Government-Run Healthcare “Despite” Obama?

Posted on November 6, 2008
Filed Under Gekkonian Rationing, Healthcare economics, Investment "advice" |

In his campaign, President-elect Obama did not promise or even advocate a universal healthcare system controlled by the government. Indeed, he referred to government-run healthcare as an “extreme” option that ought to be avoided. Instead, he advocated a system in which people who liked their current health insurance would be permitted to keep it, while those who did not have health insurance or who did not like their current insurance would be able to join a new government insurance plan, based on the plan “available to members of Congress.”

Conservatives and cynics, of course, pointed out that such a plan amounted only to a stealth government takeover of healthcare. Since the new government insurance plan would be competing with private insurance, and since the government would be establishing the rules of competition, it would be a simple matter to arrange things so that, before too long, the private competition would melt away.

As a matter of fact, DrRich himself painted such a scenario, and even suggested that the insurance company executives were supporting Obama over McCain during the election precisely because Obama would present them with a graceful (and lucrative) exit strategy. (Mr. McCain’s plan, in contrast, relied on insurance companies to invent the “efficiencies” that would control healthcare costs, as if the insurance companies hadn’t already been trying unsuccessfully to control those costs for 20 years, and were not already completely bereft of useful ideas.)

The fervent wish of the insurance executives, DrRich surmised, was this: Mr. Obama would provide them with one last, huge windfall, in the form of government-provided premiums for some significant chunk of the 47 million uninsured Americans. Then (DrRich went on) a couple of years later and having realized their final gains, they would get out of the health insurance business altogether and let the feds have the whole mess.

But now, things have changed.

Thanks to the sub-prime mortgage crisis and the economic meltdown that has resulted, it will be difficult if not impossible for Mr. Obama to implement any sort of organized healthcare reform, or any other reform that promises to greatly increase federal spending. (Dick Morris points out in a column today that the realities of our current economic situation will serve as a general constraint to the Democrats now controlling the administration and both houses of Congress.)

But if Obama-style healthcare reform is off the table, or even significantly delayed, the health insurance companies are likely to be in deep trouble - and soon.

The market value (i.e., stock price) of these companies completely relies on their continued growth. Through the 1990s and for the first half of this decade, their growth was spurred by the acquisition of public assets (not-for-profit institutions) at a tiny fraction of their real value, and on mergers and acquisitions among insurers. But there are no more non-profits to take over, and these companies have pretty much run out the string on mergers.  So, for the past few years their growth has almost solely relied on their participation in government programs such as the Medicare Advantage Plans (which, by the way, may be going away soon given the recent election results). The entire prospect for future growth (and therefore viability) in the health insurance industry, as DrRich has explained, depends on an Obama-style expansion of government programs that will provide a new stream of insurance premiums.

One sure thing is that health insurance companies have no hope of even maintaining their current profitability, let alone continuing their growth, solely by doing what they are supposed to be doing - by managing the healthcare of their enrollees. (The prospect of having to survive by doing that, once again, is what frightened them so much about the McCain plan.)

Panicked insurance company executives are not in a pretty place. On top of a mounting recession in which their customers (American businesses) are cutting back or failing, and during which their own costs continue to increase at a double-digit rate of inflation, they now have to face the likelihood that in spite of Mr. Obama’s election there won’t be a massive infusion of government dollars into their businesses any time soon. These poor souls are very likely casting about for a Plan B.

And Plan B seems pretty obvious to DrRich. The path has been very recently blazed by others.

Over the last two months it has become obvious that when businesses vital to the public welfare are about to fail, the government has little choice but to take them over. This was the case with AIG, with Fanny and Freddy, and to a lesser extent with several major banks.  We now see the American auto industry lining up for a bailout/takeover. It is easy to imagine the gasping airline companies forming themselves up into the same landing pattern.

So if you are a health insurance executive, you are probably looking at your current broken business model, lamenting that your savior Mr. Obama is probably not going to be able to come to your rescue with the one last windfall he has promised, and observing what is happening with other “vital” American industries in similar straits.  DrRich imagines that these executives have already resolved themselves to a government takeover (indeed, this was the end-game they have long planned once their last Obama windfall played itself out), and that they are merely calculating the right moment for it. How best to divest their stock before hinting that such a takeover is in the works? With careful planning and negotiation, can some of the takeover money be parlayed into executive bonuses, or at least into one last, extravagant junket (a la AIG)? There is no real hurry, after all - whenever the health insurance industry says it just can’t do this any more and that the government needs to take over healthcare, then no matter which other industries the government will have already acquired, what choice will the feds have?

If DrRich is right in such speculations, we may end up with government-run healthcare  sooner than we think, despite the promises and intentions of Mr. Obama, and despite the seeming unlikelihood of achieving organized healthcare reform in the foreseeable future.

DrRich humbly suggests that those who currently own stock in health insurance companies should take note of what happened to the shareholders of AIG and other companies whose demise the feds have recently engineered - which is to say, they were completely wiped out.  DrRich is not really trying to give investment advice here, and admits to being entirely unqualified to do so, as anyone would agree who saw his portfolio. He’s just sayin’.

Comments

5 Responses to “Government-Run Healthcare “Despite” Obama?”

  1. Trusted.MD Network on November 7th, 2008 8:42 pm

    Are health insurers due for a government takeover?…

    It’s not out of the realm of possibility in the current economic climate:…

  2. The Happy Hospitalist on November 8th, 2008 7:38 pm

    Nice Job Doc. A very plausible outcome.

  3. Maggie Mahar on November 13th, 2008 1:00 pm

    Nice post.

    I wish more health care reformers understood why the insurance industry seems so eager to co-operate–and in a rush to see universal coverage as soon as possible.

    As you say, the industry desperately needs new customers–but it’s not necessarily in the intersts of those new customers to push through a plan without first thinking through how to regulate insurers. Giving everyone a piece of paper that says “insurnace” on the top doesn’t necessarily meanthat they will receive the healthcare they need.

    As for the governmet taking over the industry, I suppose that would be the American way. But it seems such a waste of money to pay for all of those parachutes, bonuses and junkets.
    It would be so much better if we just let some companies go bankrupt, while others wither away.

    Finally, I’d like to seem the Kaisers of the industry survive–which I think Kaiser will.

  4. DrRich on November 13th, 2008 6:23 pm

    Maggie,

    Thanks.

    I agree with you that if the insurance industry is going to go south, I’d just as soon let them go without having to pay off the executives for their utter failure to either a) deliver decent healthcare to their subscribers, or b) control costs. I would feel a little better about buying them one last bonus if they had accomplished either.

    Rich

  5. L-E on November 18th, 2008 3:27 pm

    On the job today I’ve gotten caught up in an incident of government/insurance company covert rationing insanity. Thanks for giving me a framework to make sense of this. That does make me feel somewhat better when my head is about to explode from some of the absurdity. I must expedite my career change!

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