The Bank of Big Medicine

During back-to-back congressional hearings last month, lawmakers grilled the CEOs of five major health insurers about their vertically integrated business models. Rep. Alexandria Ocasio-Cortez (D-NY) called for breakup legislation modeled on the 1933 Glass-Steagall Act, which structurally separated commercial and investment banking.

The idea of bank-style regulation for health insurers isn’t as far off as it sounds. As Rep. Cliff Bentz (R-OR) pointed out, insurance companies take in premiums and invest that money—known as “float”—before having to pay it out in claims. “That, of course, is what leads to people calling insurers banks, doing a side business as health care,” Bentz explained. “[Y]ou charge the premium, you collect the money, you put the money in the bank, it earns interest, and then you pay it out.”

Banking offers much higher profit margins and federal subsidies than either the insurance business or health care services.

Rep. Greg Murphy (R-NC), co-chair of the GOP Doctors Caucus, took this a step further, pointing out that insurance giant UnitedHealth Group actually owns a bank, Optum Financial, which provides health savings accounts (HSAs) to consumers and loans to providers. “Good God, you own a bank,” Murphy said during the second hearing. “Why would an insurance company own a bank?”

The congressmen have a point. Insurance conglomerates have quietly transformed by chartering banks to generate interest and junk fees, partnering with an HSA provider for the same reasons, or playing financial games to maximize float. Their motives are clear: Banking offers much higher profit margins and federal subsidies than either the insurance business or health care services. And because they are not primarily financial institutions, they avoid banking regulations meant to protect consumers, workers, and taxpayers from undue risk.

Arthur Wilmarth, a professor emeritus of law at George Washington University who helped coin the term “bankification,” is alarmed about this trend, which extends across the U.S. economy. “The minute you allow things [non-banks] to operate like banks, the whole regulation of banks breaks down,” he said.

The Road to Bankification

The separation of banking and commerce is as old as the United States itself, informing its earliest banking regulations and later codified by Congress. However, since the Reagan administration, federal policymakers from both parties have eroded this core principle by embracing deregulation and the financialization that followed.

One of the biggest changes came in 1987, when Congress amended the 1956 Bank Holding Company Act and redefined “bank” to exclude state-chartered industrial loan companies (ILCs). These entities “operate in almost every way like a … bank, including taking deposits insured by the Federal Deposit Insurance Corporation (FDIC),” according to the Congressional Research Service. But because states charter them, ILCs can be owned and operated by a non-bank parent company engaged in commercial activities without being subject to supervision by the Federal Reserve. Sen. Jake Garn (R-UT), head of the Senate Banking Committee at the time, wrote the bill allowing ILCs to access deposit insurance; Garn and compliant state regulators ensured that nearly all ILCs are chartered in low-regulation Utah.

“Obviously, there are a number of advantages that some companies seek when it comes to getting cheap deposits and then earning a larger spread when it comes to lending them out,” said Rohit Chopra, former director of the Consumer Financial Protection Bureau, which also made him a board member of the FDIC. Wilmarth described the ILC loophole as “essentially wrapping Uncle Sam’s safety net around … the entire economy.”

UnitedHealth Group formed its own Utah-chartered ILC, now called Optum Financial, in anticipation of the Medicare Modernization Act of 2003, which established HSAs to incentivize enrollment in high-deductible health plans. UnitedHealth Group became the first company to offer both HSAs and high-deductible health plans, which have since exploded in popularity and profitability.

It was fortuitous timing. Just a few years later, Walmart and Home Depot applied for their own ILC charters, prompting concerns of monopoly leveraging and widespread backlash. This led the FDIC to impose a moratorium on new charters from 2006 to 2008. Then, during the 2008 financial crisis, several ILCs involved in subprime lending—including those owned by General Motors, Merrill Lynch, Goldman Sachs, and Morgan Stanley—either failed or required huge government bailouts. The 2010 Dodd-Frank Act implemented a second moratorium, from 2010 to 2013. All told, the FDIC didn’t approve any new charters until 2020.

By then, Optum Financial was one of the “Big Four” HSA providers, and UnitedHealth Group had begun leveraging its vertically integrated business model to expand its financial services, aiming to become “the only bank solely dedicated to healthcare,” according to a 2019 investor overview. In 2022, UnitedHealth Group acquired Change Healthcare, the nation’s largest health insurance claims processor, and gained access to its provider customer base of 900,000 physicians. The following year, Optum Financial launched Optum Pay Advance, selling payday loans with a 35 percent interest rate to physician practices.

Unlike a typical bank, Optum Financial relied on Change’s proprietary data to flag prospective borrowers. It benefited from the 2024 cyber attack on Change Healthcare, which resulted in Optum Financial extending more than 10,000 emergency loans to impacted providers, only to later demand repayment within five business days. Its sister subsidiary, the insurer UnitedHealthcare, threatened to garnish borrowers’ claim payments until their debts were settled. One pediatric neurologist in New Jersey described Optum Financial as a loan shark.

UnitedHealthcare’s above-average claims denial rate created budget shortfalls for many medical practices and pharmacies—and thus demand for loans. Some providers have gone out of business, unable to deal with Optum Financial’s demands. Matt Seiler, vice president and general counsel of the National Community Pharmacists Association, said this creates an untenable situation for independent pharmacies and other providers. “Making capital available from the entity that injured you makes you beholden to that entity,” he said. “It’s almost like indentured servitude.”

In 2024, Chopra, then still an FDIC board member and concerned about the uptick in “unlawful shell bank” applications for federal deposit insurance, proposed a rule that would have increased transparency around the decision-making process for ILCs. Chopra cited General Motors’ and Edward Jones’s proposed ILCs as examples of shell banks, which exist solely to serve their parent company and take advantage of public subsidies. Because they have no utility outside of their parent company, they pose greater risk to the Deposit Insurance Fund in case of failure or an industry downturn.

“When you charter a bank, you’re really supposed to serve all of the community’s demands,” Chopra said. “But if you are simply a shell that exists to lend to one company’s customers, that becomes a really different analysis.”

President Donald Trump fired Chopra in February 2025. Since then, the FDIC has approved ILC applications from General Motors and Ford, adding to the three approved by the first Trump administration and signaling a more permissive approach to pending and rumored applicants, including Edward Jones, Nissan, and Rakuten, considered the Amazon of Japan.

Seiler wouldn’t be surprised if other insurance conglomerates follow in UnitedHealth Group’s footsteps by chartering their own ILC. “Monopolists tend to follow monopolists,” he said. “I can’t imagine them not looking at it to make more money.”

Other Forms of Bankification

Although UnitedHealth Group is the only health insurance conglomerate with its own ILC, other insurance companies—as well as HSA providers, wholesale drug distributors, and medical credit card issuers—have already mastered how to maximize profits from the float.

“It’s all part of this financial game that they’re playing,” said Jack Dillon, CEO of an anesthesia practice in Grand Rapids, Michigan, and executive director of the Association for Independent Medicine.

HSAs, which began growing in popularity in the early 2000s, are a good example. Pretax dollars flow from individual payrolls into these accounts, which Americans draw from to pay health expenses. Patients get a benefit because they’re paying with pretax dollars, though HSAs are often tied to high-deductible health plans that require patients to take on more of the burden of medical care. But the managers of HSAs also benefit by earning favorable interest on the cash under their purview before patients spend it down. While some HSAs pay out that interest to patients, it is common that they pocket at least some of it for themselves, as Rep. Bentz pointed out during last month’s hearing.

This turns out to be a lot of money: HSA deposits went from just $3.2 billion in 2007 to $100.4 billion in 2024. The Big Four, which includes Optum, Fidelity, HealthEquity, and HSA Bank, control 70 percent of these assets. In 2023, Optum earned $600 million in interest on HSA reserves and only paid $12 million to account holders.

As health care corporations have grown and accumulated more assets, they are also increasingly incentivized to play cash-flow games to impress investors. Chopra has seen corporations deploy these tactics for years. They’re “mostly playing a game of musical chairs to realize revenues,” he said, referring to health insurers’ ability to move cash between vertically integrated subsidiaries to make the balance sheet look appealing to shareholders. Because insurance profits are limited by the “medical loss ratio,” which requires 80 to 85 percent of revenues to be paid out in claims, shifting cash to subsidiaries without that restriction allows profits to climb higher.

Another way that health care corporations maximize profits is by denying or slow-walking reimbursement claims. The exact number of claim denials is a closely held industry secret, despite a 2023 KFF survey finding that 85 percent of insured adults supported a policy that would require insurers to share their claims denial rates with regulators and the public. The lack of transparency is a feature, not a bug, for insurers; they deny an estimated 10 to 20 percent of all claims, knowing that customers appeal fewer than 1 percent of denials, Wendell Potter, a consumer advocate and former Cigna executive, told ProPublica.

If a doctor is truly trying to upcharge for care, some of these claim denials might be justified. But many claims are denied because it allows the insurer to avoid or even just delay paying out. Dillon noted that he’s seen claims denials accelerate in recent years. He shares the view, increasingly common among physicians, that insurers deny a certain percentage of claims off the top just to force providers to go through the lengthy appeals process. Physicians are at a disadvantage; they “often don’t have education on: This is how the game is played,” he said. And every day that insurers hold on to claims payments, they get to make more money from investing the float.

The proportion of claims being denied has led to an arms race of administrative burden. As insurers get bigger and more capable of denying claims, physicians’ offices are forced to add more staff to handle the paperwork. This trend leads to higher prices and more physicians joining health systems to hand over their administrative work. Over the long term, claims denials are a major cause of the loss of independent physicians.

“Independent physicians barely get enough to get by, to pay our people,” Dillon said, making seemingly routine choices, like whether to get a printer or continue providing in-demand services with high denial rates, financially fraught.

It is not just insurance companies playing this game. Other middlemen in the health care system have also begun to financialize. Wholesalers act as the purchasers of drugs from manufacturers on behalf of pharmacies. In addition to extending lines of credit to their pharmacy customers, wholesalers have their own game: “Buy low, sell high, collect early, and pay late,” as Adam Fein at Drug Channels Institute has explained.

For instance, McKesson—the largest wholesaler and a Fortune 10 company—has more time to pay manufacturer suppliers than it allows its pharmacy customers. This means that McKesson’s “suppliers and customers essentially finance its operations,” according to Fein, while also providing the cash on which McKesson earns interest. In other words, that’s the float.

It is perhaps a hallmark of companies unable to compete on the merits or create anything of value to turn instead to financialization, of which bankification is the end stage. “We’ve warped our entire economy because there’s no market discipline anymore, and there’s no chance for smaller companies to get into the game,” Wilmarth said.

The biggest way to prevent this growing financialization would be to separate health care companies from bank functions, or to close the industrial loan company loophole that facilitates it. Standardizing reimbursement rates to lower the massive administrative bureaucracy that perpetuates float could also help. But giant companies with phalanxes of lobbyists can throw a lot of money at policymakers who suggest these reforms.

These conglomerates are also relying on another principle of banking: become too big to fail. Investors give an implicit subsidy to big banks, trusting that the government sees them as too vital to the economy not to bail them out in the event of a collapse. As vertically integrated health care platforms pursue ever trickier financial games, they are essentially seeking this same subsidy.

“It becomes crony capitalism at that point,” Wilmarth said. “All these banks become government-sponsored enterprises.”

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