Uncategorized

HEALTH PLANS: I agree wth the NY Times in general, but perhaps someone should tell Wellpoint that they are doing badly

So yesterday the NY Times has an article suggesting that the good times are over for health insurers. In the last five years they’ve seen huge growth and profits while they’ve retreated from active care management and trying to push provider prices down and instead have returned to their roots as underwriting, financial machines that simply pass on the costs of the system to their clients (i.e. us). Well that’s not exactly what the article says they’ve been doing, but it is what they have been doing. I tend to agree with the NY Times, as I don’t think that the profit growth of the Uniteds and Aetnas is sustainable over the next few years. However, no one bothered to mention this to Wellpoint which this morning announced earnings that blew the doors off expectations and sent the Wellpoint stock price up 6%.

Wellpoint

And of course the way the health care business works — remember that 85% of the costs are with 15% of the people — even if your overall enrollment isn’t going up very fast, you just need to get better at avoiding a few expensive enrollees to be very profitable. If you can figure out some way to at least start to manage the care of the sick people you do enroll better — and to be fair Sam Nussbaum at Wellpoint does seem to be trying to do this with diabetics — then you may still make some decent profits so long as you get your pricing right. So there’s your reason why shorting Wellpoint may be a bad, even if very tempting, idea. It of course may not be enough to stop me from being stupid and doing it anyway.

Livongo’s Post Ad Banner 728*90

Categories: Uncategorized

Tagged as:

11
Leave a Reply

11 Comment threads
0 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
7 Comment authors
Robert TitusJohn P.JCgadflytony Recent comment authors
newest oldest most voted
Robert Titus
Guest
Robert Titus

Not only are they stealing from memners they have raped employees. Since the Anthem WellPoint merger, we have lost our retirement, lost vacation days, our health care premiums have been doubled. Whe are told to leave if we don’t like it. Anthem, was, before wellpoint a “great place to work”. Money, power and greed has changed all that.

JC
Guest
JC

I have been in the industry for sometime, but I still find it valuable to see other people’s views and opinions about what I do. So I really appreciate your comments and insights. I am not trying to proselytize anyone on the virtures of Insurance companies. I am just one more voice in the debate that has a difference perspective. Denial of care issues are touchy. Its hard to glean from an article what really occured. But usually such decisions (good or bad) are based on interpretations of the contract. Hence, the extinction of the term “medically necessary” in contract.… Read more »

John P.
Guest
John P.

Okay, fair enough. You make a point when you say both sides are equally culpable to a degree. (At least I think that’s one part of what you’re saying.) And you may well be right. I don’t have the kind of in-depth industry knowledge to debate the issue with you. I was more interested in your reaction, which I now have in front of me. But what about the denial of care issue which the article touches on? Are you arguing that this isn’t a problem? Or that this is simply an AMA trick? This, it seems to me is… Read more »

JC
Guest
JC

Oh, my God Doctor’s suing Insurance companies!!!!! The industry must be going to hell in a handbasket. C’mon there is nothing new here. Doctor’s suing Insurance companies alleging conspiracy is nothing new, and simply a heavy-handed negotiating tactic. The same could be argued against doctor’s who consipire to upcode in effor to get paid more (take more of that premium dollar). Insurance contracts are just that, contracts. There is no abstract sense of coverage or entitlement. The only reasons doctors are pissed for exclusions in policies is because they know they can’t get paid from anyone else. Hey Doc, how… Read more »

John P.
Guest
John P.

Well then JC, it certainly sounds like you know what you’re going on about it when it comes to insurance.
I’m curious though; What do you make of a story like this one?
http://www.thekansascitychannel.com/health/4432024/detail.html
Is this simply more frivolous-ness?

JC
Guest
JC

Sorry for the absence, I have been a little busy making sure “margins don’t shrink” next year 🙂 If any thinks that government doesn’t meddle enough in Insurance affairs they haven’t worked at an insurer recently. The traditional underwriting cycle, where a few good years are followed by a few bad years, has been well documented. However, it has very little to do with cherry-picking. In the late 80s and early 90s I would agree that much of the economic success enjoyed by HMOs came from cherry picking low-risk individuals from major med and self-insured plans. But don’t forget HMOs… Read more »

gadfly
Guest
gadfly

I don’t thing concentrating power in a few key states will limit the political power of insurance companies. They would still be a huge sector of the national economy unto themselves, embroiled in business relationships all over the country. They might also play politics by setting up outposts in different states.
Take a look at Bank of America. All real power flows to Charlotte, even when they merger with supposed “equals”. However, they cultivate strategically placed outposts such as Wichita.

tony
Guest

Love the thread on this post.
All of this consolidation makes me wonder one thing: If big insurance companies keep on “merging” and end up stationed in mega-facilities in a few key states, do they lose some political power? i.e. only the senators of those few key states will fight for them?

Sue
Guest
Sue

The biggest “synergy” of any merger is you put a lot of employees on the street who then get 18 months of COBRA and then have to find someone else to provide health insurance. By the way “merger” is the politically correct word used by the acquiring company to keep employees at the “acquired” company in place while they figure out who becomes synergy. When an entire industry goes into a consolidation mode you can put a lot of employees in that category. I wonder how people who have worked for insurance companies feel when they actually have to shop… Read more »

matt
Guest
matt

WellPoint CEO: “This action, along with our increased guidance for 2005, signals the confidence the board of directors has in the future of the company and the success the newly merged company is already realizing,” said CEO Larry Glasscock. “During our first full quarter as an integrated company, we were able to deliver outstanding results, which is indicative of how smoothly our integration has gone and just how well our combined company is performing.”
So, to what actual integration – other than on paper – is he referring?
As if any of the “synergies” from the merger have been borne out.

Sue
Guest
Sue

So the financial markets are finally starting to echo what those of us buying health insurance already know–laughing all the way to the bank isn’t a sustainable business model indefinitely (although it appears to have been fairly profitable during the last five years). Hey JC….it’s not me making this up. Here’s a quote from the referenced article: Mr. France at Banc of America Securities is also gloomy. “The business is going to get more difficult, after five years of expanding margins,” he said. “We think 2006 will be tough.” Five years of expanding margins….that kind of suggests that cost increase… Read more »