Health Care: Public vs. Private and the Impact on Health Plan Stocks

Much has been written about the Health Care proposal concerning the “Public Option.” Some object because government is a less efficient administrator, some because private companies will be incentivized to terminate their own plans and move their employees to the less expensive public option, and some because of the cost to the Federal government. This may all be true, but I have another objection.

Setting up a public company to compete with private companies is not how we do things in the United States. The federal government would be the 900 pound gorilla in the Private Health Insurance sandbox. The federal government has significant unfair advantages in competing with private companies. The federal government defines property rights in this country. The federal government runs the IRS which determines tax policy for private corporations and audits private Health Insurance companies. The government regulates Health Care and determines which medical drugs can be legally sold. A potential “U.S. Health Insurance” could make no business decision so incorrect that the Treasury/Federal Reserve can’t print enough money to keep it solvent. Would all these sister agencies really be indifferent to the competitive concerns of “U.S. Health Insurance“ when the going got tough?

In the United States, the private sector creates the wealth, and the government takes a share which it uses to run a civil and criminal justice system, provide for the common defense, and determine public policy. I would argue this system has been effective. People with a penchant for solving difficult problems and a desire to increase their standard of living have lifted us from the caves, created vaccines that save us from previously fatal diseases, fly us around the world on a whim, and made instant global communications a reality. I can’t think of a single country that has private companies competing with government company(s) as an effective ongoing model. The fact that the Public Option was even suggested tells me the training of the members of our legislative and executive branches is in law and political science, not Economics.

It is said that our President likes personal electronics and give iPods as presents to other heads of state. What if he became really incensed that an iPod can only run one app at a time, doesn’t allow background processes, and doesn’t have a camera? Would he set up a public company to remedy this great ill? I think not. Even he suspects in his heart that Apple would run rings around his flat footed, publicly run company. Yet because Health Insurance has no sexy devices, involves boring actuarial statistics, and is run out of drab buildings, our President feels ok to suggest a Public Competitor. (To give Obama his due, his real motivation is that he wants to give the uninsured health insurance - with other people’s money.)

If you own United Healthcare (UNH), Humana (HUM), WellPoint (WLP), or Aetna (AET) the financial panic and discussion of the Public Option has already hurt you. If the Public Option, or it’s wolf in sheep clothing alternative (Co-ops) is adopted, I advise you sell your shares. The market’s role as a discounter of future results will reduce your wealth quickly if any form of the Public Option is adopted.

If the government really wants to see Health Care costs drop in this country, why don’t they suggest something that would really work, like ending the AMA’s right to license medical schools in this country?

Disclosure: The author is long UNH

Comments

[Shotei:]

Shout it loud. I've been tell everyone that will listen the same thing. Public option will put hundreds of thousands of people out of work also.

Sep 13 11:49 AM

[stevesweetman:]

Would state administered public health insurance options meet with less political resistance? With some states and municipalities developing their own health options, why not incentivize state plans with federal subsidies tied to cost effectiveness, quality standards, and member satisfaction bench marks?

Colorado residents who do not qualify for Medicaid, but cannot afford commercially available health insurance, have a public option, CoverColorado, which offers several PPO health plans at reduced rates. State and federal subsidies help make the plans more affordable than other commercial plans available to the residents. Currently, less than 10,000 residents are enrolled in the plan. However, if the federal government decided to subsidize the states, rather than creating a federal public option, then there would be financial incentive to expand the plan.

In the “Denver Business Journal” the executive director of CoverColorado, Suzanne Bragg-Gamble indicates that the state’s health insurers support the program because it because it removes high-risk members from their pool. In addition, CoverColorado contracts with the plans to provide claims management, customer service, and pharmacy benefit management. Expanding CoverColorado as the state’s public option could siphon membership from other insurers. …but would such competition be more acceptable when the insurers have a contracted role in the administration of the public option?

If state programs such as CoverColorado, partly administered by the private sector, had a federal mandate and incentives to reduce health care costs, then would such a hybrid public option be a viable component to addressing the federal cost crisis?

Sep 13 03:04 PM

[Beth Frederick:]

The President and his main squeeze Axelrod need to wake up and smell the coffee:
crosssection.wordpress.../

Sep 13 10:03 PM

[Thomas J. G...:]

Shontei: Good point, a lot of people are employed by private health insurance now.

General thought: I write these articles in a vacumn (little input from others) and sometimes after I'm done I remember something. Educatioin (post secondary and even k-12) is a place where we have had ongoing competition between the public and private sectors for 100's of years. I think 80% plus children attend k-12 public schools so that's close to the gov't taking it over. I would argue that private schools must really have something going for them to be able to compete against their low priced public competitors. Also, many of the players in the education space are not for profit, the Catholic church, protestant churches, wealthy alumni donors that don't have a profit motive but want to be involved in education for other reasons.

Sep 14 12:03 PM

[BullnBear:]

I’m short WLP via shares and puts because I believe that these plans will get adopted and the outcome absorbed so to speak via another politically justified means.

I don’t agree with everything, (or just about anything), that happens in the political world by any stretch of the imagination but I’ve been trading long enough to know when I should probably get out of the way of one side of the trade and get on the other and this seems like one of those times to be short.

When you start to bring the stories out about people that have been hurt by the health insurance companies and the industry in general then it won’t take very long for the court of public opinion to be on your side.

In my opinion the health insurance companies are going to be demonized to a greater degree than anyone in the oil, banking, or mortgage industry ever did or has because of the number of stories of people being sentenced to death so to speak due to underwriting standards.

I always remind myself that political decision are rarely based on dollars, they are based on votes and this is all about votes and who has the power now and more importantly what needs to be done to keep that power base.

Sep 14 05:15 PM

[Dusty2001:]

Is this the old bait and switch move? Why all of a sudden do we have to solve the health care now? Seems to me with everyone upset about health care we all for got other things,our attention has be redirected. Are we forgetting the war? That seems to be on the back burner. What about all the illegal aliens and the work visas that are keeping our people out of jobs. All of these things are all of a sudden in the back of are minds or that's what the White House seems to want. Well Mr... President what are we doing on American jobs for Americans? That means people that are Americans either born here or nationalized. Stop the work visas send the people home that don't belong here and get us our jobs back. Oh! Don't say they are doing unwanted jobs that bull there are Americans with nothing, you can't tell me they would rather have nothing and let someone else have job.

Sep 16 06:57 PM

[Michael Clark:]

We need to pursue the health-care reform option that deflates the medical cost bubble that has been inflating outrageously for the last decade. At current insurance premium rates, it will cost $31,000 to insure a family in 2019. See chart below:

seekingalpha.com/insta...

Sep 20 01:03 PM

[Thomas J. G...:]

Michael, How come your picture doesn't have "Contributor" on it? You are a contibutor. What do you think of my AMA right to licence medical schools suggestion? When you let the AMA license medical schools you are asking them do they want to make more money or less money. Why shouldn't Colorado State and San Diego State have their own medical schools? More doctors equal lower costs and there are lots of people who want to be doctors, even if it doesn't pay as much as it does now. It would take years to get this in place and get it going but I think it's a long term answer to costs.

Sep 21 05:19 PM

[CapNgain:]

I don't get your logic... or are you using logic... or just emotionally spouting off words?

If the net effect is a lot of people become unemployed due to the public option, then you're implying that the government will be able to run their insurance program so much more efficiently that they won't need to hire a lot of the people currently working in the private sector.

Since government almost never runs things as efficiently as the private sector, then I'd expect the public option, competing with the private option to actually add to net employment in the health insurance sector.


On Sep 13 11:49 AM Shotei wrote:

> Shout it loud. I've been tell everyone that will listen the same
> thing. Public option will put hundreds of thousands of people out
> of work also.

Sep 24 11:26 PM

[Thomas J. G...:]

CapNgain, Your well tuned free market sensibilities are ahead of us. I think all Shotei is trying to say is what is the sense of the gov't handling the health care insurance market and everyone who works for United Health Care and other private insurers gets laid off. But you are right, the gov't would use more people to do the same work so net/net, more people would be employed. At some stage the economy totters into insolvency as the healthy sectors of the economy can no longer support those sectors run by the gov't. In order for an industry to be subsidized, the heatlhy parts of the economy must provide the resources.

Sep 25 01:07 PM