A modern day "Tale of Two Cities"....the number of "health insurance co-ops" set up to enroll people in the ACA program, aka Obamacare, is declining by two more due to financial underperformance, leaving only 15 of the original 23 still in business. Meanwhile four of the giant health insurers are merging to become even more "giant-er".
As the photo headline above says, Aetna is buying Humana, and Anthem (Blue Cross) is buying Cigna. The combined Aetna-Humana will insure 33 million people, and Anthem-Cigna will insure 53 million people. The current top insurer, UnitedHealthcare, insures 49 million people. (FYI, those three insurers will have a combined revenue of $448 BILLION per year.)
From what I have read (and if anyone inside the medical/insurance field has other information I'd like to hear it), far-and-away the BIG winners in the Obamacare health care reform movement are the health insurers. Early on the Democrats who pushed for Obamacare enlisted the health insurers support, promising them millions of predominantly young, mostly healthy, new clients....in other words, lots of new income, with little additional expense. CHA-CHING!
Here's what it comes down to: the health insurers are making money hand-over-fist, with numbers few of us can even imagine. They have to invest their profits somewhere (they don't pay it all out in dividends), and they have found that there is no place more profitable to put their cash than in....themselves!
“When big [companies] like this join forces rather than compete, it’s
always a worry in terms of choice,” said Betsy Imholz, special projects
director for Consumer Reports. “History has generally taught us when
there’s greater concentration of health insurers, premiums are higher.
Companies say there are greater efficiencies, but I’ve never seen that
passed along to consumers.”
“We really do need the regulators to
be watching out for consumers in this because there’s not too much
consumers can do” about it, she said.
What? Regulators watching out for consumers? ROFLMAO! Maybe in the old days, but now regulators are controlled by the politicians who appoint them, and the politicians are controlled by the companies (via their campaign contributions/PAC's) being regulated. The fox is in charge of the hen house!
I thought capitalism was all about free markets, and competition? No? This all sounds rigged to me.
So, let's all go to the polls next year and vote to re-elect the same bunch of politicians that we have right now. I mean, they're doing such a great job looking out for our interests, why shouldn't we?
S
As we've already established in my last post, the financiers (da banks) had been given the government go-ahead to essentially do whatever they wanted, with the regulators asleep at the wheel. Here's where the plot thickens:
For years prospective homebuyers went to a mortgage originator in their area for a loan, typically a small independent storefront operation or a bank or Savings and Loan. The loan was made to a credit-worthy buyer, the loan company made a fee for their service rendered, and the loan was sold to Fannie Mae or Freddie Mac. (These were government spin-off companies who had implied government backing.) Fannie/Freddie would in turn pay back the local mortgage originator who would loan it again, make another fee, and sell it, too, to Fannie/Freddie, on and on. Fannie/Freddie would bundle these and sell them to investors world-wide who were anxious to own rock-solid investments in the can't-lose American housing market.
By the early 90's there arose a scheme by Fannie/Freddie and the politicians (of BOTH parties) to expand the number of people who owned a piece of "The American Dream". The financiers made money off the deal, and the politicians gained votes back home, claiming they were the ones who were bettering peoples lives. Now given a regulatory green-light, the banks wanted in too. (Fannie/Freddie had limits on the dollar value of the homes they could buy. The banks didn't.) The word went out to the loan originators to make more loans and the banks would buy them. Before long all credit-worthy people who wanted a house had a house, so they lowered the qualifications for credit, income, etc to bring more buyers in. The loan originators pretty much looked the other way on everything because they made lots of up-front money to get loans signed and on to the banks. They didn't care if the loans were no good because by the time the buyers defaulted they were way down the line and were somebody else's problem.
At the same time the bankers were hiring brilliant mathematicians to play with the numbers. Instead of packaging and selling 100 homes to investors, why not slice each home loan into a thousand pieces, then sell each investor 1% of 10,000 houses from all over the country? Investors love diversification. It also made it easier to slip in some of those sub-prime loans (buyers with poorer quality credit). Actually a lot of those sub-prime loans. Heck, why not bundle home loans with some commercial business loans, too. More diversification...yea! Everything was bundled with everything...the banks became very creative! Foreign banks saw what was going on and jumped in, too. Ireland, the UK, and Spain among others had large property bubbles also. Things just took off.
But to make this work investors wanted assurance that these extremely difficult to understand CDO's (Collateralized Debt Obligations, the homes being the collateral) were as safe as they sounded. The banks took each new bundle (called a tranche) they put together to the rating agencies, primarily Standard and Poors, Moody's, and Fitch, and had them look them over. Problem was, this was a new concept and there was no historical data to refer to, so the raters made up new, and as it turned out flawed, mathematical formulas. They forgot to include the possibility the value of homes might actually go down. Oops! And there was massive conflict of interest, too. The ratings agencies were paid by the banks whose CDO's they were rating (standard practice), and there were lots of CDO's. With millions of dollars in fees on the line, the raters pretty much said whatever the banks wanted them to say. Virtually everything was rated "investment grade".
We now have irrefutable evidence that the bankers knew they were peddling investments destined to fail. But as they were making hundreds of BILLIONS of dollars in fees for their banks and hundreds of millions of dollars in commissions for themselves, they weren't about to stop. Greed rules! Eventually homeowners began defaulting in droves, things began to fall apart, and investors stopped buying new CDO's. Banks were caught holding hundreds of billions of dollars worth of flawed (fraudlent?) loans not yet sliced, diced, repackaged, and sold off. Many were broke and were forced by the government almost at gunpoint to merge with other banks that were only slightly better off themselves. To shore things up the government stepped in and "loaned" them hundreds of billions of taxpayer dollars to tide them over. The mess is still being unwound today.
There was taxpayer outrage of course, so Congress feigned innocence and vowed to slap down the bad 'ol bankers (but of course they still take their calls and their campaign contributions). Investigations were done, new laws have been written, and the bankers are working their lobbyists overtime right now to shoot the new laws full of loopholes. Not a lot has actually changed. Crazy speculation is still going on as evidenced by the failure of MF Global last year and JP Morgan Chase's loss of billions of dollars just last month. We never seem to learn.
S
As always, factual constructive criticism would be appreciated. If I've erred on something please speak up.
I would imagine major bank CEO's everywhere are holding their heads in their hands, wondering how things had gone so wrong. Four years ago American banks hit the wall, essentially going bust, being saved at the last minute by the taxpayers. Now the European banks are finding they have no place left to hide and it looks like we're in for Round II.
As I've said for years, banks can't be trusted. They shoveled money as fast as they could to European countries, raking off HUGE profits and instant commissions for themselves in the process. Now the sovereign debtor nations can't pay back their lenders, the lenders can't afford to write it all off, and the EU probably can't afford to bail everyone out. It's OH SHIT time!
I think it's time to admit the Anglo-American freewheeling form of banking/capitalism has flaws. They (the financiers) are like little kids: Left unchecked, they'll gorge themselves at the dessert buffet until they explode. They need adult supervision, someone responsible enough to say "No". I understand why they fight regulation at every turn...they don't like being told "No". Most little kids don't.
It's time to spank the little ruffians, ground them, send them to their rooms, no TV, no video games, and no cell phones. Break up the banks and regulate and supervise their surviving parts....not just wink and nod but sternly supervise their activities. Prosecute individuals who played games with their depositors and the taxpayers money, claw back their ill-gotten gains, and confiscate their properties like you would a common mafiosi. That should put bankers world-wide on notice. Enough!
S
