I am an investor-mogul, working on my second million. In these bleak times, please help me. How can I earn triple digit returns? Where can I park money? How can I keep my Ferrari?
The dot-coms are no longer golden. Some wunderkinds made fortunes off companies like Amazon.com, whose stock prices soared while their earnings stayed flat. But I didnt ride that wave: I hung on too long, My fortune imploded along with the dot.coms.
Ditto for the housing boondoggle. Forget the buyers duped into signing on for more debt than they could carry, expecting the rising tide of house values to make them rich. The media has spotlighted those sob-stories. What about me and my colleague-investors? We were duped into buying the bundles of shaky mortgages. Many of us watched our lifestyles slip away as the subprime mortgage market tanked.
So the latest news about health insurance marks a gloomy trifecta: health insurance is no longer a guaranteed fortune-builder. WellPoint, Aetna and UnitedHealth recently declared lower returnsnever a good sign. The traditional insurance companies arent making huge profits anymore (Earnings Appear Unhealthy for Insurers, by Vanessa Fuhrmans, *Wall Street Journal*, April 21, 2008).
The reasons are obvious, at least in retrospect. Explanations for debacles are always obvious in retrospect. As the costs of care soared, the companies faced the tough choices MBAs train for.
Insurers could have cut those costspaying less to doctors, steering people to outpatient surgeries, denying treatments. But after a decade of rigid managed care controls, patients are sick of hearing no. Insurers have been zealously nixing longer hospital stays (think same-day mastectomies), expensive surgeries, and referrals to specialists. Insurers have little more to nix.
Physicians too are sick of hearing no. Frustrated at Byzantine coding, late payments, and questions about medical necessity, the American Medical Association and 27 medical societies even took one insurer to court. (Blue Cross settled the suit in April). Insurance honchos cant easily go that route.
They could have cut administrative costs. Medicare, the government employer, pays 3% for administration. Private insurers pay much more. But why would the honchos cut their salaries? Health insurance is a for-profit industry, paying the mega-salaries, with mega-perks, executives expect. I wouldnt cut my salary. The honchos didnt want to cut profits either. That would have been tantamount to cutting out my heart.
So insurers raised premiums. Theyd been raising premiums for years, to the backdrop of employers griping.
Employersthe people who buy the insurancesaid no.
You gods-of-the-marketplace have set a ceiling for all commodities. Not just for house prices, and for stock prices. But for health insurance premiums too. We mortal moguls cant see that ceiling, but it exists. And insurers bumped into it. Just as home-buyers cant afford to spend six times their income on a house, companies balked at paying more and more for insurance. More than a few companies either dropped insurance, self-insured (using insurance companies as administrators, a function that doesnt earn huge returns), or bought scaled-back policies.
The number of people who are uninsured, as well as underinsured, will rise.
The sequela for me is grave. The industry of private health insurance is predicated on profits. Big profits. Without that, investorslike mewill flee. And without investors, this industry will shrink. As the private sector withdraws. the role of insurer will fall to government. (It already insures a major swathe of the population: Medicare, government employees, Medicaid, Veterans Administration). Government doesnt make a profit. What will be left to us moguls?
Dear gods-of-the-marketplace, you who have given us such nifty goodies as derivatives and credit default swaps, please say the inspired word for today. Plastics?
Desperately awaiting your insider help.
Joan Retsinas is a sociologist who writes about health care in Providence, R.I. Email firstname.lastname@example.org.
From The Progressive Populist, June 15, 2008
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