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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: NOW who wrote (26210)2/10/2005 3:12:05 PM
From: GraceZ  Read Replies (1) of 110194
 
I doubt your portfolios did as well as good ol UNH for example

I've had more than a few positions this year that did better than UNH. I don't like big regulated industries. I prefer small companies with a minimum of government intervention. There are sexier looking companies in the medical/healthcare/pharma sector than UNH. But since you follow them, you know this!

That said, I can't believe it, I got you to actually admit that a particular sector was a good place to invest money in. Even though I'm sure you are only saying that they were a good place to invest.

When was the last time you actually made a post that said something favorable about a sector aside from the usual bear sink holes everyone on SI loves?

Now let's go back to your original post.

Here's what you said:

Oh really? that is why? that is one samll reason why. masssive profits by insurers and huge overhead dwarf that

Let's see what you mean by massive:

UNH had revs of $25,448 million in 2004 and $1,825 million in net profit. That means they made a massive (your words) 7% profit.

They had operating expenses of around 19%. Medical costs around 81%. Pretty standard for the industry.

Now on the surface, Medicare has a very low administrative cost, no private insurer can beat them for that headline number. HCFA has a 2% budget and then they also pay private companies around 1.5-2% to process claims. HCFA's budget is so irrationally low in fact that they can't keep up with the fraudulent claims which run around 6 to 5%. In 2000 the error rate was 6.9 or to put it in dollar amounts, 11.9 billion in overpayments. Its the unseen and shifted operating costs that kill you with public sector programs.

The operating costs that the private insurer/healthcare provider has includes reserves to keep them solvent in the future, unlike the public sector, they have a legal obligation to remain solvent. One could argue the future liability of Medicare is completely unbounded. Private insurers also spend money to limit fraud and impose better cost controls even though they pay far more to providers on average than Medicare for the same procedures, they subsidize the low reimbursement rates of Medicare patients. Still growth in Medicare spending runs at double digit rates well ahead of inflation even with serious price controls. It is on track to suck up 4.5% of the GDP in 2030 and 8.5% in 2075.

The profit on the private insurer (which of course has to be high enough to cover the future possibility of losses and returns to capital), 7%, is after tax. If you count the roughly 36% tax rate on pre-tax earnings that goes back to the government, private sector solutions start to look like a more elegant solution.
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