The President gave a speech last night that was exciting, stirring, and unapologetic in its defense of government activism. He singled insurance companies out for special criticism, gave a convincing argument in favor of the public plan option, and forcefully stated that a health reform bill can and will be passed this year.
So why did health insurance stock prices go upthe next day?
UnitedHealth? Up 17 cents. WellPoint? Up 19 cents. Aetna? Up 59 cents. Humana? Up $1.12.
These gains weren't great leaps forward. On a percentage basis, they ranged from the fairly negligible (UnitedHealth) up to the minor but healthy -- no irony intended -- 2% to 3% range. But why should they gain in value at all?
Investors may well have been reacting to the President's emphatic endorsement of mandates. He called failure to enroll in a health plan "irresponsible," and said for the first time publicly that "under my plan, individuals will be required to carry basic health insurance." (This is a reversal from his position during the campaign; until now he has preferred to let Democrats in Congress carry water for him on this issue.)
Investors are likely to recognize that this mandate means that a surge in enrollment is coming for health insurers, followed by a flood of new revenue.
The market is also likely to have understood that, while the President made the case effectively for the public option, he also indicated willingness to consider other options. What's more, many of them may not have realized until now just how many concessions have already been made regarding the public plan, especially in restricting its eligibility to small businesses and the currently uninsured. This may be the first time many investors have heard that it's expected to enroll no more than five percent of all Americans as a result.
Marcy Wheeler of Firedoglake and Ezra Klein of the Washington Post have been engaged in an enlightening exchange about the role of for-profit insurers in the US health care system. After Marcy rebuked Ezra over insurance companies, Ezra responded with a thoughtful and detailed response, which focused on the fact that health insurance ranks only 86th in the list of most profitable industries, with an average profitability margin of 3.3%. With relatively slim margins, he suggests, trimming the "profit" out of health care won't put that much back into the system.
A valid point, but somewhat overstated. For one thing, profit margins are calculated only after administrative expenses are paid. That means, for example, those exorbitant salaries and cash bonuses you've read about are excluded from the 3.3%. And while Ezra makes some excellent points about overstating the administrative cost differences between public and private plans, the fact remains that marketing costs add a huge cost burden to the system. (Putting everyone in an Insurance Exchange could reduce that significantly, even if we continue to rely on private insurers.)
Regarding that 3.3% figure, it appears understated. That average isn't weighted for the market share of each company on the list. Larger players appear to be doing better than the average. Looking at them based on Fortune 500 ranking, the top five health players of 2008 (UnitedHealth, Wellpoint, Aetna, Humana, and CIGNA) averaged a much healthier 5.44%. CIGNA had a whopping 9.69% margin, while Wellpoint, Aetna, and United were at 4.5%, 4.00%, and just under 4.00%. At the other end of the spectrum, a low-end player like Universal American (#669 on the Fortune 500, to United Health's #25) bends the curve substantially with its 0.4% margin.
While that's still not enough to radically change the equation, 2% or 3% of a trillion-dollar market could still insure a hell of a lot of people.
The biggest problem caused by private-sector insurance isn't the size of their margins, anyway. It's the absurd pressure placed on executives at all publicly-held companies to meet investors' expectations on every quarterly earnings call. That, even more than the profit motive itself, encourages predatory behavior.
So do I want private insurers out of the equation? That would probably result in a more rational system, but I have no ideological stake in the process. If private insurers could prove they're capable of doing a better job -- providing better care at cheaper cost -- I'd be all for them. "I don't care if a cat is black or white as long as it catches mice," as Deng Xiaoping once said. Unfortunately health insurers haven't proven to be very good mousers, and their resistance to a public option suggests they don't want to compete with any other cats in the neighborhood.
The market's initial reaction to the speech suggests that, at least in investors' eyes, they're not going to be asked to anytime soon.
Like many others, I was moved and inspired by the speech. The fact that it gave a slight boost to insurance company fortunes is not prima facie evidence that there's anything wrong with the reform plan. In fact, it could be argued that private insurers have the ability to enact cost containment measures that might not withstand the political process, and that the profit motive could inspire new innovations that could outstrip the public sector. But then, why aren't they willing to go head-to-head with a public plan?
After the glow of the speech, the devil is still in the details. The success of the President's reform plan should be measured by the markers laid down in his own words. First, it must "provide insurance for those who (don't have it)." Providing means more than just "mandating." It means ensuring that it's affordable , especially to lower-income working people. (People at or near the poverty level would already be covered under current Democratic plans -- which, it should be noted, would be an enormous accomplishment.)
Lastly, any plan must must "slow the growth of health care costs for our families, our businesses, and our government," as the President said. Families should come first on that list. If reform truly meets the needs of uninsured and badly insured Americans, I don't care what happens to health care stock prices. But until then I'll keep worrying -- even after this inspirational speech.
CORRECTION: The President did not say that the public option was expected to pick up "five million members." He said it would pick up no more than 5% of the population. While that is still a significant limitation of its estimated market impact, we significantly understated the President's estimate and apologize for the error.
RJ Eskow blogs when he can at:
A Night Light
The Sentinel Effect: Healthcare Blog
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'Now, I have no interest in putting insurance companies out of business. They provide a legitimate service, and employ a lot of our friends and neighbors. I just want to hold them accountable. The insurance reforms that I've already mentioned would do just that. But an additional step we can take to keep insurance companies honest is by making a not-for-profit public option available in the insurance exchange. Let me be clear – it would only be an option for those who don't have insurance. No one would be forced to choose it, and it would not impact those of you who already have insurance. In fact, based on Congressional Budget Office estimates, we believe that less than 5% of Americans would sign up.'
So, that would be why Wall St did not crush them the next day.
And what, exactly, would be the legal basis for putting a 250-year old industry out of business, anyway?
Republicans are never going to vote for Obama, no matter what he does. I intend to vote for a third party, if I can find one I can stomach, or else not vote at all.
I do not consider that not voting for Obama is a Republican vote; now I consider a vote for Obama as a Republican vote - why bother.
When I look at what has been accomplished so far, I see that all the campaign rhetoric was just pretty words.
I think that the insurance companies were excited by the fact that Obama is willing to roll over in order to get a single R. vote and that gives them a lot of influence.
In addition, the insurance companies heard that they can have free reign for four more years while Obama gets the new 'exchange' setup (code word for co-op). So essentially no new competition for the insurance companies. So much for the fierce urgency of now.
Finally, Obama is going to penalize people who don't run out and buy insurance - so lots of new customers for BCBS etc.
What's not to like if you're in the insuance business.
the govt in america will also pay for FDR and LBJ's folly of SS and Medicare in a few years when both of them go bankrupt.
Sound familiar?
Cutting the FEES Doctors get for uin-needed test and referal fees for everything including operation and which hospital a patient is sent too. And those KICKBACKS go BYE BYE !
Patients today do not know if they are sick or the Doctors need to use them as ATMS for a new deck on the beach house, a new car, or a Eroupean Vaction ! Did you really need a BY PASS or did you just need to stop eating so much processed cheese ?????
Coverage for EVERYONE who applies
Structured premium payments of not more than 100 per individual, 300 per family
Deductibles capped at $2000 and based on income (means testing every year like the va)
No mandates forcing people to purchase insurance (a windfall for private carriers)
No triggers (also a windfall to private carriers)
No subsidies to private insurance carriers
No taxes on employer provided benefits
If someone has private insurance and wants the public option, they can drop private with no problem and be covered immediately under public.
No mandates on employers to buy into the public option to cover employees. Has to be free choice.
Everyone with coverage gets treated for new or pre-existing conditions.
Fairly negotiated reimbursement to private pracitce, specialty doctors and hospitals
Fairly negotiated prices for medications, even on name brand stuff which has no generic equivalent.
AND IT HAS TO BE EFFECTIVE IMMEDIATELY. Within 1 month of the above bill passing, Americans must be able to start buying in and using it.
It must be administered by an autonomous federal agency. Monies paid in must not be co-mingled with any other money, does not go into the general fund so it can be looted.
The ONLY payouts from this fund will be for: payments to practicioners, pharmacies and admin. In 5 years if we see significant overages, those overages will only be used to suplement medicare and fund medical research and maybe scholarships.
See next post on funding
Marches will be happening in cities across the country. We are a grass roots movement with no affiliation with any organizations, and certainly NO sponsorships from corporations.
http://www.march4healthcare.com/
Facebook: March for Healthcare group
Can't be there in person? We also have a virtual march:
http://www.march4healthcare.com/civicrm/event/info?reset=1&id=11
Could you provide us with a breakdown of the administrative overhead of the health insurance industries (the key insurers) claiming that their profits are only 3%, by including the costs of:
Compensation for management
Marketing costs
Research / development costs
Public relations costs
Political contributions
Conferences/Travel
What percentage of the total revenue do these insurance industries charge for administrative overhead?
What is the total amount reflected in their revenue as compared with the percentage of expenditure in direct services?
Following is on the double standard that the GOP has concerning health care reform. They want to deny government run health care to the citizens, yet they enjoy a generous government run program paid for by us!
http://www.examiner.com/x-11326-Liberal-Examiner~y2009m9d11-Joe-Wilson-and-GOP-support-government-run-health-carewhen-it-is-their-own
Raymond Gellner – National Liberal Examiner at Examiner.com
http://www.examiner.com/x-11326-Liberal-Examiner
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Moving Ahead with Facts HELPS Answer Questions by the Right about COST:
Question 1: A bill covering 47 million younger people, costs too much?
Insuring the younger uninsured costs $265/Person/month. Medicare could be lower yet!
Total Cost= $265/month x 12 mos x 47 Million= $150Billion/yr or $1.5Trillion / 10 Years
[Note: 60 year old wife found a way to drop her Insurance Payment to $314/ month by removing the "Child Birth" clause that had been on her policy for ten years despite a hysterectomy ten years earlier! Talk about a dishonest company charging double what it should have been!]
Offset by $1.3 Trillion / 10 years in Emergency Room Costs paid by Cities and States with funds from the Federal Government:
[CURRENT 2008 Costs for 47 million uninsured= $87Billion =10 yr cost $870 Billion
2007 Medical uninsured bad debt=$25.4Billion increased 9.5%/yr=$4 33Billion/ 10 yrs
Adding $870 Billion+ $443 Billion = $1.3 Trillion]
Plus $500 Billion Savings in Medicare Overcharging by Health Care Industry
Net Positive is $300 Billion / 10 years = ($1.5 Trillion - $1.3 Trillion - .5 Trillion)
Question 2. Why NOT Delay Reform?
Answer: $37 Trillion Reasons = HEALTH CARE COSTS = THE #1 THREAT TO OUR FUTURE!
Calculations (see table): ($5+$2.4)/2*10 = $37 Trillion
$2.4Trillion spent in 2008, 17% of OUR GDP
$3.1Trillion by 2012
$4.3Trillion by 2016
$5.0Trillion by 2018
4 of 50. Angela BralyPresident and CEO
Wellpoint (WLP)
2008 rank: 5
Age: 49
A Texan who started out as a waitress, Braly now runs a $61 billion health insurer with 34 million members -- more than any competitor. With a public insurance plan all but off the table, WellPoint's stock is up 71% since March
Was just reading about this on CNN and thought to myself ...really ? off the table ? ...
Fortune magazine has decided the future allready it seems.