HEALTH CARE/Joan Retsinas

A Mogul’s Prayer

Dear Gods-of-the-Marketplace:

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, whose stock prices soared while their earnings stayed flat. But I didn’t 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 returns—never a good sign. The traditional insurance companies aren’t 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 costs—paying 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 can’t 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 wouldn’t cut my salary. The honchos didn’t want to cut profits either. That would have been tantamount to cutting out my heart.

So insurers raised premiums. They’d been raising premiums for years, to the backdrop of employers griping.

What happened?

Employers—the people who buy the insurance—said “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 can’t see that ceiling, but it exists. And insurers bumped into it. Just as home-buyers can’t 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 doesn’t 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, investors—like me—will 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 doesn’t 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.

A Mogul

Joan Retsinas is a sociologist who writes about health care in Providence, R.I. Email

From The Progressive Populist, June 15, 2008

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