I need some help from both the proponents and detractors of the Affordable Care Act --- the Odd Couple of the socio-political landscape. Hopefully both parties can help me understand why health insurance company stocks have all doubled within the past two years. Beyond singling out insurance companies, a typical healthcare index or health sciences mutual fund includes health insurance, pharmaceutical companies, bio-tech and medical device companies. These funds have gained roughly 100 percent in just two and a half years.
A reasonable person would assume that the health insurance and the health sciences industries have bellied up to some feeding trough created by the Affordable Care Act, but the act itself stipulates that insurance companies, at least, have to spend 80 percent of their premium dollars on the cost of treating patients. Prior to Affordable Care, when premiums were rising by annual double digit numbers, that administrative and marketing component was said to be 30 percent, so we’re making progress.
It’s true that the Affordable Care Act requires policies that include substantial additional benefits such as treatment for obesity and mental health benefits. It no longer allows for what I would call “junk health insurance” that covered, for example, low-income employees in the fast food industry with maximum benefits of a few thousand dollars. Regardless of the more expansive coverage offered by the new policies, there’s the argument that what helps to avoid serious illness saves money in the long run.
Meanwhile, four of the five major private health insurance companies are involved in two proposed mergers to bring the total down to just three providers if the mergers are approved. Those of us who remember when Ford, GM and Chrysler formed a tacit price-fixing oligopoly can already smell a whiff of what the health insurance industry may look like going forward if we’re not diligent.
What’s disturbing is that the insurance companies are lining up to submit substantial rate increases to the state insurance departments who have the power to approve them. The rate increases sited by various reports tend to be in the 25 to 35 percent range. Insurance regulators should probably start by looking at insurance company profits reflected in enormous stock price gains and “Just Say NO.”
Regulators have the power to do just that, but the power is diluted by the fact that the states all act independently. “Divide and conquer” was the intent of the 100-year-old McCarron Fergusen Act that decreed that only the states could regulate the insurance industry across the country. And these agencies, judging from what little they do to curb insurance company abuses, are feckless handmaidens of the industry they regulate.
On a national level, it’s conceivable that a federal regulator, if it existed, could consider such facts as United Healthcare’s having increased its dividend from 28 to 50 cents per share just recently. That’s the same company that paid its CEO over a billion dollars for a year’s work not that long ago. These facts, coupled with their doubling of stock prices, suggest that the insurance companies might be legitimately required to just break even or lose a few bucks for a few years.
That’s not much to ask given the fact that America has handed insurance companies three or four years of off-the-charts profits, including even rate increases, on a silver platter. In a year or so, we’ll know what we’re dealing with as the effects of preventive care and the pent-up demand for healthcare from the previously uninsured begins to abate. By then, we may have what amounts to a national commission that will effectively regulate what should have been treated as a national utility in the first place.