | Revenue Net revenue from medicine/treatment product sales. |
| Medical Costs Medical costs, UHG’s main expense, are the aggregate cost of beneficiary claims for medical care reimbursed to health providers. | N/A |
| Cost of Goods Sold Cost of pharmaceuticals dispensed to unaffiliated customers (home delivery, specialty and community pharmacies, network retail pharmacies); and, personnel costs to support services such as transaction processing, system sales, maintenance, and professional services. | Cost of Goods Sold Costs related to the production of products sold, including costs of manufacturing, collaboration/alliance profit shares, collaboration/alliance royalty expense, and inventory-related costs. |
| Gross Profits Gross profits = Revenues – Medical costs – COGS | Gross Profits Gross profits = Revenues – COGS |
| Operating Costs (SG&A)[6] General administrative/operating expenses: The day-to-day SG&A-type non-medical costs of running the health benefits and services businesses, including salaries and benefits for non-medical staff, commissions, technology/platform costs, marketing/sales, and facilities. Additional itemized components include share-based compensation expense, gains and losses on business divestitures, restructuring, and cyberattack responses. | SG&A Administrative overhead day-to-day expenses that are not production or R&D related costs. It includes insurance, utilities, advertising, commercialization costs with collaboration partners, marketing, promotion, accounting, legal expenses, travel, and meals. |
| N/A | R&D All expenses related to research and development. |
| Depreciation & Amortization Depreciation and amortization. | Depreciation & Amortization Biopharmaceutical companies distribute depreciation and amortization across COGS, SG&A, and R&D. |
| Operating Profits Operating profits = Gross profits – Operating costs | Operating Profits Operating profits = Gross profits – SG&A – R&D |
[1] Nam D. Pham, Ph.D. is Managing Partner at ndp | analytics. Insurance Watchdog Coalition provided financial support to conduct this study. The opinions and views expressed in this report are solely those of the author.
[2] UnitedHealth Group Press Release, January 27, 2026. unitedhealthgroup.com
[3] Becker’s Hospital Review, “UnitedHealth’s 2025 profit dips to $12.1B,” January 27, 2026, beckershospitalreview.com; Healthcare Dive, “UnitedHealth revenue climbs in 2025,” January 27, 2026; Medicare Market Insights, “UnitedHealth Group Q3 ’25: Continued Margin Pressure,” October 30, 2025, medicaremarketinsights.com; Oliver Wyman, “Health insurer financial pulse,” Summer 2026, oliverwyman.com.
[4] Being a conglomerate of companies, UHG provides some medical products through its Optum Rx pharmacy subsidiary, with a COGS of about one-fifth of the amount of its pass-through medical costs.
[5] Companies’ various annual reports and standard financial definitions.
[6] UHG does not report SG&A. UHG’s Operating Costs line is essentially SG&A.