If healthcare costs keep rising, who’s actually benefiting? In this episode of The Healthcare Heist Podcast, Lou Bernardi pulls back the curtain on how the system was built and why it continues to work exactly as designed.
What started decades ago as a fragmented industry has evolved into something far more powerful: a fully integrated machine that controls how healthcare is financed, delivered, and priced. Through consolidation, vertical integration, and carefully aligned incentives, insurers, health systems, and pharmacy benefit managers have created an ecosystem where higher costs often lead to higher profits.
This episode breaks down how that transformation happened and why most employers never see it. You’ll learn how pricing is hidden behind “discounts,” how care is steered toward higher-cost services, and how the same organizations often control multiple parts of the system. Most importantly, you’ll begin to understand why traditional approaches, shopping carriers, negotiating renewals, and accepting “trends” fail to address the real problem.
But with clarity comes opportunity. Because once you see how the machine operates, you can start to think differently about how to beat it.
What you’ll take away:
- How decades of consolidation created today’s healthcare system
- Why insurers and providers often benefit when costs rise
- The role of vertical integration in driving higher claims
- How “discounts” and opaque pricing mask true costs
- Why most employers are negotiating without the full picture
Perfect for CEOs, CFOs, HR leaders, and advisors who:
- Want to understand what’s really driving healthcare costs
- Feel like they’re negotiating without enough information
- Are ready to move beyond surface-level solutions
Once you see the machine clearly, you stop playing by its rules.
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Listen to the podcast here
The Machine: Why Costs Keep Climbing And Care Keeps Declining
The Machine Unmasked
In the last episode, we talked about the real toll of the health care heist, how it impacts your people, your culture and your bottom line. Together we’re getting deeper. We’re going deeper into the problem because once you understand the damage, the next question becomes, how is this actually happening? We talked about the machine. We revealed the machine. For the last 30 years, insurers and health systems haven’t just participated in health care, they’ve been building something, a system designed to extract maximum value, maximum revenue from employers and employees.
The Machine’s Control Over Payment And Delivery
A system I call the machine with a very deliberate crew. The machine does something most businesses can’t do. It controls both how health care is paid for and how it’s delivered, and that’s the power behind the health care heist. The machine. Now I call it a machine and that’s very important because like all machines, there are components, there are parts that can be replaced, that can be improved to make it perform better. That’s why I would ask you to think about this.
Talking about the heist and talking about all of the different components and the thousands of ways insurance companies and health systems manipulate the American health care consumer can be overwhelming. Simplicity, for simplicity’s sakes, think about the machine as a system we’re forced to work with. You don’t set the rules, you don’t write the contracts. If you have a health insurance plan, there’s a very good chance you have a network. You don’t determine what doctors are in or out of network.
You don’t determine the copays unless you’re a business leader. You do. You don’t determine how the health system and the health care companies act. The machine does that. It controls how health care is paid, not you. They pay your claims. They set the allowable rates. They decide what claims are audited, you don’t. You have no say in any of that. They also decide how it’s delivered and more and more often the insurance companies are becoming the health care system.
The largest insurance carrier in the country also employs the most doctors and the doctors that are owned by its sister company, they pay 25% to 61% more. You didn’t make that decision, they did. They call those doctors preferred. It sets the rules and controls the pricing and it benefits when costs go up. Why is it a surprise that costs go up? They’re writing the rules. They have the leverage. We’ve been complacent. Plan sponsors have set back and let it happen to them.
That’s because it understands human behavior, it understands the path of least resistance. It understands and ensured that the business owners, the ceos, the cfos weren’t involved any longer. That because of a lack of data and nothing tangible for them to crunch, you would pass it on, and you have. Largely you’ve passed it on. 95% of the new prospects we talk to try to pass us on to HR. We love HR. HR’s are great people. They’re very much like nurses and I’m married to a nurse.
They’re compassionate, they care about people, they take care of people, but they’re overwhelmed and overworked. They don’t enjoy open enrollment because they’ve been trained to believe what has really happened is bad news. It’s gloom and doom. Their other responsibilities don’t disappear during open enrollment. We need the financial minds of businesses to understand the opportunity to get reinvolved, to have higher expectations, to want to see the data. You haven’t seen it in a very long time, but it is in abundance now. Even if it’s not your specific data, the data tells the truth.
To understand the machine, you have to go back into the early ‘90s at least. Health care still felt personal. Independent doctors, local hospitals, mostly independent hospitals. Insurers expected to negotiate on your behalf. We were expecting discounts. We wanted lower premiums. The health care system was the bad guys.
You weren’t going to negotiate with your doctor directly, but your insurer would. They were getting $0.40, $0.60 on the dollar at one point. Before managed care, you just went to the doctor and you could negotiate because you had an out-of-pocket cost but you also had a relationship. Your doctor could say, “Forget about your $250 deductible, I’ll take the 80% that my insurance company’s paying me.”
Managed care came in then and at first look it looked like a solution, but something changed. That $2 or $5 copay in the early ‘90s of managed care have all but disappeared now for most. They’re coming back with a better way of doing business. Managed care, at first look, was a solution. Hospitals started merging because they realized they needed leverage. In order to negotiate with your insurance company so they could get more than $0.50 on the dollar, they needed to have more presence in the area.
Insurers Shifted Their Focus To Growth
Hospitals started initially merging with other hospitals. They realized, “This is working really well for us. What if we took over the doctors?” Insurers shifted their focus from being stewards of your plan to growth. They started to realize, “We don’t have to manage this. We just have to manage how quickly your premiums increase, but we needed to ensure that they did increase.” They’re not trying to provide value, they’re trying to provide a solution that keeps you compliant. Their true fiduciary responsibility is to their shareholders, legally, not to their patients and their members.
Let’s fast forward to now and the landscape looks very different. Most physicians, 80% or more, now work for corporate health systems, insurance companies or large hospital systems or private equity. Primary care has become a referral funnel and unfortunately, a significant lack of primary care doctors has resulted people to using emergency rooms and urgent care as their first resource of health care.
Many people admit to not even having a relationship with a doctor and if they were to get sick, they wouldn’t even know where to go. Insurers often own the pharmacies or vice versa or the pharmacy benefit managers, the brokers of prescriptions, the providers and they also own the data. They’re not just players in the system anymore, they are the system. It’s their chessboard and we’re just pawns on it.
We have an incentive problem, so here’s where it all breaks down. The machine is built on one simple truth. It makes more money when your costs go up. Write that down, remember it. It’s a fact. Every inflated claim, every unnecessary procedure, every overpriced prescription, that’s revenue for them and loss for you. Now there are many complexities, there are many different plateaus, depending on your state. There are different sizes of employers where your claims directly impact your specific premiums.
The machine is built on one simple truth: it makes more money when your costs go up. Share on XAs a general rule of thumb, once you have 100 or more employees enrolled under your health plan, you will be at least partially experience-rated. Meaning your claim spend will have some impact on your future health care premiums. That’s why it’s very important to be able to manage the health care spend if you want to control the health insurance cost.
Even if you’re not experience-rated, even if you’re in New York like I am, where the community-rated market applies to and companies all the way up to 100 employees, the same fact exists that benefits are extremely expensive, three to $4,000 a month for a family, $1,000 to $2,000 a month for a single employee, depending on if you’re bronze, silver, gold or platinum plan.
Exorbitant out-of-pocket cost, skinny networks, lack of choice. Knowing where to go for your care, having access to the price and the quality of that care makes all the difference between Americans getting high-value health care or not, even if it does not directly impact your premiums. This is how the system is structured, so it isn’t accidental. It’s predictable.
When was the last time your health care cost went down? When was the last time medical trend went down? When was the last time your pooling point went down or your pooling charges? These are things you need to pay attention to. It’s not just the total premium that you’re expected to pay at the end of the year that you need to be focused on. It’s how is this health care impacting your employees.
Let me ask you a simple question, if you ran a business where your customers couldn’t see what you charged, couldn’t compare prices and believed you were working in their best interest, what would you do? Would you take a little more margin? If you wouldn’t, would your competitors? That’s exactly how the machine works. There are no innocent victims, there’s just victims.
Even if it was true back when I worked in the health care system at that radiology practice, even if those patients weren’t expected to pay their out-of-pocket cost, is it right for the facility to be pushing people through machines like cattle just for the sake of profit, even if it wasn’t financially impacting the members? That’s what we’re talking about. We’re talking about human nature.
Most employers still think of insurers as partners, but in reality, they’re vendors with very different incentives. Your insurance company is not your partner, they’re your vendor, you’re hiring them, you really don’t understand what you’re getting, you don’t understand how they manipulate, you don’t understand your true relationship with them or their sister company. When you don’t see the incentives, you can’t see the problem.
I’ve seen this play out over and over again, employers who finally took a look at their data. They see something they weren’t supposed to see. Care being steered to high-cost providers, pharmacy costs inflated through rebates and spread pricing, claims being driven not by need, by system design. Once they see it, they can’t unsee it because they see the opportunity.
Transparency, Aligned Incentives, And Accountability Break Down The Machine
How does the machine get weak? Here’s the good news. The machine isn’t invincible. It’s just protected by complexity, opacity and inaction. The first step is action. The moment you introduce transparency, aligned incentives and accountability, it starts to break down. You, as the American health care consumer, have to ask for it. Don’t expect someone to offer it to you, especially if their incentives are not aligned with yours.
Think about this. Every inefficiency in the system is an opportunity for you. When you remove hidden markups, when you redirect care to high-value providers, when you support your employees to make smarter health care decisions, when you align your partners, you’re not just saving money, you’re flipping the system. You’re turning their profit model into your competitive advantage. You’re recouping what’s always been yours to take.
This is where the health care dividend comes in. Not cutting benefits, not passing more cost on to employees. Not shifting those costs like you’ve been trained to do, but fixing what was broken. Those dollars can go back into your people, your business and your growth. This is where leadership matters because the machine depends on one thing more than anything else. Delay. Delay keeps you paying, delay keeps you in the dark, delay keeps the system intact. Delay prevents you from initiating solutions or implementing solutions.
You don’t have to control the machine, you just have to decide you’re no longer going to feed it. That is your choice, ladies and gentlemen, no one else can make that for you. Is 20% of your health care spend enough of it an incentive for you to change your consumer habits as they relate to your health care spend? Everyone within your organization will benefit from saving money on health care. Your HR team, your board, your owners, your C-suite, your employees, especially the most vulnerable.
You don't have to control the machine; you just have to decide you're no longer going to feed it. Share on XThe frequent flyers, the sickest amongst you, their dependents. Everyone benefits. You wouldn’t stand for what’s happening in health care in any other aspect of your company. You wouldn’t accept it in office equipment, computers, IT, building, property, you wouldn’t. You know where everything goes, you get itemized bills, you see it all. You can compare, you can contrast, you can select, you can make smart decisions.
It’s time to start making smart decisions when it comes to your health care. The machine isn’t slowing down, 14% to 15% increases in the small group market here in New York are a testament to that. Most companies will keep paying more, they’ll get less and calling it normal, don’t be them. You’re not most companies. You see it now and that changes everything. The question isn’t whether the system will keep taking from you, the question is how much longer will you let it.
Thanks for reading. I hope you learned a thing or two and more importantly, I hope it helps you get the results you and your people deserve. Until next time, don’t settle for a health plan that isn’t working for you or is working hard as it should for you and your team. You know how to connect with me on LinkedIn, email, phone call, I’m here, I’m an open book. The more people who know about this problem and understand how to deal with it, the better. Until next time.
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