The Covert Rationing Blog

Attention Warren Buffet - Health Insurers Capitulate!

May 22nd, 2008 by DrRich

An article in the May 19 issue of American Medical News reports that America’s largest for-profit health plans will continue to rapidly increase their insurance premiums, even though doing so will continue to lose them subscribers.

In a conference call, WellPoint President and CEO Angela Braly told analysts, “We will not sacrifice profitability for membership.” Similarly, UnitedHealth Group CEO Stephen Hemsley said, “We continue to protect our margins. … We are committed to sustaining a quality business without taking shortsighted pricing positions.”

These statements, which are merely the actions of any responsible CEO trying to protect his/her company’s stock price, have garnered the expected expressions of outrage and indignation. After all, as Dr. Poses nicely documents for us, the mission statements of WellPoint and UnitedHealth Group assure us that these companies are both dedicated to making health insurance affordable and accessible. So how can these companies in good conscience abandon the effort to keep their products within a reasonable price range? Their failure to do so (as documented in the AMNews article) is already causing businesses to drop health coverage for employees, and contributing greatly to the rising number of uninsured Americans.

The answer, of course, is the obvious one. These publicly traded companies have a primary responsibility to their shareholders, and failing to take every opportunity to maintain a reasonable profit margin would make them guilty of violating their fiduciary duties. Besides (contrary to what most seem to think), the people who actually are insured with their products are in no way their customers. In fact, the insured (and their accomplices, the doctors) are the source of “medical loss,” and the insurance companies owe it to their shareholders to restrain these parties, by using every means at their disposal. So for insurance companies to take an action that is so manifestly against the interests of their subscribers ought not to surprise anybody.

The truly notable feature of this latest development is that it amounts to a complete and final capitulation, a straightforward admission that these companies have, at last, formally abandoned the purpose for which Congress turned them loose a couple of decades ago. Congress sanctioned for-profit HMOs, and gave them extraordinary protections under the law, for one purpose, and one purpose only - to harness the power of the free markets to control the cost of healthcare. And while it has been obvious for at least a decade now that for-profit insurers actually have no clue as to how to accomplish this feat (despite their numerous draconian efforts at covert rationing), until this moment they have publicly maintained the pretense that, given enough time and latitude, they’d find ways to bring costs down.

But that’s all over now. Ms. Braly and Mr. Hemsley have said it. We, the for-profit HMOs, the entities on which the Gekkonians have been pinning all their hopes for nigh unto 15 years, and the entities on which even today Mr. McCain is basing his entire healthcare reform plan, are completely bereft of cost-containing ideas. We haven’t a prayer of figuring out how to cut healthcare costs, or even how to slow cost inflation enough to prevent truly remarkable increases in our premiums - even though those increases are dropping our subscriber numbers and scaring the hell out of our shareholders and causing our market value to plummet. We, the for-profit HMOs, have officially entered the end-game.

So, Mr. Buffet: Your investment strategy is still on-track. You will soon be able to pick up several hundred thousand more shares of WellPoint and UnitedHealth Group at truly bargain prices, as current shareholders (seeing these companies circling the drain as surely as a subscriber with an expensive-to-treat cancer), scramble to bail out. And seeing a high probability of a Democratic victory in the fall, conventional wisdom will drive the prices even lower. So keep your powder dry.

Thanks to DrRich, only you (and the other people who read this blog, most of whom think DrRich is engaging in irony) know that it’s a Democratic victory, and not a Republican victory, that will send these stock prices soaring once again. What an opportunity!

You’re quite welcome.

Posted in Healthcare economics

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