Lentis, Insurance Companies’ Influence in US Health Policy

In 2024, an analysis of healthcare expenses across multiple countries was made by Peterson-KFF revealing U.S. citizens' healthcare expenses averaged $14,755 compared to the $7,860 that the rest of the world pays.[1] Additionally, a CDC survey reveals that 27.2 million people remain uninsured in the United States (8.2% of the sample size).[2] Compared to similar nations, the U.S. ranks towards the bottom in life expectancy and healthcare quality.[3]

A distinguisher of the healthcare system in the US is the role of privatized insurance. For other wealthy countries, healthcare is primarily paid by their government, giving direct leverage as the negotiator of coverage standards and cost. Compared to the US, this role is shared by both private insurers and the government operating in a regulated market based system.[4] This results in reform efforts having the additional participation of private companies in the US.

Anytime reform for the US healthcare system is made, the insurance industry plays an active role in shaping what change looks like. Different strategies such as media campaigns, commissioned research, trade associations, and lobbying are employed by private insurers in efforts to shape legislation in their favor while limiting the government’s ability to compete with or replace them.

The following chapter examines the role of privatized insurance over three cases in the history of the US healthcare system: Medicare Advantage, Medicare Part D, and the Affordable Care Act.

Case Studies

Medicare Advantage

Medicare Advantage (MA) are plans administered by private insurers and funded by the federal government, which serve as an alternative option to government-run Medicare. Also known as Medicare Part C, MA was introduced under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 to introduce private-sector competition and efficiency into the Medicare system.[5] Today, MA plans cover approximately 54% of all Medicare beneficiaries.[6] These plans have grown increasingly popular due to their relatively low premiums and supplemental benefits; however, their structure creates opportunities for insurers to influence both costs and policy outcomes.

A key concern is the financial impact of MA on taxpayers, as estimates suggest that overpayments to MA plans added around $82 billion to Medicare spending in 2023.[7] These excess payments are often attributed to practices such as favorable selection, where healthier individuals are more likely to enroll, and upcoding, in which insurers report higher illness severity than reality to receive larger reimbursements. The regulatory body, Centers for Medicare & Medicaid Services (CMS), has responded by attempting to implement reforms, including updates to the V28 risk adjustment model. This was expected to reduce MA risk scores by 3.12% to reduce upcoding.[8]

However, policy reform in this area is heavily shaped by industry influence. CMS initially proposed a modest 0.09% payment increase for 2027, triggering a sharp negative reaction in financial markets, with insurance stocks dropping significantly.[9] This response was followed by an extensive lobbying effort from insurers and their affiliated organizations. For example, the Better Medicare Alliance (BMA), a group funded by major insurers, directly petitioned CMS leadership to reconsider the proposed changes.[10] Similarly, America’s Health Insurance Plans (AHIP) submitted formal comments expressing “serious concerns” that the proposals would increase costs and reduce benefits for seniors.[11]

Beyond public statements, insurers also mobilized research and public engagement efforts to support their position. AHIP commissioned analyses, including work by Wakely, to argue for higher funding levels and more gradual implementation of policy changes.[12] At the same time, the CMS proposal received a record-breaking 47,000 public comments, reflecting the scale of organized industry and stakeholder engagement.[13] These actions demonstrate how insurers can shape the policy narrative by framing reforms as harmful to beneficiaries rather than as cost-control measures.

The final outcome illustrates the effectiveness of these efforts. CMS ultimately increased the payment adjustment to 2.48%, representing roughly $13 billion in additional funding for MA plans, and chose to delay key risk adjustment reforms by continuing to use the previous model.[14] Additionally, the agency rolled back certain regulatory changes, including the removal of 11 quality measures from the MA Star Ratings system.[15]

Overall, the Medicare Advantage case highlights how private insurers leverage lobbying, research, and public messaging to influence federal health policy. While reforms are often proposed to address inefficiencies and reduce costs, industry responses can significantly alter their implementation, demonstrating the complex relationship between government regulation and private-sector interests in U.S. healthcare.

Medicare Part D

The passage of the Medicare Prescription Drug, Improvement, and Modernization Act (MMA) of 2003 marked a fundamental shift in American social policy. For the first time, a major expansion of a public entitlement program (the creation of Medicare Part D) was designed to be delivered exclusively through private insurance companies rather than the traditional government-administered fee-for-service model.[16] This delegation of power to private actors created a multi-billion dollar market that today serves tens of millions of beneficiaries.[16]

The health insurance industry exerted significant influence by framing the expansion as a victory for "market competition." Rather than the government setting pharmaceutical prices directly, the MMA established a system where private insurance plans negotiate with drug manufacturers.[17]

Key features of the legislation that favored the insurance industry included:

• The Non-Interference Clause: This prevented the Secretary of Health and Human Services from negotiating drug prices directly, ensuring that the negotiation power remained with private insurers and Pharmacy Benefit Managers (PBMs).
• Voluntary Enrollment: Medicare Part D was structured so that beneficiaries must choose from a variety of private plans (PDPs or MA-PDs) to receive their benefit.[17]
• Administrative Subsidies: The government provides substantial subsidies to participating private plans, deriving the amount of these subsidies from the prices set by the insurers themselves.[16]

The MMA's passage was secured by a razor-thin five-vote margin in the House of Representatives, following intense political bartering and lobbying. Research suggests that political dynamics played a role in the bill’s success, including specific provisions (such as payment increases for hospitals and the inclusion of the non-interference clause) used as leverage to win over reticent legislators.[18] Furthermore, recent analyses of the health insurance industry indicate a "pay-to-play" environment where higher political donations correlate with higher Medicare and Medicaid premiums and reduced regulatory oversight.[16]

By 2019, Medicare Advantage and Part D plans were collectively receiving over half a trillion dollars in government payments.[16] Critics argue that this privatization has led to "overpayments" to private insurers, with some estimates suggesting that Medicare Advantage plans cost taxpayers significantly more per beneficiary than traditional Medicare. This structure has granted the insurance industry "structural power," as the government is now heavily reliant on these private partners to deliver essential health benefits, making significant policy reform increasingly difficult.[16]

The Affordable Care Act

The Affordable Care Act dates all the way back to the "Harry and Louise" campaign in 1993. This was a campaign that was highly effective in opposing the Clinton Health Care Plan. It constituted mass television ads that pushed healthcare reform as overly complex and government-controlled. This allowed Americans to feel defeated as well as oppose the Clinton Health care plan. The failure of that Clinton plan directly portrays how strong the insurance industry’s power is to block policy changes that didn't work in their favor.

The healthcare system started facing a more urgent crisis sometime in the late 2000s. Two problems were at the forefront, approximately 46 million Americans were uninsured while healthcare costs were rising far faster than wages. The combination created widespread financial strain and increased instability, as individuals risked losing coverage due to illness or job loss. The public had felt that the healthcare situation was simply too unsustainable support for broader healthcare reform began to grow. This meant that insurance companies had to restrategize in order to win back public favor or at least get the public off their back.

The strategy to block reform would have never worked because the real goal was to win back the public, so the new strategy was to reshape the healthcare situation in a way that still aligned with their goals. Organizations like America’s Health Insurance Plans (AHIP) main goals were aimed to keep the private insurance system. The goal was to secure an individual mandate, which would require all Americans to purchase insurance. In doing so, this would guarantee a larger customer base and offset the costs of covering individuals with preexisting conditions.

During this time, the Obama administration took on a different problem that ended up overlapping with the insurance companies main goals.[19] The main two goals was to expand access to healthcare while stabilizing costs. This take really emphasized increasing coverage through subsidies while regulating insurance practices. This made sure that both healthy and sick Americans participate all under the same system. The government and the Obama administration were able to frame this take as a balance between accessibility and responsibility. A system that naturally only works when everyone contributes.

AHIP and other insurance industry actors also played a more subtle political role. For example, they financially supported organizations that opposed certain reform proposals, such as a government-run “public option,” and backed reports suggesting reform could increase premiums. In spite of that, they publicly cooperated with reform efforts, which allowed them to still have influence over policy outcomes without appearing as though they had a hand.

The final legislation reflects this balance of competing interests. While the Affordable Care Act significantly expanded coverage and introduced consumer protections, it also preserved the central role of private insurers. The law now established insurance marketplaces as well as provided government subsidies to make coverage more affordable. The government and the insurance companies were able to benefit while the people still face similar issues with their healthcare. The Affordable Care Act is a perfect example of how policy outcomes are shaped not just by public need, but by negotiation between political goals and insurance companies. As long as the Insurance companies can retain the existing structure of private insurance, they can always hold power.

Analysis

Given these three cases, the insurance industry’s influence over US health policy follows a pattern.

First trade associations behave as political shields for their member companies. The member companies which fund the Better Medicare Alliance and the AHIP protect their members from public scrutiny allowing their funders to appear neutral when reform is proposed at the federal level. Secondly, the public narrative towards legislative reform  is weaponized. This is achieved through media campaigns and commissioned research intended to change perception of the reform as a problem not the solution. Finally, the losses for the insurance companies are minimized and this is usually done with revisions to the proposed policies made with the intention of favoring the private industry.

As a result of this, although reform in the US healthcare system is being made, private insurance is still indispensable to the system. The cost of healthcare will likely not be comparable to that of other nations until the insurance industry is no longer influencing what reform looks like.

Further Extension

This chapter focused on three legislative cases in the history of US healthcare: Medicare Advantage, Medicare Part D, and the Affordable Care Act. Contributors looking to extend this chapter can potentially consider the following: State level reform efforts and US pharmaceutical industry overlap.

References

• ↑ "How does health spending in the U.S. compare to other countries?". Peterson-KFF Health System Tracker. https://www.healthsystemtracker.org/chart-collection/health-spending-u-s-compare-countries/
• ↑ CDC. “U.S. Uninsured Rate Drops by 15% Since 2020.” NCHS Pressroom, 25 June 2025, https://www.cdc.gov/nchs/pressroom/releases/20250624.html.
• ↑ “International Comparison of Health Systems.” KFF, 3 Oct. 2025, https://www.kff.org/global-health-policy/health-policy-101-international-comparison-of-health-systems/.
• ↑ Smith K. A (Brief) History of Health Policy in the United States. Dela J Public Health. 2023 Dec 31;9(5):6-10. doi: 10.32481/djph.2023.12.003. PMID: 38283712; PMCID: PMC10810293.
• ↑ Legal Clarity. (2026). When did Medicare Part C start? History of Medicare Advantage. https://legalclarity.org/when-did-medicare-part-c-start-history-of-medicare-advantage/
• ↑ Legal Clarity. (2026). When did Medicare Part C start? History of Medicare Advantage. https://legalclarity.org/when-did-medicare-part-c-start-history-of-medicare-advantage/
• ↑ Gaffney, A., Woolhandler, S., & Himmelstein, D. U. (2024). Less Care at Higher Cost—The Medicare Advantage Paradox. JAMA Internal Medicine, 184(8). https://doi.org/10.1001/jamainternmed.2024.1868
• ↑ Clayton, W. (2026). CMS-HCC Model V28. RAAPID Inc. https://www.raapidinc.com/blogs/cms-hcc-model-v28/
• ↑ MacDonald, I. (2026). Advance Notice fallout: What MA plans need to know. https://www.risehealth.org/insights-articles/article/advance-notice-fallout-what-ma-plans-need-to-know/
• ↑ Better Medicare Alliance. (2026). Letter to CMS Administrator Mehmet Oz. https://bettermedicarealliance.org/wp-content/uploads/2026/03/Ally-Sign-on-Letter-to-Administrator-Oz.pdf
• ↑ AHIP. (2023). AHIP submits comments on 2024 Medicare Advantage advance rate notice. https://www.ahip.org/news/press-releases/ahip-submits-comments-on-2024-medicare-advantage-advance-rate-notice
• ↑ America’s Health Insurance Plans. (2026). AHIP comment letter on the CY 2027 Medicare Advantage advance notice (with Wakely reports). https://ahiporg-production.s3.amazonaws.com/documents/AHIP-Comment-Letter-CY2027-Advance-Notice-with-Wakely-Reports.pdf
• ↑ Casolo, E. (2026). 47,000 comments on 2027 Medicare Advantage pay proposal breaks CMS record. https://www.beckerspayer.com/payer/medicare-advantage/47000-comments-on-ma-payment-rule-for-2027-breaks-cms-record/
• ↑ Centers for Medicare & Medicaid Services. (2026). CMS finalizes 2027 Medicare Advantage and Part D payment policies. https://www.cms.gov/newsroom/press-releases/cms-finalizes-2027-medicare-advantage-part-d-payment-policies-strengthen-accountability-long-term
• ↑ Centers for Medicare & Medicaid Services. (2026). Contract year 2027 Medicare Advantage and Part D final rule. https://www.cms.gov/newsroom/fact-sheets/contract-year-2027-medicare-advantage-part-d-final-rule
• ↑ a b c d e f Kelly, Andrew S. (2023). "Private Power in Public Programs: Medicare, Medicaid, and the Structural Power of Private Insurance". Studies in American Political Development. 37 (1): 24–40. doi:10.1017/S0898588X22000207. ISSN 0898-588X.
• ↑ a b Duggan, Mark; Scott Morton, Fiona (2010). "The Effect of Medicare Part D on Pharmaceutical Prices and Utilization". American Economic Review. 100 (1): 590–607. doi:10.1257/aer.100.1.590. ISSN 0002-8282.
• ↑ Cooper, Zack; Kowalski, Amanda; Powell, Eleanor Neff; Wu, Jennifer D. (2024-05-01). "Politics and health care spending in the United States: A case study from the passage of the 2003 Medicare Modernization Act". Journal of Health Economics. 95: 102878. doi:10.1016/j.jhealeco.2024.102878. ISSN 0167-6296.{{cite journal}}: CS1 maint: article number as page number (link)
• ↑ "KFF - The independent source for health policy research, polling, and news". KFF. 2026-04-30. Retrieved 2026-05-04.

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