The Healthcare Maze: Tracing a Dollar Through Six Layers of Middlemen

Part 3 of the Economic Plumbing series — Where $5.3 trillion goes, and who takes what along the way

In Part 2, we followed a dollar through Wall Street’s toll booths — swipe fees, investment banking, asset management, private equity, and high-frequency trading. The total extraction: roughly $600 billion a year.

Now we enter a system where the extraction is larger, the layers are deeper, and the human cost is measured in lives rather than basis points. The U.S. healthcare system consumed $5.3 trillion in 2024–18% of GDP, or $15,474 per person. This is the largest single sector of the American economy, and it is, by any honest accounting, the most elaborate toll road ever constructed.

The core question is the same as Parts 1 and 2: how much of this $5.3 trillion pays for actual healthcare, and how much feeds the intermediaries?

The $1.8 Trillion Gap

Before we trace the plumbing, we need the benchmark.

In 2024, the United States spent $14,885 per person on healthcare — the highest in the world. Switzerland, the second-highest spender, came in at $9,963. The OECD average for wealthy peer nations was $7,371. The U.S. spends roughly double what comparable countries spend per capita, and nearly 7 percentage points more of GDP (18% vs. ~11.2%).

What does America get for paying twice as much? Worse outcomes across nearly every measure. Life expectancy is lower than comparable nations. Infant mortality is higher. Maternal mortality is among the worst in the developed world. Disability-adjusted life years are declining. Diabetes control is deteriorating. As health economist Ezekiel Emanuel has noted, a reasonable spending target for the U.S. would be approximately 12% of GDP — close to what other OECD nations spend. The gap between 18% and 12% of GDP represents approximately $1.8 trillion per year in excess spending that buys no additional health.

This excess is not driven by Americans using more healthcare. Utilization rates for many services are actually lower in the U.S. than in peer countries. Americans have shorter hospital stays and fewer angioplasty surgeries than the OECD average. The excess comes almost entirely from higher prices and higher administrative costs — the cost of running the maze itself.

The Six Layers: Who Stands Between You and Your Doctor

The U.S. healthcare system has six distinct layers of intermediaries between the person who needs care and the person who provides it. Every layer takes a cut. Some add value. Many don’t.

Layer 1: You and Your Employer — The Premium Payers

It starts with money leaving your paycheck. In 2024, the average annual premium for employer-sponsored family health insurance exceeded $25,000, with workers paying roughly $7,000 of that directly and employers covering the rest (which is, in economic terms, also coming out of your compensation). Add deductibles, copays, and out-of-pocket costs ($557 billion nationally in 2024), and the average American family’s total healthcare burden is well north of $12,000 per year before they receive a single aspirin.

Private health insurance spending in 2024 totaled $1.6 trillion — 31% of all national health expenditures. This is the toll paid just to enter the maze.

Layer 2: Health Insurers — The Gatekeepers

Health insurers — UnitedHealth Group, Anthem/Elevance, Cigna, Aetna/CVS, Humana — collect premiums and decide what care they’ll pay for. Under the Affordable Care Act’s Medical Loss Ratio (MLR) rules, insurers must spend at least 80–85% of premium revenue on actual medical care. The remaining 15–20% covers administrative costs and profit.

But 15–20% of $1.6 trillion is $240 to $320 billion that goes to something other than healthcare. And the MLR creates a perverse incentive: since profit is capped as a percentage of total spending, insurers actually benefit from higher total healthcare costs. If costs rise 10%, their permitted profit rises 10% too. The insurance industry has no structural incentive to reduce the cost of care — only to manage the rate of increase.

The major insurers have also vertically integrated to a remarkable degree. UnitedHealth Group doesn’t just insure you. Through Optum, it employs or affiliates with more than 90,000 physicians. It owns the largest pharmacy benefit manager (OptumRx). It owns the largest healthcare data clearinghouse (Change Healthcare, which processes one in every three medical claims in America). It earned $371 billion in revenue in 2024. A single company simultaneously insures you, manages your pharmacy benefits, employs your doctor, and processes the claims — at every step collecting a margin.

Layer 3: Pharmacy Benefit Managers — The Invisible Toll Collectors

PBMs are the least visible and most profitable layer of the maze. Three companies — CVS Caremark, Express Scripts (Cigna), and OptumRx (UnitedHealth) — control approximately 80% of the $600 billion PBM market, managing prescription drug benefits for 270 million Americans.

In theory, PBMs negotiate lower drug prices on behalf of insurers and employers. In practice, they have become one of the most efficient extraction mechanisms in the healthcare system.

Here’s how it works. A drug manufacturer sets a high “list price” for a medication — say $500 per month. The PBM negotiates a “rebate” — say $200 — and tells the insurer they’ve saved them money. But the PBM doesn’t necessarily pass the full rebate to the insurer or the patient. It keeps a portion — the “spread.” And because PBMs are not required to disclose their actual rebate terms, no one outside the PBM knows how much of the negotiated discount reaches the patient.

The FTC’s 2024–2025 investigation into PBMs produced damning findings. The Big 3 PBMs marked up numerous specialty generic drugs at their affiliated pharmacies by hundreds and thousands of percent. Their affiliated pharmacies generated over $7.3 billion in revenue above estimated drug acquisition costs on specialty generics alone from 2017–2022. The Big 3 also generated an estimated $1.4 billion from spread pricing — billing insurers more than they paid pharmacies — on just the specialty generic drugs the FTC analyzed.

The mechanism creates a death spiral for independent pharmacies. PBMs reimburse their own affiliated pharmacies at higher rates than unaffiliated pharmacies for the same drugs. They steer profitable prescriptions to their own pharmacies. Independent pharmacies, unable to cover their costs at the PBM-dictated reimbursement rates, close — further consolidating the PBMs’ grip. Senator Ron Wyden called PBMs “as clear a middleman rip-off as you are going to find.”

And the incentives are upside down. PBMs make more money when they negotiate with a higher-priced drug rather than a lower-priced one, because their rebate (and retained spread) is larger in absolute dollars. The Novo Nordisk/Ozempic hearing in 2024 revealed that PBMs may actually penalize manufacturers who lower list prices by threatening to drop the drug from their formularies — the exact opposite of what a cost-reducing intermediary should do.

The insulin story crystallizes the absurdity. For decades, the list price of insulin in the United States rose relentlessly — from roughly $20 per vial in the 1990s to over $300 by the 2020s — even though the drug was discovered over a century ago and costs a few dollars to manufacture. The reason: manufacturers, PBMs, and insurers had built a rebate ecosystem where high list prices benefited everyone in the chain except the patient. Manufacturers set high prices so they could offer large rebates. PBMs demanded large rebates because their revenue depended on the spread. Insurers accepted the arrangement because higher total spending meant higher permitted profit under MLR rules. The patient — particularly the uninsured patient who pays list price — was the only party harmed.

Nearly three in ten Americans report rationing or skipping doses of prescribed medicines due to high costs. For insulin-dependent diabetics, that rationing is sometimes fatal. A system that produces this outcome while generating record profits for every intermediary in the chain is not a healthcare system. It is an extraction system that incidentally delivers some healthcare.

Layer 4: Hospitals and Physicians — Where Care Actually Happens (and Admin Consumes It)

Hospitals and physicians are where healthcare actually gets delivered. In 2024, hospital expenditures hit $1.6 trillion (up 8.9% from 2023) and physician/clinical services reached $1.1 trillion (up 8.1%). Together they account for over half of all national health spending.

But a staggering share of that spending never touches a patient.

The United States spent $1,055 per capita on healthcare administration in 2021–3.4 times Germany’s $306 and 5 times the U.K.’s $209. An American Hospital Association report found that administrative costs now account for more than 40% of total hospital expenses. A Trilliant Health analysis of CMS cost report data found that hospital administrative expenditures exceed direct patient care spending by nearly 2x.

Where does this administrative burden come from? From navigating the maze itself.

The multi-payer system means every hospital must negotiate rates with dozens of insurers, each with different formularies, preauthorization requirements, billing codes, and denial processes. The AMA’s 2024 survey found physicians spend an average of $68,000 per year per doctor on billing and insurance-related overhead. A single prior authorization request — the process by which an insurer pre-approves a treatment — costs providers an estimated $11 per request, and doctors complete an average of 43 per week. Prior authorization alone costs the healthcare system an estimated $21 to $73 billion per year.

Then there’s the denial game. Insurers deny claims — sometimes using AI algorithms that auto-reject without clinical review — and hospitals spend resources appealing. An HHS Inspector General report estimated that 75% of Medicare Advantage claim denials are eventually overturned, meaning the denials weren’t medically justified in the first place. The denial-and-appeal cycle exists primarily as a cash-flow tactic — delaying payments costs insurers nothing while hospitals bear the administrative burden.

The entire Revenue Cycle Management (RCM) industry — the companies that help providers navigate billing, coding, denials, and collections — is estimated at $55 to $172 billion per year. This is an industry that exists solely because the system is too complex for providers to navigate on their own. Every dollar spent on RCM is a dollar spent on processing the maze, not treating patients.

The administrative burden doesn’t just cost money — it costs doctors. Physician burnout has reached epidemic levels in the United States, with surveys consistently showing that administrative tasks are the leading cause. Doctors entered medicine to treat patients. Instead, they spend hours each day on prior authorizations, coding documentation, and insurance appeals. A 2024 AMA survey found that 94% of physicians reported prior authorization delays in care, and 80% reported that prior authorization led to treatment abandonment — patients giving up on getting the care their doctor prescribed because the insurance approval process was too burdensome.

This is the hidden cost of the maze: not just dollars extracted, but care never delivered. Every prior authorization that causes a patient to abandon treatment is a toll that shows up not in financial statements but in health outcomes — the uncontrolled diabetes, the untreated depression, the cancer caught too late.

Layer 5: Wholesalers and Distributors

Three companies — McKesson, Cencora (formerly AmerisourceBergen), and Cardinal Health — dominate pharmaceutical distribution, moving drugs from manufacturers to pharmacies and hospitals. Their margins are thin per unit but the volume is enormous. McKesson alone generated $8.1 million per employee in revenue — the highest of any Fortune 500 company — reflecting the capital-light, volume-heavy nature of the distribution toll.

Layer 6: Drug and Device Manufacturers

At the bottom of the stack, pharmaceutical companies set the list prices that cascade upward through every layer. Prescription drug spending reached $467 billion in 2024. U.S. drug prices are the highest in the world — often 2–3x what the same drugs cost in Canada, Europe, or Japan — because, until the Inflation Reduction Act of 2022, the U.S. was the only developed nation that did not negotiate or regulate drug prices at the national level.

The Inflation Reduction Act allowed Medicare to negotiate prices on a small number of drugs for the first time, and early results suggest savings of $24 billion by 2031. But the vast majority of the drug market remains subject to the same dynamic: manufacturers set high list prices, PBMs negotiate opaque rebates, insurers pass costs to employers, and employers pass costs to workers. Everyone in the chain gets a cut. The patient pays at every layer.

The Waste: $760 Billion to $935 Billion Per Year

A landmark 2019 JAMA study estimated that wasteful spending in U.S. healthcare totals $760 billion to $935 billion per year — roughly 25% of all healthcare spending. The largest category is administrative complexity ($266-$390 billion), followed by pricing failure ($231-$241 billion), clinical waste ($106-$166 billion), overtreatment ($76-$101 billion), and fraud ($58-$84 billion).

A subsequent Health Affairs analysis estimated that administrative waste alone — the portion of admin spending above what a more streamlined system would require — runs $285 billion to $570 billion per year, or 7.5% to 15% of total healthcare spending.

To put this in perspective: annual U.S. administrative spending on healthcare alone exceeds twice what the country spends on cancer treatment, and three times what it spends on cardiovascular disease. Americans aren’t overspending on care. They’re overspending on the paperwork.

The Change Healthcare Attack: What Happens When the Maze Breaks

On February 21, 2024, a ransomware attack struck Change Healthcare — the UnitedHealth Group-owned clearinghouse that processes approximately 15 billion healthcare transactions per year, or roughly one in every three medical claims filed in the United States.

The results were immediate and devastating. Pharmacies could not verify insurance or process prescriptions. Hospitals lost the ability to submit claims. Small medical practices, which typically operate on 30-day cash reserves, began missing payroll within three weeks. The AMA reported that 80% of physicians experienced financial harm from the outage. CMS deployed $2 billion in emergency advance payments to keep providers solvent while the system was rebuilt.

The attack revealed a deeper truth: the U.S. healthcare system’s administrative infrastructure is so consolidated and so complex that a single point of failure can paralyze the entire system. Change Healthcare exists because the maze requires a massive intermediary just to route claims between thousands of payers and millions of providers. The company’s revenue depends on continued complexity. If claims submission were standardized across all payers, the clearinghouse function would be largely unnecessary.

UnitedHealth Group — which simultaneously insures more Americans than any other company, owns the clearinghouse, employs tens of thousands of physicians through Optum, and operates the largest PBM — earned $371 billion in revenue in 2024. Its CEO’s compensation package was $26.3 million. The company spent approximately $33 billion on stock buybacks from 2020–2024.

Why It Persists: The Lobbying Layer

Healthcare is the most heavily lobbied sector in Washington. Lobbying expenditures across all healthcare categories grew by more than 70% from 2000 to 2020. In 2024, the pharmaceutical and health products industry alone spent $294 million on lobbying — more than any other single industry.

This spending is an investment with extraordinary returns. Every dollar spent lobbying against drug price negotiation protects billions in pharmaceutical revenue. Every dollar spent opposing PBM transparency legislation protects the spread-pricing model. Every dollar spent fighting prior authorization reform preserves the denial-and-delay cash flow tactic.

The result is a system that is dysfunctional by design. Every layer of intermediation generates revenue for someone. Every reform that would simplify the system threatens someone’s business model. And the entities with the most to lose from reform are the ones with the deepest lobbying budgets.

What a $1,800 Trillion Difference Buys

If the United States reduced healthcare spending to 12% of GDP — still higher than most peer nations — the annual savings would be approximately $1.8 trillion. That money wouldn’t disappear. It would stay in the economy:

Small businesses would be freed from the burden of healthcare administration that currently consumes enormous management time — time that could be spent growing the business. The estimated 900,000 jobs in healthcare billing and insurance administration would need to transition, but the economic literature consistently shows that reducing waste in one sector frees resources for productive employment in others.

Employers would pay lower premiums, freeing capital for wages and investment. Workers would take home more pay. Out-of-pocket costs would fall. Medicaid and Medicare spending would drop, reducing the federal deficit. And the 25% of healthcare spending currently consumed by waste — the prior authorizations, the denial-and-appeal cycles, the spread pricing, the redundant administrative infrastructure — would simply cease to exist.

The countries that spend less and get more aren’t running different hospitals or training different doctors. They’re running simpler systems. Fewer layers. Fewer intermediaries. Fewer toll collectors.

Every additional layer of intermediation in the U.S. healthcare system was added with a plausible justification. PBMs were supposed to reduce drug costs. Prior authorization was supposed to prevent unnecessary care. Insurance companies were supposed to manage risk efficiently. Each layer, taken individually, has a logic. Taken together, they form a maze that consumes a quarter of its own spending just to operate itself — while the people at the center of it, the patients, navigate a system that costs them more and delivers less than what citizens of every other wealthy nation receive.

The maze persists because every toll collector in it has built a moat. The PBMs have vertical integration — the same parent company that insures you manages your prescriptions and owns the pharmacy that fills them. The insurers have employer lock-in — switching costs are enormous and benefits managers rarely have the expertise to evaluate alternatives. The hospitals have consolidated — from 2010 to 2022, 537 hospitals lost their obstetrics units while only 138 added them, as the system shifted toward higher-margin specialties and abandoned communities that needed basic care.

And all of them have lobbying budgets measured in the hundreds of millions.

The fundamental absurdity is this: the United States has built the most administratively complex healthcare system on earth, and then built a multi-hundred-billion-dollar industry to help people navigate that complexity. The navigators have no incentive to simplify the system they profit from navigating. The complexity is not a bug. For the intermediaries, it is the product.

The next article in this series maps the real estate rent machine — how housing became a financial asset instead of shelter, and who profits from the transformation.

Brian James Curry is an Enterprise AI Strategist, Data and Marketing Scientist, and Applied Researcher. He is the founder of Vector1 Research, an independent research lab focused on marketing economics, causal systems, cognitive AI architecture, and the economic implications of intelligent systems. He also founded KC AI Lab, a data science community and incubator for applied machine learning education.

Sources & Data

CMS (2025). National Health Expenditure Data 2024. $5.3 trillion, 18% of GDP.
Peterson-KFF Health System Tracker (2025). International health spending comparisons.
JAMA (2019). Shrank, W.H., et al. “Waste in the US Health Care System.” Estimated $760B-$935B/year.
Health Affairs (2022). “The Role of Administrative Waste in Excess US Health Spending.” 7.5–15% of NHE.
PGPF (2025). “Almost 25% of Healthcare Spending is Considered Wasteful.”
FTC (July 2024, January 2025). Interim Staff Reports on Pharmacy Benefit Managers.
Center for American Progress (2019, 2024). “Excess Administrative Costs”; “5 Things to Know About PBMs.”
American Hospital Association (2024). Administrative costs report.
AMA (2024). Prior Authorization Physician Survey. $68,000/physician/year in admin costs.
HHS Office of Inspector General (2018). 75% of MA claim denials overturned.
Trilliant Health (2025). “Hospital Administrative Expenditures Exceed Direct Patient Care by Nearly 2x.”
CMS HCRIS cost report data.
Andrew Rexroad (2025). “The American Healthcare Conundrum.” Change Healthcare analysis.
Statista/OECD (2024–2025). Healthcare spending as % of GDP; per capita comparisons.
OpenSecrets (2024). Healthcare lobbying expenditures.
Penn LDI (2025). “Unpacking the Paradox of Health Care’s GDP Percentage.”

Next in the series: Part 4 — The Data Harvest (deep dive)