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Golden Sacks to insurers: Don't worry. Anything done can be undone by 2013

That's the sting in the tail of this Golden Sacks report quoted at HuffPo. To GS, though status quo is best* (bien sur), the Senate Finance Bill is the "base" scenario, a watered down version of it the "bull" scenarioMR SUBLIMINAL No shit and the HR 3962 is the "bear" scenario. But remember the baseline on financial reform? That if the banksters aren't threatening to commit suicide, the reforms are too weak? Same here. If GS isn't saying the bills are the end of the world, they're too weak.)

A Goldman Sachs analysis of health care legislation has concluded that, as far as the bottom line for insurance companies is concerned, the best thing to do is nothing. A close second would be passing a watered-down version of the Senate Finance Committee's bill.


A study put together by Goldman in mid-October looks at the estimated stock performance of the private insurance industry under four variations of reform legislation. The study focused on the five biggest insurers whose shares are traded on Wall Street: Aetna, UnitedHealth, WellPoint, CIGNA and Humana.

The Senate Finance Committee bill, which Goldman's analysts conclude is the version most likely to survive the legislative process, is described as the "base" scenario. Under that legislation (which did not include a public plan) the earnings per share for the top five insurers would grow an estimated five percent from 2010 through 2019. And yet, the "variance with current valuation" -- essentially, what the value of the stock is on the market -- is projected to drop four percent.

Things are much worse [that is, better for people who need health care], Goldman estimates, for legislation that resembles what was considered and (to a certain extent) passed by the House of Representatives. This is, the firm deems, the "bear case" scenario -- in which earnings per share for the top five insurers would decline an estimated one percent from 2010 through 2019 and the variance with current valuation is projected to be negative 36 percent.

What the firm sees as the best path forward for the private insurance industry's bottom line is, to be blunt, inaction.

The study's authors advise that if no reform is passed, earnings per share would grow an estimated ten percent from 2010 through 2019, and the value of the stock would rise an estimated 59 percent during that time period.

And now, here's the sting:

The next best thing for the insurance industry would be if the legislation passed by the Senate Finance Committee is watered down significantly. Described as a "bull case" scenario -- in which there is "moderation of provisions in the current SFC plan" or "changes prior to the major implementation in 2013" -- earnings per share for the five biggest insurers would grow an estimated ten percent and the variance with current valuation would rise an estimated 47 percent.

So there you are. "Changes prior to the major implementation in 2013." The smart money, or at least the money, knows that the real changes are 4 years off, and they've got plenty of time to revise whatever has been done to move closer to the "bull" case. So the next time a "progressive" triumphalist hands you that "36 million will be insured LOL!!!!!" line (never mentioning this will only happen, if it does happen, by 2019) do feel free to mention that the real energy for "incremental" change will be invested in attempting to prevent the insurance companies from making the shit sausage even shittier. That's what happens when you pre-compromise your initial bargaining position and then marginalize, exclude, and censor those who want to change reality instead of simply accepting it.

And since Golden Sacks owns the administration -- kidding! -- I think their views are worth paying attention to...

NOTE * I agree, but because I think a FAIL will have a salutary and purgative effect on the FKPD in 2012, and, ultimately, we'll get a better bill than the bill we're getting from the country club Republicans who are running the administration.

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Valhalla's picture
Submitted by Valhalla on

would be better than the watered-down Senate scenario, as long as the individual mandates remain part of any scenario. Btw, that document reader at HuffPo is horrible, very difficult to nagivate through the report.

Anyway -- I can't find that they really discuss the individual mandate, which guarantees the insurance companies lots of new $$. That is the only element of the giveaway that is in every iteration of the Senate bills. They briefly discuss the fact that they factored in "adverse selection" -- they believe 'healthier' individuals will choose, in some unspecified number, to skip insurance and just pay the fine (which they consider way too low to eliminate adverse selection entirely, so my guess is that's one of the things they'll seek to jack up during the next 4 years). Of course, the adverse selection is much more likely to take place among lower-income (sub uber wealthy) individuals because for many even the fines will be barely manageable. But even accepting their formulation of adverse selection, that would not cancel out the additional $$ the insurance industry will now have access to via the mandate.

I have to admit I have a hard time reading financial reports of this sort, it's just not my thing. But another factor I think Sacks has missed, which is odd -- this report shows no faith in the insurance industry's abilities to weasel out of paying claims. Sure, the elimination of the pre-existing condition cheat will set them back for a bit, but I have total faith that, combined with the lack of price controls, they will find a way to continue getting paid for refusing claims. Hell, they can just jack up the gatekeeping bureaucracy to keep the profit margin stable. I'm surprised Sacks missed this (or maybe it's in there but I was unable to detect it?).

dblhelix's picture
Submitted by dblhelix on

is being used by some to spin that the House PO really, truly is robust since GS "disagrees w/ the CBO and says the PO will dominate." Rubbish. The report was issued Oct 19, and the bear model is simply the "worst-case" scenario of a PO with significant market share. Doesn't mean it exists.

I took a quick look at the report and the various scenarios are heavily influenced by Humana & its reliance of Medicare Advantage. Cigna, which is dominant in the large group market is unscathed, relatively speaking, across models.

Per Valhalla's comment -- the report is an argument for heavy penalties, yes. IIRC, it is implied that the new market is not $$ enough, which is why you see AHIP throwing down on this issue.

they've got plenty of time to revise whatever has been done to move closer to the "bull" case.

Right. That "future improvements" rationalization is a double-edged sword.

dblhelix's picture
Submitted by dblhelix on

was not the author of the post. Oh, and my comment that the bear scenario was standard "what-if" modeling disappeared within an hour.