Why Did Health Insurance Stocks Go Up After The President s Speech? #term #life #insurance #rates

#health insurance quote

Why Did Health Insurance Stocks Go Up After The President’s Speech?

Nov 10, 2009 | Updated May 25, 2011

Richard (RJ) Eskow Writer/Editor, Bernie 2016

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 up the 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:

Leave a Comment

Your email address will not be published. Required fields are marked *