Uncategorized

HEALTH PLANS: Time to cut a deal?

There’s carnage amongst health insurer stocks on Wall Street this morning. For a long while I’ve been saying that the health insurer party was too good to last and in the past year things have certainly cooled down. Hanging over the industry has been an inability to extend itself further into the commercial market (commercial enrollment has been flat over the course of the boom—and now we’re going into a recession) and of course the lingering concern that payments for Medicare enrollment will be cut at some point.

Last night Wellpoint had at least the first shoe drop when it announced that a combination of higher medical costs and lower than expected enrollment would mean that it was going to miss its profit numbers. The stock is off more than 25% and most of the rest of the sector is well off too. Now this wasn’t a huge cut in the numbers—the reduction in forecast profits is under 10%. But Wall Street as you know hates the concept that earnings will diminish, and Wall Street doesn’t understand health care anyway.

Wall Street likes earnings machines that continually increase profits. To be such an earnings machine that you need to be able to sell an increasing number of widgets to the same people, or widgets to new people, or raise the price of the widgets you’re selling to the same people. Health plans can’t really do the first. They have done the second only because of massive subsidies in the Medicare market since 2004 and they look like they’re running out of steam in doing the third—although it’s been a darn good run! (Medical loss ratios are higher on on a base of greater overall revenue than they were 5 & 10 years ago, but that can’t go on for ever and that appears to be where the problem this morning lies).

And of course the political pressure on all the ways health plans make money continues to grow. Those games in the individual market are being found out, the games with opaque pricing are being investigated as consumer fraud, and although they’ve staved off Medicare private payment cuts for now, that issue isn’t going away.

So perhaps it’s time for health plans to consider their potential future as a regulated industry—one that will be forced to compete on issues that actually matter for the good of the health care system and the nation. And perhaps it’s time to prepare to really cut a deal on that, rather than propose a fake plan that takes but doesn’t give.

Now, there’s no way that under such an approach insurers will be allowed to make the kind of profits they’ve seen over the last five years, and of course Wall Street will freak out. But then again, perhaps there’s no time like the present to tell Wall Street the really bad news.

 

Livongo’s Post Ad Banner 728*90

Categories: Uncategorized

Tagged as:

26
Leave a Reply

26 Comment threads
0 Thread replies
0 Followers
 
Most reacted comment
Hottest comment thread
11 Comment authors
DavidDan Franciscanlı tvDavid Moskowitz MD MA(Oxon.) FACPMG Recent comment authors
newest oldest most voted
David
Guest
David

Wow, how many people have died or lost their coverage just so you could go into detail about how to make money on Wall Street. I’m sure you’re hoping they become the darlings of Wall Street again.
I believe it’s a moral issue, you obviously see no difference between a widget and a human life. Healthcare should not be a commodity traded on the suffering of human beings. That is why America is not a civilized country.

Dan Francis
Guest

I have read these entries with great attention…I see the debate remains very superficial, as always. It is true a single payer system will not work for the US, no fear there, there is no wherewithall anywhere in our economy to sustain such a measure, at least while the Baby Boomers are in charge. I also see in the market trends outside of Managed Care Plans and other insurance products. It is possible that the market can change rapidly, we are numbed along by the powers that be to believe ER’s are over crowded and managed care plans barely make… Read more »

canlı tv
Guest

I guess the logic goes that disappointing enrollments are due to low premium costs. Nice to have a customer base with bottomless pockets.

Scott
Guest

Thanks Peter,
I’m glad we pulled that out of the cooker.
I will try to toughen up. 🙂
Onward through the fog.
Scott

Peter
Guest
Peter

Scott, I’m actually in a pretty good financial situation with an ability to take care of most health problems, if I get any. I can’t however deduct any of my healthcare costs (too low per AGI) yet employees with health plans get a tax free subsidy, like my wife does. But that’s just one inequity of the system. This country creates all income levels which make up the entire economy. We all co-exist for the most part and those that work for less income make life less expensive for those that work for more. But healthcare is the one aspect… Read more »

Scott
Guest

That was a little better. Well I have not always has this particular job and I have a pretty diverse history. I do love this country and I think if you actually knew what I did for a living you might change that statement a little. Of course I work for my self and my families posterity. I would be irresponsible if I didn’t. But I did choose a career that allows me to serve my country as well. There are some of us out here that think we got a good thing going in this ol USA. I proudly… Read more »

Peter
Guest
Peter

Scott, there was no insult intended. But your comments seem based on being in a positon that insulates you from the reality of the marketplace the rest of us have to deal with. We aren’t trying to end poverty or bring about world peace, we’re trying to get control of health costs that are approaching 20% GDP and will affect us all, maybe even you some day. There are many people WORKING out there that can’t cope with the 6% to 10% compounded yearly cost increases in healthcare let alone the devastating financial cost of incurring a serious illness. To… Read more »

Scott
Guest

I WORK (Thats right work) for our nation. I earn my benefits. Why do you make it seem like a bad thing? Seems maybe you would like me a little more if I had my hand out and pleaded for you to save me. I post in earnest and you target in on my career? Your too much my friend. I think this attempt at exchanging ideas was a failure and I’m done with this topic and your take.
Good day sir.
Scott

Peter
Guest
Peter

“Well I work for the government”
Nice to see you have one of those “government” paid for health plans everyone else would like. Scott, I pay for my own healthcare and not with a tax free benefit the rest of us have to pay for.

Scott
Guest

Peter, I agree with you. I think maybe your looking for someone with a polar opposite opinion to discus with but I do not find fault with your points on this subject. I think where we may disagree is the path we might take to a vibrant health care system for every man woman and child. I can only guess that it’s the comment on socialized health care that prompted you to comment on my comment. What is it you propose? How do we pay for the treatment for all while still attracting our best and brightest Americans to medical… Read more »

Peter
Guest
Peter

Scott, I was interested in your age to see what experience you may have with health issues and the healthcare system. Young people pay far less in premiums and usually don’t get sick, so their perception of the issues is seen through rose colored glasses. It’s also interesting that your employer subsidizes a large portion of your premiums. Does your company also pay for your family members and if so at what cost? Have you always had health insurance? Have you looked to see what an individual policy would cost? Have you seen your premium portion go up and/or had… Read more »

Scott
Guest

1. Yes, I’m insured
2. My employer pay for most of it and I pay a monthly portion.
3 43
4. whats your point?

Peter
Guest
Peter

David Moskowitz, grand plans. Just who is going to institute them, the private market? Or are they just going to appear by themselves?

Peter
Guest
Peter

“I have a lot of Canadian friends that would give you a piece of their mind on the subject.”
Scott, I guess those Canucks won’t mind paying for better healthcare here in the U.S. then.
Just out of interest Scott, are you insured and if so how do you pay for it and how old are you.

Donald E. L. Johnson
Guest

HMOs’ margins have improved in recent years, but they’re still lower than those of S&P 500 companies. And it appears that those margins will shrink if we are in a down cycle in premiums, but I’m not sure that down cycle will last long. Price wars are futile exercises and the sooner the insurers come to their senses, the better it will be for their shareholders. Not-for-profit HMOs are as profit driven as the investor-owned plans. They just allocate their profits differently. Kaiser, for example, gives its “profits” to its docs and other employees. All plans are profit driven and… Read more »