Washington is gearing up to crack down on "Big Medicine," with populist Sens. Elizabeth Warren, D-Mass., and Josh Hawley, R-Mo., leading the charge.
Over the past decade, America's healthcare system has become increasingly consolidated, leaving patients with higher prices, fewer choices, and more bureaucratic frustration.
But before lawmakers swing a scythe through the healthcare sector, they should ask how it became so consolidated in the first place.
Insurance and hospital behemoths didn't emerge by accident. They're the predictable result of federal health policy — especially the Affordable Care Act — which has made size a prerequisite for survival.
Obamacare's rules have made it far harder for smaller insurers and independent healthcare providers to compete — while giving larger firms a decisive advantage. The law's many mandates increase costs, complexity, and financial risk, all of which are easier to absorb at scale.
Take the law's medical loss ratio rules. By requiring insurers to spend a fixed share of premiums on medical claims, the rules effectively cap administrative efficiency — and encourage insurers to grow larger in order to boost profits.
Similarly, guaranteed issue and community rating rules force insurers to take on higher-risk enrollees without charging prices commensurate with that risk. To protect themselves, they raise premiums across the board — and grow even larger to spread risk.
Add in the law's complex compliance requirements, and the advantage for large firms becomes even clearer. Insurers must navigate risk-adjustment systems, meet strict standards for plan design, and comply with extensive reporting and rate-review rules. These obligations require significant administrative infrastructure — something large insurers can afford, but smaller competitors often cannot.
Facing these pressures, insurers have done exactly what the law incentivizes — get bigger and more vertically integrated. CVS Health acquired Aetna, combining insurance with a pharmacy benefit manager and a nationwide network of clinics. UnitedHealth built out its sprawling Optum empire, which now includes physician practices, pharmacy services, and data analytics.
These moves weren't isolated business decisions. They were rational responses to a system that rewards scale and complexity. Vertical integration, in particular, allows insurers to shift functions and revenue into affiliated entities that fall outside the confines of the medical loss ratio rules. That makes it easier to comply with federal mandates while preserving margins — an option largely unavailable to smaller, less integrated competitors.
Providers have followed a similar path. As insurers have grown larger, hospitals and physician groups have consolidated to gain leverage in negotiations. The hospital market in nearly 150 metro areas is now "very highly concentrated," according to research from the Health Care Cost Institute. Today, roughly half of physicians are employed by or affiliated with hospital systems.
This consolidation has predictable consequences. Larger systems can demand higher reimbursement rates from insurers. That drives up prices without necessarily improving care. Like insurers, providers are responding rationally to a system that rewards size over competition -- and scale over value.
The architects of the Affordable Care Act knew very well that many of its reforms would encourage vertical integration — and saw that trend as beneficial. Peter Orszag, President Obama's budget director, defended the merger wave in a 2020 article in the New England Journal of Medicine titled "The Economic Case for Vertical Integration in Healthcare."
Now, lawmakers are proposing to unwind that consolidation through brute force. But breaking up large insurers and hospital systems without changing the underlying rules won't solve the problem. The same incentives that drove consolidation in the first place will remain — and the system will simply reconsolidate in a different form.
If policymakers are serious about restoring competition, they need to roll back the mandates and regulations that reward size and punish smaller, more nimble competitors.
Scaling back benefit mandates and pricing restrictions would make it easier for new insurers to enter the market and offer more affordable, tailored coverage. Reducing administrative burdens would allow independent providers to compete without needing to sell out to large hospital systems.
Increased transparency is also critical. Requiring providers and insurers to disclose real prices would empower consumers to shop for care — and put downward pressure on costs. Federal law mandates that hospitals and insurers post their prices. But many have chosen to pay fines rather than comply.
In every other sector of the economy, competition drives prices down and quality up. Healthcare should be no different.
Washington helped build Big Medicine. It won't dismantle it by swinging a bigger hammer. Only restoring market principles will.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is The World's Medicine Chest: How America Achieved Pharmaceutical Supremacy – and How to Keep It (Encounter 2025). Follow her on X @sallypipes.