How Health Insurance Corporations Are Controlled By Wall Street

Discussion in 'Healthcare/Insurance/Govt Healthcare' started by Bfgrn, Feb 1, 2010.

  1. Bfgrn
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    Bfgrn Gold Member

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    Wendell Potter, who retired last April from his job as head of communications for the CIGNA health insurance company, has been in the news since then as a whistle-blowing critic of the insurance industry. Today I belatedly read his June 24 testimony to the U.S. Senate Committee on Commerce, Science and Transportation (see here) watched his July 10 interview with Bill Moyers (see here).

    Potter is especially clear about the way short term considerations drive the behavior of for-profit insurers:

    The top priority of for-profit companies is to drive up the value of their stock. Stocks fluctuate based on companies’ quarterly reports, which are discussed every three months in conference calls with investors and analysts. On these calls, Wall Street investors and analysts look for two key figures: earnings per share and the "medical-loss" ratio - the ratio between what the company actually pays out in claims and what it has left over to cover sales, marketing, underwriting and other administrative expenses and, of course, profits.

    To win the favor of powerful analysts, for-profit insurers must prove that they made more money during the previous quarter than a year earlier and that the portion of the premium going to medical costs is falling. Even very profitable companies can see sharp declines in stock prices moments after admitting they’ve failed to trim medical costs. I have seen an insurer’s stock price fall 20 percent or more in a single day after executives disclosed that the company had to spend a slightly higher percentage of premiums on medical claims during the quarter than it did during a previous period. The smoking gun was the company’s first-quarter medical loss ratio, which had increased from 77.9% to 79.4% a year later.


    Health Care Organizational Ethics: Wendell Potter on For-Profit Health Insurance
     
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    Last edited: Feb 1, 2010
  2. CrusaderFrank
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    CrusaderFrank Diamond Member

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    Wahhhhh Capitalism is so mean wahhhhhhh close the stock market, let the government decide everything wahhhhhhhhhh
     
  3. editec
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    editec Mr. Forgot-it-All

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    When you have a valued customer like the HC insurance companies are to wall streer brokerage firms, you'll want to insure that their rice bowl isn't broken.

    It is, I think a short sighted position for WALL STREET to take, but as WALL STREET looks ahead only about six months at a time, it's an understandable position for it to take.
     
  4. CrusaderFrank
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    CrusaderFrank Diamond Member

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    Yeah and as Mal reminds us in another thread, the Japanese were going to own us because they look out a century instead of only the next quarter
     

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