The Broken US Healthcare System is Failing Millions of Americans with Warris Bokhari

Episode Overview

• This episode features Steve Eisman (of "The Big Short" fame) and Waris Bokhari examining the perverse financial incentives driving the US healthcare system's dysfunction.
• It explores how insurance companies and Pharmacy Benefit Managers (PBMs) prioritize "financial product" mechanics—like the "float" and administrative friction—over patient care, leading to massive denial rates.
• The discussion covers the collapse of the Medicare Advantage "arbitrage" model, the weaponization of AI in claim denials, and how vertical integration allows companies to bypass profit caps.
• Listeners will learn why the system relies on "breakage" (patients giving up on appeals) and how data-backed appeals can actually overturn 70-90% of denials.
• This content is crucial for patients, employers, and investors trying to navigate or understand the structural failures and hidden economics of modern healthcare.

Key Concepts

The "Denial Gap" and "Breakage" Model The insurance business model currently relies on "breakage"—the statistical reality that roughly 99% of patients will not fight a denied claim. Insurers deny approximately 15-17% of claims, yet when patients do appeal with proper data, they win between 50% and 90% of the time. The system's profitability depends on the "friction" of the process exhausting the patient, allowing insurers to retain premiums without paying for care.

Defining "Deviancy Down" in Healthcare Applying a sociological concept to insurance, the industry has "defined deviancy down." Practices that were once considered morally scandalous—such as systematically denying life-saving cancer treatments or automating rejections—have become normalized business standards. The ethical baseline has eroded to the point where aggressive denial tactics are applauded by shareholders rather than condemned.

The "Shift Left" Strategy and The Float Insurers are employing a "Shift Left" strategy, introducing administrative hurdles like prior authorizations and step edits before care is provided. This resets the payment clock, allowing insurers to hold onto premium dollars for 90 days or more. This allows them to maximize the "float"—earning investment income on cash that should have been paid out to doctors and hospitals.

Vertical Integration and Profit Loops By law, insurers are capped on their profit margins for premiums (Medical Loss Ratio). To bypass this, they have vertically integrated by buying providers (doctors) and Pharmacy Benefit Managers (PBMs). This allows them to capture the remaining 85% of the healthcare dollar. By paying their own subsidiaries for care and drugs, they can effectively uncap their profits while distorting market prices.

Weaponization of AI and Algorithmic Denials Insurers now use Artificial Intelligence to deny claims at superhuman speeds (e.g., 1.2 seconds per claim). These algorithms often rely on outdated internal clinical data rather than current medical standards. This allows for blanket denials on a massive scale, shifting the burden of proof entirely onto the sick patient to demonstrate medical necessity after the fact.

The Medicare Advantage Arbitrage Collapse For years, Medicare Advantage plans profited by aggressively "upcoding" patients to make them appear sicker on paper (maximizing government payments) while denying actual care (minimizing costs). Recent regulations (Rule V28) have deleted thousands of diagnosis codes, causing this arbitrage model to collapse and impacting the stock prices of major insurers.

PBMs and the "Rebate Trap" Pharmacy Benefit Managers (PBMs) control which drugs are covered by insurance. They often select drugs based on the size of the "rebate" (kickback) the manufacturer pays them, rather than efficacy or price. This creates an inflationary cycle where drug prices are artificially raised so manufacturers can offer larger rebates to secure a spot on the formulary, costing employers and patients billions.

Misalignment and Moral Injury The fundamental friction is that insurers operate as "financial products businesses" managing risk and capital, while providers operate on biological timelines. This misalignment causes "moral injury" to doctors who cannot provide necessary care due to administrative blocks, and leaves families feeling they failed to protect loved ones because they couldn't navigate the bureaucratic labyrinth.

Quotes

• At 0:00:43 - "Doctor's office fills out the paperwork, and 1.2 seconds later, the claim is denied... These insurers are applying bad policies really quickly using AI." - Explaining how automation allows insurers to scale denials efficiently without human review.
• At 0:06:41 - "For every 1% that we raise healthcare costs in this country, deaths go up by 2%... It's due to a lack of availability. You structurally cause an access problem." - Illustrating the direct statistical link between rising insurance prices and patient mortality.
• At 0:07:24 - "If you appeal, you have a good chance of winning... from our data... it's anywhere between 70% and 93% we see in overturns... [but] less than 1% appeal because it's hard." - Highlighting the massive inefficiency where valid claims are rejected simply because the process is designed to be difficult.
• At 0:10:57 - "There's a concept called defining deviancy down... Something that was in a movie [The Rainmaker], when people watched it were horrified, is now applauded by shareholders." - Articulating how the ethical baseline for insurance practices has lowered significantly over the last two decades.
• At 0:14:55 - "The insurers refer to the people who use their product as a 'member'... Members in insurance parlance really are passive premium payers. They never have problems." - Explaining the dehumanizing terminology that views patients as revenue units.
• At 0:26:33 - "They maximize the diagnosis and then they deny the care... they keep what's in the middle." - Explaining the profit mechanism of Medicare Advantage plans prior to recent regulatory crackdowns.
• At 0:29:07 - "If we only make 15 cents on the dollar... what about the other 85 cents? Well, the other 85 cents is paid to the doctor. So if we have clinics all over the United States... we could make profit-wise 25, 30, 40 cents." - Summarizing the economic incentive for insurers to buy physician practices.
• At 0:37:37 - "They reverse solve for the number... They're solving for the percentage. And so then the percentage just becomes a larger revenue number to access the market." - Explaining how drug prices are inflated to accommodate rebates demanded by PBMs.
• At 0:45:37 - "Cigna... was denying claims at a speed of like 1.2 seconds per claim... The claim was submitted, reviewed and denied within like a minute." - Highlighting the use of automation to reject claims without human review.
• At 0:56:07 - "Insurers are compensating right now by resetting the time at which they have to pay a claim... You effectively reset the time at which that has to be adjudicated and paid." - Defining the "Shift Left" strategy used to delay payments.
• At 0:56:56 - "The reason why the insurance company wants to do that is they keep the money... and earn some little extra money while they don't pay. It's called the float." - Clarifying the financial incentive behind administrative delays.
• At 1:04:54 - "They [employers] are the most cheated people in healthcare, actually, other than the patients... because they have no idea how their premium dollars are being spent." - Identifying employers as a key leverage point for change who are currently being exploited.
• At 1:16:47 - "The fundamental problem is that people think of health insurance as a healthcare business, and it isn't. It's a financial products business. And people feel betrayed." - Identifying the root cause of the consumer trust crisis.

Takeaways

• Appeal every denial; the data shows you have a 50-90% chance of winning if you persist, as the system counts on you giving up.
• Use external clinical data (like Phase 3 studies or medical society guidelines) in appeals, as insurers often rely on outdated internal policies that cannot stand up to current science.
• Employers must demand transparency from their PBMs and insurers, as they are currently overpaying billions due to hidden rebates and "spread pricing."
• Be aware that "Shift Left" tactics (prior authorizations, step edits) are often financial tools to delay payment, not medical tools to ensure safety.
• Understand that "Member" in insurance language often means "passive payer," so you must actively advocate for yourself rather than expecting the system to guide you.
• Support and utilize alternative pharmacy models (like Cost Plus Drugs) to bypass the inflationary rebate system of traditional PBMs.
• Recognize that large hospital consolidations and vertical integration generally drive costs up, not down, by creating local monopolies and fee structures.