“How many Aggies does it take to change a light bulb?” Answer: “Ten. One to hold the light bulb and nine to turn the ladder!” Such is the way American health care operates.
By Andrew Tsang
How many layers are between your employer’s healthcare dollars and care? The answer depends on whether you’re getting medical care or filling a prescription – but either way, it’s 8-10 entities touching your money before anyone touches you.
I’ve worked across hospitals, insurance, and pharma. People in each sector genuinely believe they’re the good guys getting squeezed by everyone else. After building this visualization, I get why. The incentives point in different directions at every layer.
For every $100 your employer spends:
$16.50 → administrative processing (brokers, TPAs, carriers, utilization management, PBMs, revenue cycle)
$39 → healthcare personnel (physicians, nurses, techs, support staff)
$27 → actual products (drugs, supplies)
$14 → facilities and equipment
$3 → hospital operating margin
Those administrative fees look small individually. Broker fees: 2.5%. TPA admin: 5%. Insurance carrier overhead: 1.5%. PBM spread: 3.5%.
But they compound. And more importantly, each layer operates independently with its own approval processes, system requirements, and timeline. Your prescription passes through 6 different entities, each one deciding whether to approve it, each one using different software, each one on its own schedule.
Germany and France have multiple payers too – but standardized processing, unified systems, and regulated prices. They get this down to maybe 4-5 handoffs instead of 10. Their total administrative costs run around 5-6% versus our 16.5%.
People may point to fees, but it’s about friction. Every step introduces complexity:
– A prior authorization somebody has to request
– A claims file that needs reformatting
– A member ID that needs reconciliation
– A formulary that might not be synced
– 3-14 days of processing time
Billion-dollar industries exist just to move data between these entities and translate formats. EDI clearinghouses. Real-time eligibility vendors. Claims status portals. Revenue cycle management firms.
This matters for employers because healthcare is now your fastest-growing expense, but the structure makes it nearly impossible to manage. You can’t optimize what you can’t see.
Most “innovative” benefits solutions add another layer rather than collapsing existing ones. Point solutions, navigation services, centers of excellence – they’re a new box on this diagram, requiring their own integrations and handoffs.
I’m not saying every intermediary is useless or every margin is unjustified. Drug wholesalers operate on ~1% net margins. Medical supply distributors on 3-6%. Hospitals on commercial insurance average 3%. These are real businesses with real costs.
But when you stack 8-10 low-margin businesses between premium and care, you get a system optimized for risk distribution rather than care delivery. Each entity exists to shift financial risk, which is why simplification is so hard. Nobody wants to hold the bag when costs spike.
Visibility is the first step. So here’s the map:
