Their margins are limited by law and the people paying (employers) are mostly price inelastic.
This puts them in a position where they're incentivized for costs to go up, because 15% of $2000 is more than 15% of $1000. In other industries, you'd see insurance companies push back because ultimately consumers will push back and either drop insurance or switch to another provider.
Switching insurance at an employer, though, is a colossal undertaking that is bound to frustrate employees, so often it isn't done. And until recently, individuals would be fined for not having insurance, so dropping insurance wasn't really an option.
If consumers were the ones paying for it, switching weren't a pain to do, and insurance companies weren't incentivized to maximize costs, that'd go a long way toward fixing this.
Not enough competition. Too high barriers for entry.
(The market is actually not one big, but 50+ smaller ones. Furthermore each of those have very high regulatory limitations for entry.
And since we're talking about a risk-premium business, it has inherent risks - so the easy actuarial areas are already well covered - like life insurance, but the various others are a lot harder to estimate ROI-wise better than the competition.
And since you can make a lot of money elsewhere, there's relatively not much money chasing new health care insurance.)
Plus the market is set up very inefficiently, as the HMOs (health maintenance organizations, the networks, the "insurers") can play the divide and conquer game. Play employees and employers and the government against each other, so there's no real incentive to compete on prices.
They try. They insist on paying doctors as little as possible. They challenge the necessity of procedures. Doctors fight back by choosing to classify procedures in more expensive ways. It's a tug of war. There are whole teams of people at hospitals whose job it is to make as much money as possible by arguing as much as possible with insurance companies over prices and necessary procedures.
The fundamental problem is the antagonistic nature of that system, as disconnected from the need of the patient. Doctors want to do more and charge more. Insurance wants to do less and pay less. Nobody is asking whether a procedure is worth what it costs the patient.
You can't improve system prices with distant and ignorant downward pressure, even if you're a huge buyer. You just don't have the information and intelligence. Medicare tries that, with the result that it sometimes pays for lots of unnecessary procedures and spends too much, and sometimes insists on prices that are too low and has doctors quit taking it. It doesn't have the information to get it right in either direction, and insurance has the same problem.
What is needed is price discrimination at the point of sale. In a very blunt sense, we have this in the patient's decision to go to urgent care rather than the ER. In a broader sense, though, when a doctor says (for example) they'd like to do a test just to be on the safe side, there should be a discussion about how much that test costs and what the consequences might be of not taking it. When someone says (for example) with respect to end of life care, "We can try this very expensive probably-futile procedure", costing the grandkids their inheritance is a not unreasonable piece of that conversation.
My experience is that doctors in insurance-dominated environments typically do not even know what their suggested interventions cost. But I once had a conversation with a doctor in a self-pay environment (urgent care) who said, "We did test A, $5, and it's negative. We have the option to do test B which is more accurate with respect to false negatives but $100, but I'm pretty sure you don't have it based on other signs." Reeeeally useful conversation if you're looking to save money and understand the consequences of a decision. More of that can bring the price of healthcare down by orders of magnitude. The insurance doctor did test B twice a month without even asking me about it, and probably had a team of specialists ready to argue for its necessity with insurance (there was no insurance, I was paying, and I would not have regarded it as worth the cost).
