Why Health Reform Won't Distort the Insurance Business Model 18 comments
an article to
-
Font Size:
-
Print
- TweetThis
When it comes to health care reform, it seems the more likely that government will pass legislation, the more sanguine Wall Street gets that nothing will occur. Government-run health care? Won't happen. An evisceration of the private insurance business model? No way.
Consider this. From its March 9th low to August 14th, the S&P 500 surged 48%. Over the same period, four of the five largest commercial health plans (by lives and market capitalization) outperformed the major index.
In fact, during this stretch of 111 trading days -- that's five and a half calendar months -- Cigna (CI) never underperformed the market. Humana (HUM) did so once, way back on March 11th. And WellPoint (WLP) dipped below the market on seven occasions, the last time on April 3rd.
UnitedHealth Group (UNH) stumbled 19 times, mostly during a bad stretch in late March and early April. Now its shares stand ten percentage points higher than the market average. Even Aetna (AET), which consistently underperformed, is 38% higher on an absolute basis.
See the chart below covering this trading period. The red line is the S&P 500.
click to enlarge
The comparison also extends to other components of the health value chain. The maligned health plans have outperformed each of the major stakeholders. The S&P 500 is higher (marginally) than the major pharmacy benefit managers -- Medco (MHS), CVS Caremark (CVS) and Walgreen (WAG) -- and trouncing the drug manufacturers by more than 20 percentage points.
To be fair, it's FDA uncertainty, not congressional power-broking, that's weighing heavily on the drugmakers. And depending on its structure, a pathway enabling follow-on biological products could improve prospects dramatically. Both house and senate bills feature it, and traditional foes seem closer to finding some sort of resolution than ever before.
So, what's the health reform fuss all about anyway? Well, if you're an investor, it's making for good entertainment.
Indeed, the market's great discounting mechanism reveals prospects so strikingly different than the constant news media coverage that it can't be right, right?
Well, no one can ever be sure. But let's just say this. Not since 1994 have lawmakers threatened major overhaul to this extent. With the party seeking to upend private insurance holding majority control, passage would have seemed inevitable – if not a full-on government option, then something damaging, at least, to the current business model.
That, to several high-minded folks, seemed the intent.
Despite this, and except for company-specific issues, investors never marked down the industry's prospects, even during the worst of the mudslinging and the darkest days of apparent unity among the ruling party.
And let's not lose sight of the fact that this is turning into one fine example of market rationality, while total hysteria grips the Hill and many corners of Main Street.
Maybe Wall Street isn't so villainous after all.
Maybe lawmakers should take care in turning their reform plans to that potent discounting mechanism.
Disclosure: No Positions
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Mike Havrilla
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
If this is an argument to be long Walgreen, its worth noting that "[Soros'] fund firm cut its stakes in retailer Wal-Mart Stores and drugstore chain Walgreen Co during the quarter after boosting its position in Walgreen in the first quarter. . . ." www.reuters.com/articl...
I neither endorse nor oppose Soros' move, I simply offer it as information. Public opposition to congressional action on a health bill seems so fierce that I'm dubious of passage this year.
The insurance companies have been robbing Americans and American workers long enough. They are a big part of the problem -- why America pays so much more than the rest of the world per capita for health care, but is not remarkably more healthy than citizens of most other advanced nations. There has been a 'Grand Theft Healthcare' going on for too long -- and breaking this bubble IS NECESSARY for the American consumer. If National Healthcare breaks the bubble, then even better.
Another bubble that needs to be broken: higher education costs. That, after the insurance bubble, is the next to go.
On Aug 17 07:46 AM Michael Clark wrote:
> I don't think we need to be worried about eviscerating private insurance
> companies and the insurance model -- is this a sacred thing, the
> insurance business model? Insurance companies have been raising premiums
> on health insurance 10% per year for the last decade. This has been
> robbery similar to the Great Theft of Paulson -- only no one seemed
> to realize it.
>
> The insurance companies have been robbing Americans and American
> workers long enough. They are a big part of the problem -- why America
> pays so much more than the rest of the world per capita for health
> care, but is not remarkably more healthy than citizens of most other
> advanced nations. There has been a 'Grand Theft Healthcare' going
> on for too long -- and breaking this bubble IS NECESSARY for the
> American consumer. If National Healthcare breaks the bubble, then
> even better.
>
> Another bubble that needs to be broken: higher education costs. That,
> after the insurance bubble, is the next to go.
There are so many factors it's hard to keep track. Is America not the most litigious society on Earth? Do American doctors pay the same in malpractice ins. than other doctors? Do they get sued more often? Every detail like this pushes costs up more and get passed to consumers. And if doctors in the U.S. get sued more, wouldn't they be wise to order extra tests for everything, to avoid being sued -- and spend more money?
My guess is the insurance co's would be happy to cut each other's throats to win more business and lower prices -- but they're just running the numbers.
Fact is - Obama has no interest in getting to the root of the problem. We know what caused the banking crisis (irresponsible lending among other things) and look who he rewarded. Obama's policies will lead to failure because he only knows how to solve problems politically and that means rewarding those with access.
Capitalism is supposed to engender competition to drive prices down. But when collusion happens, prices just rise and rise.
Another thing about the insurance companies: not only are they making obscene profits, they are also more likely than not to make it very difficult or impossible for sick policy holders to get their money when they need it. Resistance, foot-dragging, denial of claims are all part of the stonewalling procedure.
Consumers pay more and more and get less and less -- while insurance companies get richer and richer.
Why do drugs cost so much in America? Same story. Price fixing. It is no different than GSachs being allowed to do what it wants -- if you pay Congress enough money, you get to do what you want. Insurance and drug companies pay Congress off -- and Congress lets them do what they want.
My wife has asthma. We pay $160 a bottle for an inhaler in America. The same inhaler costs $10 in Vietnam. Why? The game is fixed in America to make the drug companies, the insurance companies and the doctors rich -- while everyone else suffers.
With a growth of 10% per year for the last decade for cost of health insurance premiums, this means that American workers cannot get raises any longer. A 10% increase each year for health insurance benefits IS the raise the worker gets -- but it goes straight to the insurance company.
On Aug 17 08:32 AM User 436214 wrote:
> I think you're missing the real problem. It's easy to scapegoat
> insurance companies for America's high health care costs. But why
> is it true? In America, drugs cost more, doctors charge more, hospitals
> charge more, and states mandate that insurance cover everything.
> Who has to pay the higher prices? The insurance companies. Who
> has the least efficient & most poorly run healthcare payer system?
> Medicare & Medicaid (the government). Who has the most efficient,
> least wasteful system? Yhe insurance companies who need to compete
> with one another for customers. To get to the bottom of the problem,
> we need to drill down to root causes, not easy scapegoats, or you
> will "fix" the wrong system & really make things incredibly worse.
>
On Aug 17 09:03 AM ari5000 wrote:
> this is true. It's not like insurance co's started charging more
> and then all prices began to rise.
>
> There are so many factors it's hard to keep track. Is America not
> the most litigious society on Earth? Do American doctors pay the
> same in malpractice ins. than other doctors? Do they get sued more
> often? Every detail like this pushes costs up more and get passed
> to consumers. And if doctors in the U.S. get sued more, wouldn't
> they be wise to order extra tests for everything, to avoid being
> sued -- and spend more money?
>
> My guess is the insurance co's would be happy to cut each other's
> throats to win more business and lower prices -- but they're just
> running the numbers.
>
> Fact is - Obama has no interest in getting to the root of the problem.
> We know what caused the banking crisis (irresponsible lending among
> other things) and look who he rewarded. Obama's policies will lead
> to failure because he only knows how to solve problems politically
> and that means rewarding those with access.
"The medial malpractice cost is insignificant in the rising cost of health care: "Medical malpractice premiums are less than one-half of one percent of the country's overall health care costs; medical malpractice claims are a mere one-fifth of 1 percent of health care costs...."
AND: "The periodic premium spikes that doctors experience, as they did from 2002 until 2005, are not related to claims but to the economic cycle of insurers and to drops in insurance investment income...."
Other interesting notes below
Medical malpractice premiums, inflation-adjusted, are nearly the lowest they have been in more than 30 years.
Medical malpractice claims, inflation-adjusted, are dropping significantly, down 45 percent since 2000.
Medical malpractice premiums are less than one-half of one percent of the country's overall health care costs; medical malpractice claims are a mere one-fifth of 1 percent of health care costs. In more than 30 years, premiums and claims have never been greater than 1 percent of the nation's health care costs.
Medical malpractice insurer profits are higher than the rest of the property/casualty industry, which has been remarkably profitable in the past five years.
The periodic premium spikes that doctors experience, as they did from 2002 until 2005, are not related to claims but to the economic cycle of insurers and to drops in investment income.
www.insurancejournal.c...
On Aug 17 09:17 AM Michael Clark wrote:
> From the web-site below:
>
> "The medial malpractice cost is insignificant in the rising cost
> of health care: "Medical malpractice premiums are less than one-half
> of one percent of the country's overall health care costs; medical
> malpractice claims are a mere one-fifth of 1 percent of health care
> costs...."
>
> AND: "The periodic premium spikes that doctors experience, as they
> did from 2002 until 2005, are not related to claims but to the economic
> cycle of insurers and to drops in insurance investment income...."
>
>
> Other interesting notes below
>
> Medical malpractice premiums, inflation-adjusted, are nearly the
> lowest they have been in more than 30 years.
>
> Medical malpractice claims, inflation-adjusted, are dropping significantly,
> down 45 percent since 2000.
>
> Medical malpractice premiums are less than one-half of one percent
> of the country's overall health care costs; medical malpractice claims
> are a mere one-fifth of 1 percent of health care costs. In more than
> 30 years, premiums and claims have never been greater than 1 percent
> of the nation's health care costs.
> Medical malpractice insurer profits are higher than the rest of the
> property/casualty industry, which has been remarkably profitable
> in the past five years.
>
> The periodic premium spikes that doctors experience, as they did
> from 2002 until 2005, are not related to claims but to the economic
> cycle of insurers and to drops in investment income.
>
>
> www.insurancejournal.c...
I agree that the natural state of things is that as doctors and drug companies raise costs, and this puts pressure on the insurance companies as their payment costs rise. But the insurance companies don't really mind higher prices IF their revenue picture can include these increased prices. They just raise the price on their premiums. And as long as there is not enough competition in the insurance company that allows prices to come down, then everyone stays happy.
Insurance companies have not been hurting during the period of rising healthcare costs in America.
On Aug 17 09:23 AM Uncle Mikey wrote:
> Michael Clark, please listen to yourself. You are spouting paranoia
> and not backing it up with logic, much less facts. Doctors &
> drug companies are definitely in bed with one another. Drug companies
> "reward" doctors for prescribing the newest & most expensive
> medicines (even when they don't work or cause actual harm). But
> the insurance companies hate both the doctors & drug companies
> because they raise the costs, not the profits. By your theories,
> every filling station owner would have a waterfront mansion in Malibu
> because the oil companies have raised prices.
"For decades, private insurance companies have maintained what could easily be considered price fixing since in-state health options are generally restricted to two or three major providers."
Full article below:
By RON RAE
Published: August 15, 2009
Back off, you bugaboos! Take a break. Take in a great big breath. Not only is this a proven method of relaxation, but it also provides a good dose of oxygen for a healthier brain, thus a positive prognosis for the all too contentious debate on health-care reform.
All of the knee-jerk reactions on the debate of providing medical coverage to the uninsured have gotten everybody's panties in a bunch. The hate factor among all the interested groups won't resolve the issue to anyone's satisfaction, except possibly President Barack Obama and a number of die-hard Democrats. Currently, there is no dialogue that will provide a cure-all for what ails uninsured Americans.
For years, the high cost of providing health insurance through employer-based coverage has made American business at a frightful disadvantage for competitive product pricing in the broadening realm of globalization.
Corporate medical contributions to employee benefits come to an annual expense of about $15,000 — for government employees the un-taxed benefits are even more obtuse at $19,000. These costs continue to be a prominent reason for the outsourcing of jobs to foreign lands. We've painted the survival of American enterprise into a corner, but there are steps that can be taken to correct this poor state of affairs.
Before providing "universal" coverage, the cost factors of health care must be addressed. Three years ago Massachusetts enacted the most comprehensive subsidized insurance fee-for-service public offering and cut the rate of uninsured residents from 8 percent to 2.6 percent, the lowest in the country. Although an additional 428,000 people were given affordable coverage, it has resulted in an insurmountable budget crisis. The state is on the hook for an additional $595,000 than it was in 2006, a 42 percent increase.
Enacting universal coverage in Maine in 2005 resulted in a 74 percent increase in premiums, pricing many of the uninsured out of the market and dropping coverage. The uninsured rate is 10 percent, the same level as before legislation was passed.
Neither Maine nor Massachusetts bothered to address a means to implement cost-cutting measures of medical pricing. For decades, private insurance companies have maintained what could easily be considered price fixing since in-state health options are generally restricted to two or three major providers.
This lack of competition defies the intent of the free market system. The self-interest of insurance companies, service providers and drug companies is too impressionable on elected officials. The inherent power of lobbyist groups set up by former legislators are too influential on the course of action of Congress. They know the ropes. They have the contacts. The have access to funds for campaign contributions. And they have too tight a grip on the health of Americans.
Rather than accuse Obama of promoting a death forum for the elderly, the feeble and the less-than-productive members of society, put the blame on insurance companies for limiting and denying medical procedures that would otherwise enhance the lives of the unfortunate.
Pharmaceutical companies are major culprits in themselves. When the Medicare Drug Plan was enacted in January 2006, they raked in an additional $8 billion in profits in the first six months alone. The industry has promised an $80 billion sacrifice over a 10-year period as a buy-in to health care reform, a minor contribution toward the health of the country considering their huge profit margins.
The U.S. has the most profitable pharmaceutical business in the world with revenues of $315 billion in 2007. As a comparison, the illegal drug industry has profits of about $300 billion in revenue per year, globally speaking.
What could be considered an unethical tactic of pharmaceutical companies is the "pay-for-delay" scheme that keeps generic drugs off the market by providing attractive monetary incentives to maintain an extended monopoly over less expensive drug manufacturers. The FTC estimates Americans are cheated out of about $3.5 billion per year. Then there's the practice of putting "name brand" generic versions on the market for drugs whose patents have expired, affectively making it unprofitable for true generic companies to offer competitive pricing for an additional six months.
Pharmaceutical companies and insurance companies are keeping Red Bull Republicans and Blue Dog Democrats at bay, caged in dollar signs of influence.
It's understandable that Americans are leery of health-care reform. Obama claims his efforts will be deficit neutral. Even if an attainable goal, through higher premiums, increased deductibles and restricted coverage, a redistribution of health wealth will help some but will come at a great cost to the currently insured. Town hall brawls are not the answer.
Containing costs in all aspects of providing "universal medical coverage" must be addressed before continued debate gets out of hand and people's health conditions deteriorate.
Is this an orchestrated script by insurers and providers to further increase profits? Depending on whether or not you have health insurance, you can bet your life or death on it.
www2.hernandotoday.com.../
I don't feel paranoid. I know how business works. You scratch my back I'll scratch yours.
Doctors order unnecessary tests because they can charge more if they do -- I don't think it has much to do with malpractice. The more tests, the more money for them. This feels less unethical when you use the logic: "Oh, it doesn't matter. The insurance companies are paying for it." Makes it easier to live with yourself.
On Aug 17 09:28 AM Uncle Mikey wrote:
> Medical malpractice PREMIUMS are n ot the problem, it's the criminal
> number of unnecessary tests (often repeated daily) that doctors order
> to cover their butts & to avoid malpractice claims. When the
> tests cost a couple of thousands each, and are repeated millions
> (billions?) of times, malpractice premiums are chump change in comparison.
> But again, you're failing to dig down to the root causes. You're
> advocating treating only the symptoms. And you're obviously more
> than a little paranoid with your conspiracy theories.
I agree -- there is an implicit (that is, in the ideal world) adversarial relationship between doctors/drug companies and the insurance companies. But this implicit relationship means nothing unless there is real competition in both the medical and the insurance industries to help keep the costs of both down. This has been missing on both sides for some time now.
Do a google search for 'insurance company price fixing' and you will see quite a few stories of government officials and or medical organizations suing insurance companies for price-fixing.
There has been a lot of cheating going on for the last few decades -- and we are now starting to find the bodies.
On Aug 17 10:28 AM Uncle Mikey wrote:
> Michael Clark, I'm happy that I have at least gotten you to agree
> that insurance companies are simply passing on increased costs due
> to higher prices & fees charged by doctors, hospitals & drug
> companies. However, the Obama administration has already made a
> deal not to negotiate prices with the drug companies, while at the
> same time changing the mantra they repeat incessantly from "Healthcare
> Reform" to "Health Insurance Reform". To quote Shakespeare, "Do
> you smell a fault?"
When people talk about European systems, they fail to mention that doctors in Europe only make about $75,000 annually. You cannot get people into medical school (and the debt) here with that payoff.
Obama and Democrats have complete power, 90% of the media in their pocket, and support from all their interest groups. Nationalized single payer healthcare is what they want (as Obama has been recorded as saying). It is their RESPONSIBILITY to explain their plan honestly and understandably. If that fails, It is their own FAULT 100%. It does not matter what the opposition says. Obama's own statements, often lies, distortations, and falsehoods, has contributed to the confusion. Obama and the Democrats own the failure.
There are ways of dealing with doctor salaries and education and cost of education. National scholarships for doctors would help -- so that doctors could be paid to attend medical school (get their tuition paid) IF they agreed to work exclusively in the U.S. upon graduation. There are things like this to consider.
I don't think we need millionaire doctors in this country. I used to admire doctors as one of the more noble professions, along with teachers...but now doctors are some of the richest people in every American town. Yes, it's a free world and all of that. But I don't think doctors should be filthy rich -- and I don't think musicians or athletes should be making millions either. This is the balloon effect that is now being punctured by the God of Deflation.
The higher education bubble is a problem. Tuition at universities has gone up over 2,000% in the last 20 years. Why? Mostly because state governments stopped supporting higher ed (as a backlash from the Vietnam era, conservative state legislatures attempted to punish universities for liberal bias by cutting taxpayer money for education) and insisting Universities pay their own way. How did they do this? By raising tuition. How else could they pay for their costs?
For every action there is an equal and opposite reaction.
On Aug 17 01:31 PM Chancer wrote:
> A lot of information on the various problems have been stated here.
> Unfortunately, real change would be to be to start over from scratch;
> which Obama and the libs will not do. They will not touch malpractice
> reform because it offends trial lawyers. One simple reform would
> be to limit attorney fees to 12% (like work. comp. in many states)
> in medical malpractice lawsuits.
>
> When people talk about European systems, they fail to mention that
> doctors in Europe only make about $75,000 annually. You cannot get
> people into medical school (and the debt) here with that payoff.
>
>
> Obama and Democrats have complete power, 90% of the media in their
> pocket, and support from all their interest groups. Nationalized
> single payer healthcare is what they want (as Obama has been recorded
> as saying). It is their RESPONSIBILITY to explain their plan honestly
> and understandably. If that fails, It is their own FAULT 100%. It
> does not matter what the opposition says. Obama's own statements,
> often lies, distortations, and falsehoods, has contributed to the
> confusion. Obama and the Democrats own the failure.
Very scary story for you:
Giant pool of money from good citizens paying insurance premiums out of their paycheck. Insurance companies have little or no competition.
Lawyers go after big pool of money.
Pharmaceutical and medical supply companies go after money.
Doctors perform tests or surgeries to cover their posteriors or to crank out lots of income quickly.
Pool of money shrinks.
Insurance companies raise premiums and deductibles.
Average consumer pays more for less.
Illegal aliens and the poor get care they can't or won't pay for.
Cost passed on to responsible average citizen via higher health insurance premiums, deductibles, and every cost on down the chain.
Pool of money gets smaller.
Insurance companies raise premiums and deductibles, deny coverage for more things.
Then...Big Government says it will come in and make it better...just like Amtrak, Fannie/Freddie, FHA, Social Security, and the Congress.
Aaaaah!
Name your poison. Your going to pay for it.
But I'd rather pay for JUST mine and not yours too.
Socialism, Chains you can believe in.