Health Insurance Companies Sucking Up Corporate Welfare

It's not a bad idea to look to how Wall Street reacts to the health care debate to determine winners and losers. After all, when you see insurance industry stock prices skyrocketing, you can safely say that investors believe whatever "reform" happens this year, if any, will not create a hardship for insurers, and more likely a windfall. Most of the major insurance companies are up 6-12% in the last month, far above the rise in the overall market. All of that is true.

However, we should note that these constant rises in the stock prices are most certainly not based on current fundamentals. Indeed, most insurance companies are losing market share.

But it turns out the current arrangement, through which employers are supposed to buy coverage from large insurance firms and enlist their employees to cover the costs, isn't working so well for the insurance industry, either. In fact, the system by which insurance coverage is tied to payroll jobs is a huge problem—especially in a period when Americans are less likely to have payroll jobs than they have been in the recent past and when employers are less likely to cover the costs of that insurance. A look at the earnings reports and stock prices of big insurance companies reveals that tying insurance to employment probably isn't a good idea, after all—unless the employer happens to be the government.

Since December 2007, the U.S. economy has lost 6.5 million payroll jobs, or about 4.7 percent of the total. The economy is likely to lose at least 1 million more by the end of this year. When people lose jobs, they frequently lose their insurance. (COBRA allows former employees to continue purchasing insurance for a period of time, but the costs are frequently prohibitive.) So large insurers have been losing millions of members. A chart in a recent Wall Street Journal article shows that seven large insurers have collectively lost 4.34 million members in their "commercial risk" plans since December 2007. ("Commercial risk" or "risk-based membership" generally refers to people whom insurance companies insure directly.)

Insurance company stocks have actually lagged behind the S&P 500 dating back from the beginning of the recession in December 2007. So why are they shooting up now, considering that job loss is continuing, which will erode their client base further? The answer is that insurance companies are actually being propped up by government money.

In fact, there's pretty good evidence that government spending is all that stands between the struggling insurers and complete disaster. Look through the insurers' earnings reports, and you'll see that a portion of the loss in commercial business has been offset by growth in Medicare and Medicaid programs. At UnitedHealth in the past year, for example, enrollment in its public programs rose from 6.185 million to 7.115 million.

The system of employer-provided health care coverage is crumbling before our eyes, and for more Americans—and for more American insurance companies—government-funded health care is all that separates them from financial disaster.

If investors are making a bet, they're assuming that government will continue to subsidize private industry, moving toward a model of quasi-nationalized health care, where private companies manage public programs, or get government to funnel direct payments through their customers to keep them covered. This is why two elements of reform are crucial - ending useless programs like Medicare Advantage, where private companies run public programs like Medicare for more money with no consequent increase in service; and instituting a public option, so that the government is not forced to bail out the insurance industry. With such shaky fundamentals based on the erosion of the employer market, insurers will be forced to change their practices or literally go out of business. But that's only if they aren't treated like corporate welfare cases, and injected with the cash they need to survive. Cash which often goes directly into the pockets of super-rich CEOs.

That's essentially the nature of the fight over the public option - should our tax dollars go to rescuing insurance companies which have added no value to the health care system, or should they go to treatment and care?