Former industry executive warns medical‑loss‑ratio and vertical PBM ties create perverse incentives

Wendell Potter, a former insurance communications executive now with the Center for Health and Democracy, told the committee that incentives in the U.S. health system encourage insurers to reduce benefits and shift costs rather than lower unit prices.

"By almost every measure that matters to a patient, we're paying more and getting less every year," Potter said in his testimony, describing rising premiums, higher deductibles and narrower networks as industry responses that improve margins but reduce patient value.

Potter and committee members then discussed the Affordable Care Act’s medical loss ratio (MLR) requirement, which he argued can perversely encourage higher unit prices because the MLR is a fixed percentage of premiums. He and others also described how pharmacy benefit managers (PBMs) and insurer ownership of PBMs and provider groups create opaque rebate flows and steer utilization toward owner‑affiliated entities.

Why it matters: Potter framed the behavior as a market‑failure result of misaligned incentives, pointing to empirical effects in Texas—rural hospital closures, increased prior‑authorization burden, and the growth of vertical integration—as evidence that market structure, not patient choice, is primary driver of rising costs.