Chapter 499 - 232: Addictive Dose (Part 2)
"How long is that period?"
Leo thought for a moment. "Three months? Six months?"
"The average is three to six months."
Roosevelt said, "This means that at any given time, insurance companies have tens of billions in cash sitting on their books. And they don’t have to pay any interest on that money."
"That’s what’s called ’float.’"
"Why does Buffett love buying insurance companies? It’s precisely because he’s after this cash flow that he can use long-term."
"What do the insurance companies do with these tens of billions of USD?"
"They buy government bonds, stocks, and real estate. They start hedge funds."
"Their real source of profit is the investment returns from this massive amount of capital in the financial markets."
"And, Leo, that’s just the tip of the iceberg."
Roosevelt’s voice grew deeper.
"Besides playing with time, they also play with structure."
"Since the law limits the profit margin on the insurance business itself, they just shift the profits to places the law can’t reach."
"This is called vertical integration—a classic case of moving money from the left pocket to the right."
"United Health acquired Optum, and CVS Health acquired Antai Insurance."
"Insurance companies use vast sums of money to buy up numerous physician groups, clinics, pharmacies, and, most crucially, pharmacy benefit managers."
"While the insurance business itself can only earn 15%, the insurance companies will prioritize paying large claim amounts to the clinics and pharmacies they own."
"In those entities, profit margins aren’t restricted by the Affordable Care Act. Clinics can set high consultation fees, and pharmacies can jack up drug prices."
"The insurance company’s left hand is losing money, but its right hand is raking it in. This kind of profit shifting is completely legal on the financial statements."
"And then there are the large corporate clients."
Roosevelt continued to explain.
"Many large companies now use a self-insurance model, meaning they bear the risk of their employees’ medical expenses themselves."
"In this case, the insurance company no longer collects premiums. Instead, it charges an administrative services fee to manage the claims process on their behalf."
"This administrative fee isn’t included in the act’s profit margin calculation. It’s unregulated profit."
"This is the secret of the insurance industry."
"It wears the cloak of healthcare, but in reality, it’s a super-bank that doesn’t pay interest, and a medical Trust that has monopolized the entire supply chain."
Roosevelt paused, letting Leo digest this information.
"Now, back to your question."
"You want to start a fully-licensed insurance company? You’d have to ask Evelyn if she’s willing to give you tens of billions in cash to gamble with."
"You don’t have that kind of capital. You can’t afford to play this financial game."
"If you rush into this field now, those giants only need to lift a finger in the capital markets to make you lose every last cent of your pitiful mutual aid fund."
"You’d be wiped out in an instant."
"Then what do we do?" Leo was unwilling to accept this. "Are we just supposed to watch them continue to suck everyone dry?"
"Of course not."
Roosevelt’s tone shifted.
"This is why I told you to focus only on pharmaceuticals."
"In the United States’ health insurance expenditures, pharmaceuticals account for nearly 25%."
"And in this field, there’s a middleman lurking who is even more hidden than the insurance companies."
Leo narrowed his eyes. "You mean..."
"Pharmacy benefit managers."
This was a term that was completely foreign to the average person.
Most people had no idea they existed, yet they were like an invisible hand reaching into every American’s medicine bottle and taking the biggest piece of the pie.
"Listen carefully, Leo."
"In theory, the role of a pharmacy benefit manager is to act as a group purchasing agent, representing insurance companies and employers to negotiate prices down with pharmaceutical companies."
"They hold the prescription needs of tens of millions of people in their hands. They tell the drug companies, ’If you want these tens of millions of people to buy your drug, you have to give me a discount.’"
"Sounds great, right? Like they’re helping patients save money."
"But in reality, it’s a complete and total gangster-style shakedown."
Roosevelt began to explain, "They play both sides."
"To get their drugs sold, pharmaceutical companies have to give the PBMs huge rebates. And mind you, this rebate doesn’t go to the patient, nor does it go to the insurance company. It goes straight into the PBM’s pocket."
"To afford these rebates, the drug companies have no choice but to set an extremely high list price for the drug."
"A pill that costs 5 dollars to make might have a list price of 500 dollars. The PBM tells the drug company, ’Give me a 200-dollar rebate, and I’ll put you on the formulary.’ The drug company still makes 295 dollars."
"So who ends up paying?"
"The poor patients with no insurance, or those with high deductibles. They have to pay the full 500 dollars."
"Then the PBM turns around and tells the insurance company, ’Look, I negotiated a great price for you. This drug is only 300 dollars.’"
"The insurance company pays the 300 dollars."
"But in reality, the amount the PBM actually reimburses the pharmacy might only be 100 dollars."
"Where did the 200-dollar difference go?"
"Straight into the PBM’s pocket again."
"They are robbers posted on the lifeline."
"You want to live? Pay the toll."
"You want to sell your drug? Pay the protection fee."
"CVS Health, Express Scripts, OptumRx."
"These three giants control 80% of all drug distribution in the United States."
"Their business is more profitable than drug trafficking."
As Leo listened to Roosevelt’s description, his fists slowly clenched.
"I’m going to take them down."
Leo said in a low voice.
"Exactly."
"However, Leo, you need to be clear about one thing."
"On a capital level, you can’t take them down. They have cash flows in the hundreds of billions, the backing of Wall Street, and countless lawyers and actuaries."