Wall Street Weekly | 08/21/2009 9:30 am
Bullies Threaten Insurers; Is Profitability a Crime? by Liz Peek

© Shutterstock
Bears, Bulls, Chickens and Pigs: wOw’s Wall Street Weekly with Liz Peek (Week of 8/17)
Editor’s Note: Liz Peek is a financial columnist and the author of wOw’s SHEconomics.
In Washington’s sandboxes, the bullies are gaining the upper hand. This week’s news that Henry Waxman and Bart Stupak of the House Energy and Commerce Committee had written letters to 52 insurance companies demanding reams of information about compensation, client entertainment, executive retreats and other data was so dismaying. Unable to advance health-care legislation or tame an increasingly hostile electorate, Congress has decided to beat up on health insurers – Nancy Pelosi’s favorite "villains."The letters are, of course, showboating – much of the data sought, such as the compensation for the CEOs of the largest companies, is already in the hands of the SEC. No, Waxman and Stupak aren’t after information. The real play here is to threaten the industry with embarrassing exposure, so as to prevent them from resisting President Obama’s No. 1 agenda item. It’s disturbingly Orwellian. House Democrats have seen how effective it is to loose populist anger against an adversary; who will ever forget the mortifying Congressional assault on poor Ed Liddy, the fellow that stepped in to help sort out AIG and was absolutely excoriated for his troubles.
Ironically, as The New York Times and others have reported, the insurers, led by lobbyist Karen Ignagni, have been on board with reform from day one. Ms. Ignagni, CEO of America’s Health Insurance Plans, must have been pretty darned surprised to have her industry come under attack. She had already guaranteed the president that the companies would agree to not deny coverage to clients with pre-existing conditions and to discontinue basing premiums on a person’s health status or gender – the two most important concessions that Obama has requested. Presumably the insurers do not welcome a government-run competitor, and will argue against that part of the proposal. Since many of these firms are publicly owned, management could be sued for not attempting to block legislation that would be harmful.
The attack on the insurance industry is worrisome mainly because it is yet another in a series of anti-business outbursts from the Obama camp and its Congressional allies. What is the industry’s crime? The president accuses the industry of being profitable, and indeed "making record profits" – as he stated at a recent press conference. (Actually, profits for the industry are down from the 2006-2007 levels.) What kind of charge is that?
The president and his reform teammates have implied that insurers are earning unconscionable profits on the backs of unfairly treated policyholders. Otherwise, the reasoning goes, how could an industry be so successful? That conclusion mandates the question – just how profitable are insurers? According to Fortune magazine, not as profitable as Internet sales companies, or pharmaceuticals, or railroads or telecommunications companies. In fact, in Fortune’s listing of industry by profitability, health-care insurers and managed-care companies came in 35th with a profit margin of 2.2%. Yes, the top ten companies last year earned $13 billion; it is a huge industry – the aggregate number, often quoted by reformers, doesn’t mean a thing.
For sure, we all have issues with our insurance companies. They are an easy target. But trying to develop important and complex legislation by demonizing companies that employ Americans, pay taxes and provide an important service does not reflect well on either the president or on Congress.
The Obama administration’s desperation to drive through health-care reform may reflect their anxiety about the economy. After all, coming up to the midterm elections, they have to have something to show for their control over all three branches of government. It must be driving them crazy that for every data point showing that a bottom has been reached in housing or manufacturing, there is a little hiccup showing that the consumer remains in lock-down.
Read more about: Barack Obama, Bart Stupak, Business, Ed Liddy, Government, health care, Henry Waxman, Karen Ignagni, Liz Peek, Nancy Pelosi, News, Politics, U.S., Wall Street Weekly























591 Reader Comments (so far…) Sign In or Register to comment
Glad you saw the jest in my words. No malice intended ever from me. Just having a little fun. Yes. I understand a business model. I take exception to it being a profitable "industry." It is not in Canada. Its not the model of health care that Tommy Douglas fought for and implemented. I don’t see that the health care "industry" belongs on the stock market- ever.
I find it as unconscionable, as I would if an auto company tries to take short cuts on the assembly line and settle for a cheaper auto part for example, so as to imply a better product, and imply a safe vehicle has been made for a consumer to invest in. An insurance company who touts a policy as "safe" but might play roulette with someone’s life should also not be allowed. The hypothetical vehicle above may kill a family. The hidden charges of pre-existing conditions in a contract also kill people. Not everyone is going to do the due diligence to examine the fine print on the contract the same way that the average consumer is not going to examine the sub - contracting of each auto part to discover that the company is "cheaping out" on that one mechanical part that creates the weak link in the vehicle, making it less "safe." Not the best comparison, because it looks like I support the business model of the current medical insurance system in the US. I don’t think there should ever be a CONTRACT for health care. I don’t have one. Excuse the pun here, but if I "contract" any sickness in the entire world that exists and I am entitled to get well for a minimum of charge. In Canada I pay about $55 month. I have additional private insurance that is work related for extras like private hospital room, travel abroad, etc. which is lovely, but not that essential because of the national model. Period.
It horrifies me that one man gets something like 1/7 yearly of all the money paid into one insurance company because he is the boss. that is total BS!!! Don’t quote me here but I think it was United???? NO ONE deserves that much money for his job at the head of a health insurance company! (reference the Wendell Potter interviews on Bill Moyer website)
Everyone has the right to life. It is granted them by their Creator, and no one has the right to take it away. Is it a violation of your right to property if I charge you for maintenance of that property? No, and neither is it a violation of your right to life to charge you for maintenance of that life.
But you don’t want to discuss rights—based on flimsy pretenses at best—so there seems to be nothing to talk about.
That I find to be a very convoluted thought process. You are likening one’s life to maintaining PROPERTY? How OLD are you? Did your family own slaves???? Do you think it should be exactly the same principle in play as for one’s property??? Wow. All I can say is WOW!
It’s a pretty simple concept: Just because you have the right to maintain possession and control of something—whether that’s life, liberty, property, etc—doesn’t mean that everything associated with that right must be given to you. Just because you have the natural right to walk on your own two legs doesn’t mean I—or the government—owe you shoes. Just because you have the natural right to pierce your body doesn’t mean that I have to supply the jewelry. Just because you have the natural right to live, doesn’t mean that I owe you health care. Because you don’t have the right to shoes, and you don’t have the right to jewelry, and you don’t have the right to health care, you have the right to use your property as you see fit; if that means trading some of what you have (money) for some of what someone else has (health insurance/health care/shoes/body jewelry/so on/so forth/etc etc etc), then that’s your right. That is what you are granted by your creator.
And, come on, slavery? And the other convoluted comments? Sheesh. I likened maintaining one’s life to maintaining property, because even though one’s life is of profoundly and indeterminately greater value than any property, the same principle still applies: you are endowed "negative" rights, and anybody who promises you "positive" rights is doing so by trampling the rights of other.
Tell me, Amelie, what is health insurance, besides a commodity offered by an industry? The industry invented it some time back, and it started in the US in 1850. It has been a commodity ever since. Never a right. You see, by nature, rights cannot be denied you by an industry going away, and if insurance suddenly become unprofitable, then you’ll see the industry go away. They would not be defrauding you of any rights by closing their doors. Even if something bad happens to you after that.
If you don’t want it to be that way, petition Congress to allow health insurance cooperatives. Then you could pool your money in a not-for-profit or non-profit fund with your neighbors, and pay your own medical expenses out of that. But you’d still run into the same problem: not everybody can get all the funds they want, because the pool will never be big enough, and somebody is going to have to be turned away, based on whatever criteria the participants decide upon.
How about: no. Thousands have died because, hey, this is life. If you don’t like living the by natural rules of life (i.e. you might get sick or injured and die, just because) then you really don’t have to play the game. Go see Dr. Jack, he’ll help you out. If you do want to admit that sometimes bad stuff happens to good people, for no other reason than chance and happenstance, but you should give it a go anyway, then stay and play the game. But don’t blame the industry providing you a service for excessive charges arising from frivolous lawsuits and the idiots who would rather get that big-screen HDTV than get insurance, and then go get the expensive life-saving procedures done anyway.
You want to talk health care reform? Let’s start with tort law reform, to lower the unnecessary costs associated with health insurance and care, not big government take-over. The federal government doesn’t have the right to enact a "public option."
Patrick Henry said it best:
The idea of a government that consistently violates its charter document, that takes powers formally denied it by We The People, scares me. I do not expect such a government to ever rein itself in of its own accord. Government is not here to provide cradle-to-grave support for individuals, or to enforce or provide "positive" rights, it is here to provide a framework under which every individual can have the freedom necessary to enjoy the rights endowed them by their Creator. That’s the basis of the American Dream: to live a free life and enjoy the fruits of your own labors without overt interference by a nanny state. That’s what it’s all about.
Instead of embarking on some crazy government power-grab of 17% of our GDP, we need to fix what we have. We need our government to practise the powers that are specifically granted to it by the Constitution, such as import tarriffs (to reduce the trade deficit and promote domestic job growth), tort law reform (to reduce/eliminate frivolous lawsuits and lower the cost of malpractice insurance), and regulation of interstate commerce. We need the State governments to step up to the plate and open up the markets for health care, instead of cutting deals to only allow select ones in. But this isn’t about reform of any sort, otherwise Congress would be reforming the mess we already have, like Medicare D, and they would be stopping the haemorrhagic flow of wasteful spending that is the trademark of government-run programs; it would be cracking down on the government officials that are caught with their hands in the till or dodging taxes, and it would be looking for a solution that would apply to its members as well. Instead, our elected representatives are abdicating their responsibilities and shunning their Constitutional powers in favor of more power, more money, more control. Call me crazy, but I refuse to trust an entity that behaves in such abhorrent ways.
Would you trust such an entity?
Too much centralized power is exactly what the Founders were hoping to avoid. A benevolent party in charge of such power would seem to be a great boon, but what about a party with ulterior motives, or without genuine concern for the rule of law and suppression of tyranny? We don’t want the government to be in a position where it controls so much that it can assume or maintain martial law without the explicit consent of the governed, because such a government will end up abusing that power, and then where would we be? But that kind of government is exactly where we are headed, and it seems that too many people are looking for the cradle-to-grave mindless service that can only be provided by such a government.
A few words to ponder, from a great philosopher:
Well, I’ll try this again. It just disappeared, Amelie - but thank you for your comments. They’re like a breeze from the ocean. To one who has needed healthcare in Ontario (as a U.S. citizen), it too was like a breeze from the ocean!
The for-profit sector is destroying US Healthcare, and Congress sits by collecting the contributions from the heavy hitters in healthcare - looking up their contributions was more than a bit unsettling. When we insist on term limits and tell those about to run for re-election that we WILL NOT vote for them, we’ll be doing something that hits the nail on the head. In the interim this news was not good for those who opted for the Advantage and Plus plans through an insurance company hawking them as "our Medicare (they took the beneficiaries OUT of the original Medicare!):
Aon
August 25, 2009
Employers Face 10.5 Percent Health Care Cost Increases, Says Aon Consulting
Aon Consulting surveyed more than 60 leading health care insurers,
representing more than 100 million insured individuals, and found that
health care costs are projected to increase by 10.4 percent for HMOs, 10.4
percent for POS plans, 10.7 percent for PPOs and 10.5 percent for CDH plans.
In addition, health care rate increases for retirees over the age of 65 are
projected to be 6.6 percent for Medicare Supplement plans and 7.3 percent
for Medicare Advantage plans.
http://aon.mediaroom.com/index.php?s=43&item=1676
Comment: Under the management of private insurers health care costs
continue to increase at outrageous rates - this year at 10.5 percent. With
the decision of Congress to leave private insurers in charge, and with no
measures that would have any major impact on slowing health care spending,
it can be anticipated that these outrageous increases will continue even
after reform is enacted.
The Medicare Supplement (Medigap) and Medicare Advantage plans are also
private insurance plans, and so you might expect their increases to be
similar. In fact, though technically complex, rate setting of these plans is
linked to spending in the traditional fee-for-service Medicare program. The
fact that rate increases in these programs are lower is not due to any
efficiencies instituted by the private plans, but is due to greater
efficiency of the public Medicare program.
In fact, there is much waste in these private Medicare programs.
The Medicare Advantage plans are overpaid deliberately to give the plans an
unfair competitive advantage over the traditional Medicare program, with the
intent of privatizing Medicare. Most of the extra payment is wasted in
administration and profits, and what little benefit there is should be given
to all Medicare beneficiaries, not just those enrolled in these plans.
The Medigap plans provide the worst value in the private insurance market.
The insurers pay a much lower percentage of the premiums they collect for
actual health care than they do in any of their other insurance product
lines. Americans would be receiving a much greater value if the benefits of
the Medigap plans were rolled into the traditional Medicare program, and
these wasteful private supplemental plans were totally eliminated.
This Aon report should lead to two obvious conclusions: 1) get the private
health plans out of our Medicare program, and 2) replace the private
employer-sponsored plans with an improved Medicare program for all of us.
If you agree, let President Obama and the members of Congress hear your
message loud and clear. Immediately.
from Cj - use this link to WRITE, right now (and pass this on)! http://www.congress.org/congressorg/directory/congdir.tt
Amelie
I am trying to keep up with all sides of this issue. Last week I found these articles and I have seen interviews on the telly with Canadian doctors and Healthcare officials that are starting to paint a bleak picture about the future of healthcare in Canada. I think they are worried about rationing.
The Canadian Press: Overhauling health-care system tops agenda at annual meeting of Canada’s doctors
Thousands of surgeries may be cut in Metro Vancouver due to government underfunding, leaked paper
As I research and try to find out what a good solution would be, more and more articles like the above are coming out from other countries about their own health systems.