Cramer's Stop Trading! HMOs Are Terminally Ill (9/30/09)

Stocks discussed on Jim Cramer's Stop Trading! TV Segment, Wednesday September 30.

United Health Group (UNH), Wellpoint (WLP), Humana (HUM), Exelon (EXC)

Even though Obama's public option healthcare plan failed to pass the Senate, Cramer thinks the action in the HMOs shows that some form of bill may become law, and he would steer clear of stocks like United Health Group, Wellpoint and Humana.

While healthcare reform might be bad news for HMOs, the cap-and-trade bill should benefit Exelon, which has nuclear power exposure. Investors have a good entry point because the "stock is way off."

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Comments

[ari5000:]

I think history shows doing the exact opposite of Cramer's ideas outperforms following them.

Anyone still long BSC?

Oct 08 10:37 AM

[jpau:]

I find it funny that UNH and WLP dropped on news that the Baucus bill will save money. Even Bill Maher called the bill a bj to the big insurance companies. I know there will be lots of volatility, but in the end I am relying on the democrats proven ability to sell out and/or fail whenever backbone is required - and passing real reform would take lots of backbone.

Oct 08 02:41 PM

[Mark German:]

Consumer Reports Sept 2009 notes Operating room costs are between $69 and $270 per minute. That’s up to $16,200 per hour, just for use of the room. They go on to report 80% of hospital bills it scrutinized contained multiple errors. At what point is this degree of incompetence considered to be illegal? 100s of thousands of MDs, and hospital administrators are pulling down $300,000 to $500,000+ incomes, and hospitals are charging over $15,000 per night. When insurance contracts fail to match their extreme demands they charge the members the difference even when their health plan contracts specifically restrict this. Unneeded cross referral among specialists, results in huge waste. MDs routinely have lower level staff do their work and then bill for it as if it was their work. I know of no government agency, or court, that has ever charged them, for what is obviously fraud and theft. Their organizations (ex. Medical Societies, AMA, AHA) are highly consolidated and enforce this extreme compensation and lack of oversight with slogans like. “No one should get between you and your doctor.” We must break this union or mafia.

The average consumer is ignorant of provider effectiveness and outcomes, and is greatly influenced by advertising and public relations. Fee For Service payments, leads to more services --to get more fees. HMOs / MCCs track provider outcomes, re-admission rates, and avoid or terminate the contracts of poor performers. They attempt to direct members to effective providers and hospitals. Disease management staff will call sick members and reinforce medication and treatment compliance. HMOs and MCC can profit only, if they keep its members healthy and avoid costly delays or mistakes in care and control operating costs. Overall, the profit margin for health insurance companies was a modest 3.4 percent over the past year, according to data provided by Morningstar. The most profitable industry over the past year has been beverages, with a 25.9 percent profit margin. Right behind that were healthcare real-estate trusts (firms that are basically the landlords for hospitals and healthcare facilities) and application-software (think Windows). Exxon with its history of gargantuan profits, its profit margin was 9 percent over the past 12 months, according to the research firm Capital IQ. The average for the oil and gas industry overall was 10.2 percent, three times the margin in the health insurance industry. That's nothing compared with high-fliers like Google which had a 20.6 percent margin — and Microsoft at 24.9 percent.

Oct 20 03:32 PM