Part 6 of 9: Understanding the Flow of Healthcare Dollars: Why Your Reimbursement Looks the Way It Does

From the First Dollar to the Last

In a perfect world, healthcare would operate on a simple transaction: a provider offers care, and a patient pays directly. But in modern healthcare—especially in the U.S.—the path from patient to provider is anything but direct.

This complexity isn’t accidental. It’s the product of a system layered with intermediaries, administrative entities, and policy loopholes—each extracting dollars before the provider is paid. For chiropractors and physical therapists, your reimbursement is not based on the value of your care—it’s determined by the structure of the system.

Step 1: The Premium – Where the Money Starts

Approximately 49% of Americans receive health insurance through employer-sponsored plans (KFF, 2023). Employers typically cover part of the premium, and employees pay the rest via payroll deductions. Together, this monthly premium represents the first dollar in the healthcare payment stream.

But before a single claim is paid, this money flows through multiple layers—each taking a cut.

Step 2: The Broker – Selling the Plan

Most employer health plans are arranged by insurance brokers or benefits consultants, who earn 2–8% commission based on the total premium. While paid by the insurer, this commission comes from the overall premium dollars—and thus, indirectly, from the consumer.

Step 3: The Insurance Company – Managing the Risk

Insurance companies manage the pool of premium dollars. Under the Affordable Care Act’s Medical Loss Ratio (MLR) requirement, large group plans must allocate at least 85% of premiums to medical services, leaving 15% for admin and profit.

Now here’s the twist: Insurers don’t necessarily want to spend less. They want to spend predictably. As publicly traded companies, insurers rely on actuarial projections to ensure year-over-year profit increases. Below is an illustration of the pursuit of predictable gains.

Annual premium increase 1999 - 2024 for single and family coverage.

And one of the best ways to achieve predictability is by locking in fixed payments—which brings us to chiropractic and physical therapy.

Rather than directly contract with these providers (as they do with hospitals and medical groups), insurers outsource their management to intermediary networks, often under capitated arrangements (e.g., per-member-per-month or PMPM).

The Loophole: The MLR Game-Changer

Here’s the catch: Payments to third-party intermediaries count as “medical spend” under MLR rules, but intermediaries are unregulated, and thus not subjected to the MLR.

So, if an insurance company pays an intermediary to “manage” chiropractic or physical therapy care, that payment satisfies the 85% MLR—even if the intermediary:

• Restricts access,

• Underpays providers, or

• Delivers no care at all.

This loophole has massive implications. While hospitals and physicians fight over slices of the 85% spend, chiropractors and physical therapists are often cut out of the negotiation entirely, their fate delegated to unregulated third parties.

Step 4: The Intermediary – Where the Dollars Stall

Once funds are passed from the insurer to the intermediary under a capitated PMPM contract, the insurer’s obligation is complete. The intermediary now controls the downstream flow—and has every incentive to keep as much of the money as possible.

Let’s walk through a hypothetical chiropractic capitation model:

In the hypothetical model above, if the intermediary were subject to MLR, they’d need to distribute at least $2.04M in care. That would raise reimbursement from $43 to over $70 per visit—without raising premiums. (Hint, hint for those involved in lobbying and legislative efforts)

Why Intermediaries Limit Scope, Visits, and Rates

Intermediaries are not subject to MLR rules and are not required to spend any specific portion of revenue on care. Their profit increases the fewer patients they approve and the less they pay per visit.

Tactics often used to contain spend include:

• NPI-level contracting (“1:1 relationships”) that prevent providers from organizing collectively or negotiating as a group.

• Utilization switches—where prior authorization suddenly intensifies near reporting periods when spend nears thresholds.

Step 5: The Provider – The End of the Line

By the time money reaches the provider, it has passed through:

• The broker,

• The insurance company,

• Possibly a third-party administrator (TPA),

• And the intermediary network.

What’s left is typically 40–50% of the dollars originally intended for care—if that.

Providers are left with:

• Flat per diem payments that ignore case complexity,

• No separate reimbursement for evaluations or rehabilitative services,

• Copays that often equal—or exceed—the allowed amount. (In the state I’m typing in right now, a recent survey of chiropractic billers concluded that 10–15% of claims from one particular intermediary managed payer now result in the provider having to refund patients following claim adjudication because the copay exceeds the total allowed amount. This absurdity reflects just how misaligned the system has become.)

Where Has the Money Gone? A little more context…

Since the year 2000:

• Health insurance premiums have increased ~340% (KFF),

• Deductibles and copays have doubled or tripled,

• Reimbursement for chiropractic and physical therapy has remained flat.

Conclusion: Know the System to Navigate It

Chiropractors and physical therapists are not underpaid because their care lacks value, more research is needed to prove their value, or payers don't understand their value. This is all well established and well understood. They are underpaid because they sit at the end of a siphoned financial pipeline.

It does not have to be this way. Follow this thread through Episode 10.