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Posts Tagged ‘Insurance Companies’

Parker Donham, writing at Contrarian has a post up Wednesday talking about the rising values of health insurers stock value as reform legislation slowly grinds towards passage in the States. In it, he cites Glenn Greenwald’s article that discusses “the explosion in health insurance company stock prices as the severely watered-down reform bill edges toward passage” and further describes the pending legislation (which passed the Senate Thursday and can now move onto reconcilliation with the House bill) as “a massive public subsidy of the insurance industry.” I love Glenn Greenwald. He is exceptionally lucid. His blog was the first that I really got into and followed regularly, and much of the expansion of my own blogroll has been through links that Glenn has supplied. That being said, I do sometimes take exception to the colour of his descriptions. While he is correct on the merits, I wouldn’t say that it is fair to describe the increase in insurance company stock as ‘explosive’ or the subsidies that the new bill will provide as ‘massive.’ Going in to this whole process, it has been clear from the start that some ammount of subsidies would be going to private insurers as a single payer system style of reform was never on the table from the beginning (my personal belief is this would be the best option, but is was deemed not politically feasible by ‘centrists’); that fact is implicit in the type of reforms that Congress has been attempting (all year!) to enact.

At his blog FiveThirtyEight, the estimable Nate Silver has an excellent analysis (as he always does) of the market valuation of the increase in stock prices that insurance companies have seen as of late. His analysis (which you really need to go read as I will butcher it if try to make it my own) concludes that “the total value added from passage of the bill is $16.04 billion.” For those true believers in the efficient market hypothesis (markets are amazing tools, but I would not consider myself part of this camp) this is the exact market valuation that has been placed on insurance reform. While $16 billion is a lot of money, it is a fraction of the total outlays the bill would provide for over the next 10 years, or it “represents about 3.6 percent of the subsidy.” Nate goes on to add that:

Coincidentally — and it is mostly a coincidence, since the numbers are not directly comparable for a variety of reasons — this compares rather neatly to the 3.3 percent profit margin in the health insurance industry overall.

There can be no doubt that if reform is passed that private insurance companies will receive government subsidies; that is the course of action that has been chosen. While not nearly ideal there is a wide variety of cost savings measures contained within the bill and only time will tell which are the most effective. Claiming that reform is simply a give-away to private insurers is somewhat hyperbolic.

Update: Nate has another interesting post up that shows the decline in prices that insurance companies experienced after Senate passage was confirmed.

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