In a well-managed insurance company/HMO of any type, they
should have armies of actuaries that come within the ballpark
of the correct IBNR figure, thus negating the need for serial
charges. When a plan grows very fast, it becomes much more
difficult to accurately estimate IBNR as the history isn't there.
Your suggestion that IBNR will be alternate between too high
and too low, resulting in a rolling break even situation with
zero retained earnings over the LT, is obviously what we seem to be in
right now. Will this continue?
Consistent inability to estimate IBNR resulting in serial charges will
certainly put any insurer into regulatory purgatory and likely
bankruptcy. I would venture that especially a health insurer
could not get away with such consistent problems over the long term
without incurring the wrath of either customers or authorities.
Let's look to the future - say Oxford survives a liquidity crisis
this spring gets its books together, and continues on as a profitable
company. Then in 1999 it says whoops we screwed up again, here
are some more charges. Then it says so again in 2001. The regulatory
authorities would put a stop to Oxford playing games with real
patients' lives.
Again, I ask the question is there is a recent equivalent to
OXHP in this sector that you or anyone can think of?
No. Aetna's, Cigna's and Pacificare's troubles were
somewhat acquisition-related. Oxford, geographically and with
its specific plan characteristics, has had no easy comparison -
believe me I looked.
A caveat: The aging population/Medicare, the increasing
direct contracting between physician groups and employers, and
the consumer's inexorable feeling that there is a right to the
best possible care no matter the cost all are long-term threats to
the ability to drive down costs. If insurers' actuaries systematically
ignore these pressures, IBNR will always be too low, and charges will
become serial, resulting in a poor outcome for investors throughout
the industry.
Good Investing,
Mike |
