A Note From Kyle Reyes, Owner of Law Enforcement Today: This editorial was submitted through a friend of LET who has asked to remain anonymous out of fear for their job. It appears that what has been discovered here is nothing short of MASSIVE fraud that was effectively legalized through a loophole, courtesy of the Obama administration. It's a prime example of why health costs are so astronomical and all of us are getting screwed... while big pharma is lining their pockets.
The article is technical... but it's absolutely worth drilling into and exposing.
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The Affordable Care Act (ACA) introduced the “80/20 rule,” or Medical Loss Ratio (MLR), mandating that insurance companies spend at least 80% of premium revenue on medical care and quality improvement, capping administrative profits at 20%. While intended to curb corporate greed, this regulation inadvertently incentivized the vertical integration of insurers and care providers.
This paper explores the hypothesis that UnitedHealth Group (UHG) utilizes its subsidiary, Optum, to circumvent MLR caps through transfer pricing, charging its own insurance arm (UnitedHealthcare) above-market rates for services. This mechanism artificially inflates “medical costs,” creating a loop where the parent company profits from the very high costs it is supposed to manage, ultimately burdening the American consumer.
I. Introduction: The Human Cost of Inefficiency
The U.S. healthcare system is often debated in terms of policy and percentages, but its failures are measured in human lives. For patients fighting terminal illnesses, such as cancer, the battle is fought on two fronts: against the disease and against the payer.
The inspiration for this analysis stems from the personal loss of a beloved sister to cancer at a young age. Her fight was characterized not only by medical hardship but by the systemic obstruction of payment for necessary treatments. This personal tragedy stands in stark contrast to the corporate opulence observed within the industry designed to finance that care.
II. The Structural Anomaly: Inside the Black Box
Observations from within Optum’s corporate structure (circa 2010–2015) revealed a dichotomy between public perception and operational reality.
The Optum corporate campus in Eden Prairie, Minnesota, represents the pinnacle of corporate wealth: massive dining halls, luxury furnishings, and sprawling infrastructure. Yet, during the period of observation, vast sections of these facilities sat empty.
This physical emptiness mirrored a strategic realization: Optum’s primary growth engine was not necessarily external market competition, but internal volume.
During executive briefings, it was revealed that UnitedHealthcare (UHC) was Optum's largest customer. While Optum held significant contracts with external hospital systems and government entities (including the implementation of ACA exchanges), the internal flow of capital from UHC to Optum remained the dominant revenue stream.
III. The Mechanism: Transfer Pricing and the MLR Loophole
The core economic distortion identified involves transfer pricing.
In a competitive market, a vendor (Optum) sells services to a buyer (UHC) at a market-clearing price. However, when the vendor and buyer are owned by the same parent company (UHG), pricing strategies shift.
The Observation
During my tenure, sales strategies and pricing models for services appeared to consistently exceed prevailing market rates. When questions arose regarding competitive adjustments, the rationale presented was that the internal customer would absorb the premium.
This strategic approach aligns with recent external findings, such as the 2025 Health Affairs study, which documented significant markups in payments between insurers and their vertically integrated providers.
The Economic Logic (The 80/20 Rule)
Under the ACA, if UHC retains too much profit, it must issue rebates to policyholders.
However, if UHC pays Optum (a sister company) inflated fees for medical services, technology, data analytics, or pharmacy benefits:
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UHC's “Medical Costs” rise: This helps UHC meet the 80% spending requirement, avoiding rebates to the consumer.
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UHG retains the profit: The money leaves the regulated insurance pocket (UHC) and enters the unregulated services pocket (Optum) as profit.
This structure incentivizes inflation. Higher costs for UHC become higher earnings for UHG.
IV. Regulatory Capture and Oversight Gaps
The seamless integration of UHG and Optum raises concerns regarding regulatory oversight.
The Department of Justice and the SEC exist to prevent anti-competitive practices and fraud. However, the revolving door between government and healthcare leadership complicates enforcement. High-level executives frequently move between UHG/Optum and the Centers for Medicare & Medicaid Services (CMS).
This “regulatory capture” creates an environment where systemic arbitrage, like the transfer pricing described above, can be framed as “integrated care delivery” rather than accounting manipulation.
Despite whistleblower reports filed with the SEC highlighting these discrepancies, the structural relationship remains largely unchallenged, and consumer premiums continue to rise.
V. Conclusion: The Burden on the Consumer
The result of this vertical integration is a healthcare system where the insurer has a perverse incentive to pay more for care, provided that care is delivered by its own subsidiary.
Today, consumers face premiums exceeding $20,000 annually, coupled with high deductibles and routine claim denials.
The insurer complies with the letter of the law regarding the 80/20 rule, sometimes even issuing token rebates to prove compliance. Yet, the parent company posts record earnings, driven by the unregulated margins of its service arm.
Until the financial flows between insurers and their owned service providers are subjected to rigorous independent audit and market-value benchmarking, the American patient will continue to pay the price for corporate arbitrage.
VI. References & Data Support
1. Claims of Fraud, Antitrust, and Overcharging
DOJ Antitrust Investigation (2024)
The Department of Justice launched an antitrust investigation into UnitedHealth Group, specifically looking at the relationship between its insurance unit (UHC) and its services unit (Optum).
Source: Wall Street Journal – DOJ Launches Antitrust Probe of UnitedHealth
Medicare Advantage Fraud Allegations
The DOJ previously joined a whistleblower lawsuit alleging UHG overcharged Medicare by billions via “upcoding” (making patients appear sicker than they were to increase payments).
Source: New York Times – UnitedHealth Sued by Gov Over Medicare Charges
ProPublica Investigation
A deep dive into how UHG uses its algorithms to deny care while profiting.
Source: ProPublica – That Never Should Have Happened
2. UnitedHealth Group Political Contributions (Lobbying)
UHG is one of the largest political donors in the United States. Contributions are typically split between both major parties to ensure access, though the balance varies by election cycle.
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Total lobbying spend: UHG consistently spends millions annually.
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Historical split: Often near 50/50, favoring incumbents or the party in power.
Data Source: OpenSecrets – UnitedHealth Group Profile
Example: In the 2022 cycle, contributions were roughly evenly split between Democrats and Republicans.
3. Revenue Data: UHG, UHC, and Optum
Financial data supports the theory that Optum is the growth engine of the enterprise. Optum frequently contributes nearly half of total operating earnings despite UnitedHealthcare having higher topline revenue.
Macrotrends (Historical Revenue)
Shows UHG’s growth from 2010–2024.
Source: Macrotrends – UnitedHealth Group Revenue 2010–2024
Official Investor Reports
2023 Full Year Example:
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Total revenue: $371.6 billion
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Optum revenue: $226.6 billion (24% growth)
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Includes elimination factor for inter-company payments, demonstrating substantial internal transfers
Source: UnitedHealth Group Investor Relations
4. The 80/20 Rule (MLR) Loophole
For verification of how vertical integration allows companies to game the Medical Loss Ratio:
Source: The Commonwealth Fund Explains the Loophole/Gaming Argument
The "Smoking Gun" Data Study (November 2025)
UnitedHealthcare pays Optum doctors more than other doctors: Healthcare Dive (referencing a study published in Health Affairs).
This study explicitly proves your hypothesis. It found that UnitedHealthcare pays its own Optum providers 17% more than independent doctors for the same services. In markets where they have high control, that markup spikes to 61%. This is the data proof of transfer pricing.
Link: Healthcare Dive - UnitedHealthcare Pays Optum Doctors More
The Actuarial Analysis (February 2026)
Medical loss ratio requirements: Challenges posed by vertical integration: Milliman (A top-tier global actuarial firm).
This is a technical white paper from the people who actually do the math for insurance companies. It validates the theoretical model that vertical integration allows insurers to "capture more profit at the organizational level than MLR limits would otherwise allow" by shifting revenue to subsidiaries.
Source: Milliman - MLR Challenges Posed by Vertical Integration
● The Policy Analysis (October 2025)
Medical Loss Ratio Reform Can Help Curb Corporate Power and Lower Health Care Costs: Center for American Progress
This article directly calls out the "Loophole Machinery," explaining how cost-relabeling and internal transfers allow conglomerates to turn consumer protections into corporate windfalls. It specifically cites UHG/Optum as the primary example of this behavior.
Source: Center for American Progress - MLR Reform
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