In May 2022, a 91-year-old Wisconsin man named Gene Lokken fell and fractured his leg and ankle. He was admitted to a skilled nursing facility to recover. His physicians determined he needed more time; the bones were healing, but his mobility had not returned. 

Nineteen days into his stay, his insurer ended his coverage for the facility. 

The insurance company stopped paying for the nursing facility not because his doctors had cleared Lokkin, and not because a nurse had assessed him and found him ready. It was because an algorithm had predicted the point at which his recovery would plateau.

The algorithm had been built by a post-acute care analytics company that the insurer had acquired in 2020 for $2.5 billion. It worked by comparing a patient’s profile — age, diagnosis, functional status — against a database of roughly six million historical cases, predicting the date on which the insurer’s financial obligation should end. 

The gap between what Medicare paid for a sick patient and what the insurer spent on that patient’s care is, in the accounting, profit. 

When Lokken’s profile was run through the model, the algorithm determined his time was up. His family was forced to pay out of pocket for his continued care, at rates of up to $14,000 a month. Gene Lokken died one year later. 

His estate was named plaintiff in a class-action lawsuit alleging that the insurer systematically used the algorithm to deny care it was legally obligated to provide. According to the lawsuit, more than 90 percent of the algorithm’s coverage denials were overturned when patients or families appealed.

Ronald Reagan Speaks Out Against Socialized Medicine

How does an insurer come to own an algorithm that overrules physicians — and profit from doing so?

The answer requires tracing a 33-year legislative arc. 

In the spring of 1961, the American Medical Association launched a covert campaign to defeat the proposal that would become Medicare. They called it “Operation Coffee Cup.” 

Doctors’ wives organized coffee klatches across the country, where they played a 10-minute LP record recorded specifically for the campaign by the recently resigned president of the Screen Actors Guild, Ronald Reagan. 

The record, titled “Ronald Reagan Speaks Out Against Socialized Medicine,” warned that government health insurance would dictate where doctors could practice and inevitably lead to totalitarianism. 

“If you don’t [stop Medicare],” Reagan warned his listeners, “one of these days you and I are going to spend our sunset years telling our children and our children’s children what it was once like in America when men were free.”

To overcome this opposition and secure passage in 1965, the program’s chief architect, Wilbur Cohen — a veteran of the Roosevelt administration known as “Mr. Social Security” — made a fateful compromise. He agreed to let the AMA’s preferred payment structure govern the new program. The government would pay hospitals their costs plus a guaranteed profit margin, and it would pay physicians their “customary, prevailing, and reasonable” fees. 

The only constraint on spending was “medical necessity,” defined as any treatment ordered by a licensed doctor. The government provided the capital; private entities provided the care, with no incentive to be efficient. 

The congressional actuary had predicted the program would cost $12.4 billion by 1990. It hit that number in 1973, seventeen years early.

Nixon Agrees: Less Medical Care, More Money

The cost explosion triggered a search for containment. In 1971, a pediatrician named Paul Ellwood presented the Nixon administration with a concept he called a “health maintenance organization.” 

In a taped conversation, domestic policy adviser John Ehrlichman explained the appeal to President Richard Nixon: “All the incentives are toward less medical care, because the less care they give them, the more money they make.” 

Nixon replied: “Fine.” 

The resulting HMO Act of 1973 began the long process of inserting managed care into the federal system. By 1982, the Reagan administration — the same man who had recorded the AMA record — signed legislation allowing HMOs to contract with Medicare on a risk basis, pocketing the difference if they could treat seniors for less than the government rate.

Clinton Turns Risk into Profit

The final architecture was set in the 1990s. 

In October 1995, House Speaker Newt Gingrich told a group of insurance executives that the government-run Medicare agency was going to “wither on the vine” because seniors would voluntarily leave it for private plans. 

Following a government shutdown and the 1996 election, Gingrich and President Bill Clinton negotiated the Balanced Budget Act of 1997. The law created what is now known as Medicare Advantage. 

To ensure insurers did not simply cherry-pick the healthiest seniors, the government introduced “risk adjustment” — paying plans more for sicker patients.

The mechanism works like this: More diagnostic codes make a patient appear sicker on paper. The sicker the patient appears, the higher the risk score. The higher the risk score, the more Medicare pays the insurer. 

The coding is not done by the insurer per se. An entire industry has been built around it: nurses making home visits to collect diagnoses, AI platforms directing physicians toward coding opportunities, and financial contracts that pay providers a percentage of the premium their patient panel generates — giving them a direct financial stake in their patients’ risk scores. 

By 2021, the average valuation for recently acquired Medicare Advantage-focused firms had reached $87,000 per enrolled beneficiary — seven times the total annual Medicare spending per capita. 

That figure does not reflect the cost of care. It reflects the expected value of the extraction. 

In January 2026, the Senate Finance Committee released a 105-page report on the nation’s largest Medicare Advantage insurer, with ten million members, finding that it had turned risk adjustment into a “profit-centered strategy.” Based on 50,000 pages of internal documents, the committee found that the insurer receives an average of $1,863 in extra payments per enrollee per year through risk adjustment. 

Two days later, the Department of Justice announced a $556 million settlement with a second major insurer over allegations of submitting invalid diagnostic codes to inflate Medicare Advantage payments. That insurer did not admit wrongdoing.

Trump Keeps the System Intact

Here is where the logic of Gene Lokken’s case comes into focus. The insurer collects more from Medicare by coding him as sicker. It then deploys an algorithm to discharge him sooner than his physicians recommend, spending less on his actual care. 

The gap between what Medicare paid for a sick patient and what the insurer spent on that patient’s care is, in the accounting, profit. 

The algorithm did not examine the patient. It did not watch Gene Lokken struggle to stand. It simply calculated the point at which the insurer’s financial obligation should end.

In March 2026, the Medicare Payment Advisory Commission reported to Congress that Medicare Advantage overpayments will reach $76 billion this year. The federal government will pay Medicare Advantage insurers $615 billion in 2026 — 14% more than it would have cost to cover the same enrollees in traditional Medicare. 

In January 2026, the Trump administration’s Centers for Medicare and Medicaid Services proposed technical reforms to the risk adjustment model that would have reduced some of these overpayments. By April, the final rate announcement had reversed the most consequential of those proposals, citing a desire to “allow the MA [Medicare Advantage] market more time to adjust.”

A 2024 Senate investigation found that between 2019 and 2022, the denial rate for post-acute care at the insurer involved in Lokken’s case increased from 8.7 percent to 22.7 percent — an increase that coincided precisely with the acquisition of the analytics company. 

The algorithm did not examine the patient. It did not watch Gene Lokken struggle to stand. It simply calculated the point at which the insurer’s financial obligation should end.

The extraction of profit from both maximizing revenue from taxpayers through risk adjustment, and minimizing payment through denials, is paralleled by private profiteering among executives in the industry. 

Proxy statements filed in 2025 revealed that the chief executives of the five largest health insurers were paid between 206 and 748 times the compensation of their median employees. The highest ratio — 748 to one — belonged to the insurer at the center of the Senate Finance Committee report.

Subsidizing the Wealthy

This upward transfer of wealth is not unique to Medicare. It is embedded in the tax code, which also makes its relationship to care more perverse. 

The largest tax exclusion in the federal budget is the one for employer-sponsored health insurance. According to the Trump administration’s 2027 budget proposal, this exclusion will cost the U.S. Treasury $296 billion in 2026. Because the benefit scales with income tax rates — the higher your marginal rate, the more valuable the exclusion — it flows disproportionately to the wealthy. 

A 2025 analysis by the Tax Foundation found that limiting the exclusion would have essentially no effect on the after-tax income of the bottom 80 percent of earners, because they receive almost none of its benefit. The impact falls almost entirely on the top 10 percent. 

The corporate executive with a premium family plan receives a substantial public subsidy. A worker classified as an independent contractor, ineligible for employer coverage, receives nothing. 

The architecture of this transfer is not new or isolated to health insurance, and the history of this type of wealth transfer in other industries may offer a solution to its current manifestation in health insurance. 

The extraction continues until it is constrained; the constraint holds until it is captured. This is the pendulum of American health policy.

In 1884, a grain merchant named Isaac Bailey and his partner F.O. Swannell loaded a carload of goods onto the Wabash, St. Louis & Pacific Railway in Gilman, Illinois, bound for New York City. They were charged 25 cents per hundred pounds for the journey — $65 for the carload. 

On the same day, a firm called Elder & McKinney loaded an identical carload in Peoria, Illinois, also bound for New York City on the same railroad. Peoria was 86 miles further from New York than Gilman. Elder & McKinney were charged 15 cents per hundred pounds — $39 for the carload. 

In other words, Bailey and Swannell paid 67 percent more to ship their goods a shorter distance on the same route. 

When Illinois tried to penalize the railroad for discrimination, the Wabash Railway appealed all the way to the Supreme Court, which ruled in 1886 that states had no power to regulate rates on interstate shipments. Congress responded the following year by creating the Interstate Commerce Commission — the first modern federal regulatory agency. 

The ICC worked, for a time, before the railroads effectively captured it, using the regulatory apparatus to set minimum rates that protected them from competition. 

By analogy, in 2010, the Affordable Care Act required commercial insurers to spend at least 80 percent of premium dollars on actual medical care. The rule worked: Over the next 13 years, insurers were forced to return $12.7 billion in rebates to consumers. 

Yet the back-and-forth between regulatory measures and strategies to evade them continued. 

After the premium rule, Medicare Advantage insurers secured a weaker version of the rule that allowed them to classify certain administrative expenses as quality improvements. 

In 2022, the Inflation Reduction Act finally allowed Medicare to negotiate the prices of 10 expensive drugs, a reform that saved the program $6 billion in its first year of implementation. 

By 2025, the incoming administration had issued an executive order aimed at rolling the negotiation mechanism back.

Gene Lokken’s family appealed the algorithm’s decision to cut off his coverage. They won the appeal. The system acknowledged that the algorithm had been wrong, and that the 91-year-old man had indeed required the care his physicians had ordered. 

The extraction continues until it is constrained; the constraint holds until it is captured. This is the pendulum of American health policy — not swinging between care and denial in some abstract sense, but swinging over specific bodies, at specific moments, when the appeal window is open and when it is closed. 

Gene Lokken’s family found the window open. By the time they climbed through it, he was already dead.