Wall Street Weekly | 08/21/2009 9:30 am

Bullies Threaten Insurers; Is Profitability a Crime? by Liz Peek

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.

591 Reader Comments (so far…) Sign In or Register to comment

Far left leaning, radical affiliations, his National Security Force, government control in our lives….he is showing his true colors….and then, as I remember it, telling the American people early in his campaign, "I WILL transform the country." Oh, yes, indeed, he is TRYING but honest and hard working Americans are yelling back, "NO YOU WON’T." Obama is a flash in the pan at this point. He is between a rock and a hard place now with the "no public option" and "maybe there will be a public option." The man just isn’t up to the job….he needs to go back and do some more community organizing.

By deber B on 08/21/2009 5:15 pm

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I don’t get it. How did the President misspeak? He’s saying he’s all for private enterprise, noting two companies that are doing just fine and adding that our postal service needs some fixing. You have some skewed idea that Obama wants to rid the country of all private enterprise and have the government run everything. Nothing could be further from the truth. Even in his health care message he is saying he wants people to have choices.

By phyllis Doyle Pepe on 08/22/2009 9:55 am

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DeB,

Besides the National Park system and maybe the Space Program, I really can’t think of anything the government does well. Mind you…I think the Post Office does a great job 99% of the time, but they can’t seem to get a handle on the economics of the beast. And no matter what I think of the Cash for Clunkers program, the government certainly isn’t efficient about getting the dealers their money. Since the rest of us don’t live on credit, at least anymore, this is a real problem for the car dealers. And we’ve been told to gird our loins in preparation for the Swine Flu…but there’s not enough vaccine. I could go on for pages on the subject, but I’ll spare myself and you.

Here’s an example of the attitude and incompetence that scares me. For the last several months, we’ve heard countless members of Congress say the health care "reform" calls for cutting some billions of dollars out of medicare. At the same time they claim they won’t be cutting benefits…that they will only be streamlining and cutting the waste.

Those kinds of statements beg the questions: What waste…where is it…how do you know there is that much waste? And, if there is billions of dollars in waste, why hasn’t it been addressed? Why do we need a health care reform bill to address mismanagement in an existing program? And then there’s the loan and mortgage crisis that plunged us into the financial situation we now find ourselves in. It was the government’s job to monitor what was going on.

By Lee Harrison on 08/21/2009 1:32 pm

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The government may be incompentent, but they don’t have anything to gain by my death. My insurance company makes a great profit if they can collect money from me for years and then decide that I am terminal, or had some sort of pre-existing condition that allows them to get away with not giving me any money. In short, the bottom line is all that matters to a private business.

By R.J.B. Reed on 08/21/2009 11:54 am

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The government isn’t incompetent. It does many things very well, most of which when privatized goes up in price and down in quality and service.

By DeBúrca obj on 08/21/2009 12:02 pm

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The government isn’t incompetent. It does many things very well, most of which when privatized goes up in price and down in quality and service.

Name two please.

By Bill Lee on 08/21/2009 9:12 pm

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See ‘Joe Republican’ above.

By DeBúrca obj on 08/22/2009 2:08 am

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The government has a big old barrel full of programs ranging from education to food stamps that are working quite well. If it wasn’t for the unemployment program we’d have little children begging in the streets. Google, "Government Programs" and you will have an answer. You may be amazed at the depth and breath of its involvement. In Burma its people are ruled by a military junta who gives their people scraps from their lavish plates. The Burmese are living under the jack boot of oppression. It’s always good to have another perspective. Be awfully glad you are where you are, Mr. Lee.

By phyllis Doyle Pepe on 08/22/2009 10:19 am

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In Burma its people are ruled by a military junta who gives their people scraps from their lavish plates. The Burmese are living under the jack boot of oppression. It’s always good to have another perspective. Be awfully glad you are where you are, Mr. Lee.

I am glad to be here. I don’t want to end up like Burma, with an elite ruling class keeping the best for themselves, and occasionally throwing a bone to the people to keep them happy. That’s why I want to keep power out of the hands of the government.

Still, I understand that the government is involved in a lot of things, but in what areas do they beat the free market in effectiveness and efficiency? I am just looking for an answer to this question. DeB posted that the feds offer higher quality for lower price in lots of different areas, I just want substantive support of two of those areas, although right now I am even trying to find one area in which the federal government offers quality and thrift. I am trying to see this from DeB’s perspective, but I can’t do it without something substantive. Please help me out here, because the only way I see government getting quality healthcare to people is by throwing excessive funds at it, and hoping that something gets accomplished…much like they do with Social Security, Medicaid, TARP, porkulus, Fannie, Freddie, and so many other areas.

By Bill Lee on 08/22/2009 10:39 am

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Dear Bill: Am glad to hear you are glad to be here. Your question re: areas where government run programs beat free markets in effectiveness and efficiency is something for an economist to answer. We have a capitalist system where profit run concerns play ball with Wall Street. Government is supposed to take care of its people, its economy, its environment, its education of its people, invoke and uphold the laws of the land…etc. When Private enterprise gets involved in any of this, it does it to make a profit. Maybe I’m missing what you are asking, but I think it has to do with trust. Can we trust the government to steer this ship in the right direction and not hit any ice bergs.

As far as your concern about health care. Please keep in mind much of the bail outs were necessary to keep this country from going into the tank. Lack of regulation coupled with other problems in many areas caused the downfall. Obama inherited all this. Now the ball is in his court and health care is the big hoop. The United States has the most expensive health care in the world largely because we pay higher medical prices and incur higher administration costs than other nations. Also greater use of some expensive medical technologies is another source of higher spending. This cost is a threat to our economy. It’s an escalating burden on our families and businesses. And it is unsustainable. We need reform now. How we finally get this and what costs we need to incur is something everyone is grappling about. Did I make anything more clear or just muddy the waters more?

By phyllis Doyle Pepe on 08/22/2009 12:35 pm

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…I think it has to do with trust.

Yes, it does. My main concern with this whole health care fiasco is that I do not trust the government to do anything in my best interest. We the People have a contract with the federal government, in the form of our federal government’s charter—which is written in plain, simple English at a high-school reading level so that everyone can understand it. The federal government has repeatedly ignored that charter, and overstepped its bounds. It is trying to do so again in the form of healthcare. I do not trust such a government to ever rein itself in of its own accord, and I wish for the power grab to stop NOW. No surrender of my right to choose my insurance, no surrender of more of my hard-earned paycheck to pay for other people’s inadequacy and/or illegal aliens, no surrender of my right to make my own choices and live by the consequences, and no surrender of others’ rights to do the same.

Please tell me why the bailouts were necessary when so many banks went bankrupt anyway, and the car dealerships went bankrupt anyway, and these "too big to fail" businesses failed anyway.

Please tell me why the bailouts were necessary when our duly-elected representatives had ample opportunity to address the looming financial catastrophe over the last decade, yet failed to act, because Barney Frank & Co. said that nothing was wrong.

Please tell me why we should trust our members of Congress—especially the ones that have been in there for three or more terms—any farther than we can drop-kick them (no actual violence implied) after the absolute fiscal irresponsibility that has been practised by them time and time again.

Please tell me why we should trust Congress when they ignored Kent Smetter’s (Wharton School of the University of Philadelphia) testimony in 2006 that we were in bad financial straits as a nation, and either had to massively cut spending or increase the federal income tax to 70%—permanently—in order to stay afloat.

Please tell me why we should trust our great and fearless leaders in DC when they ignored the Small Business Committee of the US House of Representatives when it stated in 2003 that there was "incontrovertible evidence that the US is on the verge of adopting the economy of Third World Nations."

Please tell me why we should trust Congress when they were complicit in the firing of Inspector General Walpin, in direct violation of their own law.

Please tell me why we should trust Congress when they won’t subject themselves to the same health care plan that they are telling us will be so gosh-darn great.

Please tell me why we should trust Congress when, by and large, they seem to think it’s OK to "not let the opinions of our constituents affect the way we are going to vote" on health care reform.

Please tell me why we should trust the politicians when they ignored David Walker, then-US Comptroller General, when he said in 2005 that "the country faces a critical crossroad and that the decisions that are made—or not made—within the next 10 years or so will have a profound effect on the future of our country, our children and our grandchildren. The problem gets bigger every day, and the tidal wave gets closer every day." "The sooner we start fixing this, the better, because right now the miracle of compounding is working against us. Debt on debt is not good. We have to first stop digging, then figure out how we’re going to fill the hole." His predicted end-game? World-wide economic meltdown.

I don’t trust these politicians in DC, because they like to play the game, but they are in it for themselves. They have forgotten that they are supposed to be on our team, and nobody else’s. They had a lot of warning to get this fixed before it was a crisis, and now that there is a crisis they are trying to make the most of it by seizing more power. We need to stand up and show them who is boss; tell them that we have had enough of the recklessness, and if they want to affect a positive change they have to pick up their mess and exercise their Constitutional powers—such as tort-reform and import tarriffs—before they propose any more power-hungry "solutions."

By Bill Lee on 08/22/2009 1:36 pm

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Bill Lee — I very rarely post on this site on the weekends. Today, I am so glad I did! Thank you for your incredible post! I stand and applaud. Not only have I been ranting on and on about the "Economy Stupid" — I have been absolutely floored by the blatant disregard, by some of the members of Congress, and this President, as to our Constitution. The tenth ammendment clearly outlines the exact powers that Congress is allowed. That ammendment has been thrown out by some members of this Congress and certainly by this Administration. In fact, it appears to me they are trying to re-write the constitution!

And, your words "Please tell me why we should trust Congress when they won’t subject themselves to the same health care when they keep telling us it’s so gosh darn good." And your other words "Please tell me why we should trust congress, by and large, they seem to think it’s OK to not let the opinions of our constitutents affect the way we are going to vote" on the Health Care Reform."

Oh yes, this is definitely "Power Hunger" and it’s being forced upon the people of this country. So, if they can tell me to "sit down and shut up" — I can tell them - "clean up your "wee wee" before it takes a steam shovel to get us out of this dump!"

Again, thanks for a very lively, invigorating, attention getting, post!!!!!!!!!

By Lady Gator on 08/22/2009 2:58 pm

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gator, where were YOU while bush and cheney surveilled countless ordinary americans without warrants? where were YOU when they tortured prisoners and renditioned them to other countries to be tortured. the constitution did not just arrive as bush was leaving office.

liz, why all the vitriol for investigation of exec pay and perks when that money could have been used in a health care oriented health care system to keep alive the 18,000 americans who died last year due to lack of health care?

By mary lou s on 08/22/2009 5:29 pm

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liz, why all the vitriol for investigation of exec pay and perks when that money could have been used in a health care oriented health care system to keep alive the 18,000 americans who died last year due to lack of health care?

What could have been used for that, the executives’ pay? That’s a silly notion. Maybe you’re talking about the money spent on the investigation…yes, it could definitely be spent better elsewhere.

By Bill Lee on 08/23/2009 7:38 am

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Getting back to Bill: Man, oh, man, you want answers to a whole lot of questions, as do millions of others whose concerns are like yours. Let me just say this and then give you a list of important books that shed light on all your queries. Big or small government is not the critical criterion in economics. To the contrary, government’s management of change is what is critical. And government is a key and arguably the main agent of change. In the laboratory of the REAL world, the governments of rich nations have on balance been central to economic growth, and in the process have retained their citizen’s faith in their nation’s promise and social values. If what we think of as big government is necessary to manage change, and in a complex society it may well be, then we should pursue it actively and positively, and make it function well. I think, Bill, that most Americans,––– Rush Limbaugh, & brothers under the same skin & certain congressional Republicans not withstanding–––seem ready to move past the thirty years of conservative domination that resulted from increasing distrust of government. The dismal failure of deregulated financial markets has now–––just as in the 1930s–––forced upon the US the most fundamental and costly sorts of public interventions in markets. We need now to restore America’s basic financial health along with health care for all. Your mistrust is well founded, but we do have voices and they are being heard.

Here is a list of books that will illuminate and educate:

"The Case for Big Government" by Jeff Madrick

"The Trillion Dollar Meltdown: Easy money, high Rollers, and the Great Credit Crash" by Charles R. Morris

"Financial Shock: A 360 Look at the Subprime Mortgage Implosion and How to Avoid the Next Financial Crisis" by Mark Zandi

"The Reckoning"—a series of articles––by Gretchen Morgenson et al.

These books should be in your public library.

By phyllis Doyle Pepe on 08/22/2009 5:43 pm