Goldman Sachs on Health Care Reform

In a comment to a post by Rabbi Michael Lerner in Tikkun Daily, Kucinich Denounces Health Care Sell Out by House Dems, Jill Schmidt asked:

I don't get why insurance companies aren't for a bill that will get them 21 million more clients. If anyone out there gets it, please reply.

Jill poses an excellent question that is shared by hard-working, thoughtful Americans from coast to coast. Fortunately, Goldman Sachs revealed the answer in a perverse ten page report posted in its entirety by Huff-Po reporter Sam Stein. (Kudos to Sam for his excellent work!)

The answer also explains why we must continue to work with the Democrats who actually voted for a health care reform bill to end the tyranny of insurance corporations over our personal lives.

The Goldman report projects Earnings Per Share (or EPS, a measure of the profits allocated to an individual share) for the five largest insurance companies currently traded on Wall Street: Cigna, Humana, Well Point, United Health and Aetna. Goldman Sachs views health care, not from the perspective of an individual seeking care, but from the point of view of a prospector assessing the potential of an undeveloped mine.

Goldman is helping investors to mine our communities of their resources. It is helping compuslive gamblers to place their bets.

The report, which I encourage readers to enlarge and peruse in its entirety, projects profits for the five companies under four possible scenarios:

  1. No reform (by far the best possible scenario, according to Wall Street). Insurance earnings are projected to increase by 10% from 2010-2019 while stocks rise an additional 59%;
  2. The "base" scenario deemed most likely to pass by Goldman execs: a version similar to the Senate Finance Bill (no public option). Insurance earnings are projected to increase by 5% from 2010-2019;
  3. The "bull" scenario (no public option): a more "optimistic" projection "for reform implementation, which might result from moderation of provisions in the current SFC plan, or result from changes prior to the major implementation in 2013." Earnings are projected to increase by 9.5%;
  4. The "bear" scenario: a health care reform bill similar to the House version with strict regulations and a public option. Earnings are projected to decrease by 1%.

Goldman projects a decrease in stock valuation caused by reform as well for each of these scenarios. In the worst case, their bear scenario (i.e. an actual health care reform bill with a public option is passed and implemented), earnings decrease 1% on top of a stock devaluation of 36%.

In other words, investors will realize they can't profit by gaming the system and hence will stop buying insurance stock.

In Goldman's best-case scenario (Congress does nothing) earnings increase 10% while stocks increase 59%. This is because investors, buoyed by their continuing ability to game the system, go on an orgiastic spending spree. Nothing is actually produced. No health care occurs. But investors gobble up stock certificates.

The two most odious provisions of the health care reform bills according to Goldman are the cuts to Medicare Advantage and new regulations ending practices such as exclusions for pre-existing conditions and recision. The new regs will be felt most painfully in markets for individuals and small groups (i.e, markets for those persons who find it most difficult to purchase insurance today).

Goldman also warns on Page 7 that a Public Option will be likely to capture

the majority of coverage expansion under reform as well as some of the industry's current market share.

In other words, given half a choice, consumers will shun their piss-poor product.

The new regs are odious to Goldman because they prevent insurance companies from gaming the system. Insurers will have to actually provide care to sick people, cutting profit margins significantly. Goldman dislikes the cuts to Medicare Advantage because a huge percentage of the budget for that program went not to seniors, but into an unearned windfall for insurance companies. Hence all the dire astroturf tea-party warnings about Obama euthanising Grandma. They want to scare us into believing that the current Health Care Reform proposal will hurt our parents.

The Goldman report was written shortly after passage of the Senate Finance bill. Goldman-Sachs predicts a 75% probability that HCR will pass. They speculate that Snowe and Collins may join the democrats to vote for a final bill and note that Snowe supports the odious public option with a trigger.

(Note: ultra-conservatives have already promised to primary Olympia Snowe. While Maine Repubs prefer a right wing candidate by huge margins, most Mainers actually favor a moderate candidate and a robust public option. Snowe's only chance for political survival may be to switch parties and support the public option.)

Goldman also remarks that 20% of the tax on high-end insurance product must be absorbed by insurers while 80% will be passed on to the public. It predicts Cigna will fare the best under reform as it has little exposure to the "riskiest" markets: Medicare Advantage and ISG (individuals and small groups). Humana will fare the worst because it is so heavily invested in Medicare Advantage and ISG.

The influence of this report should not be underestimated. Much of our stock market including pension funding is invested in the top five insurers. For years, the stock market has positioned itself, like a well-sated vampire, to siphon off public funds. Our banking industry, pension funds, state investments and 401-k's are addicted to public moneys. Yet more and more of these dollars keep disappearing into bonuses, exorbitant salaries, corporate perks, gold-plated toilets or blatant fraud.

Obama fears Wall Street and tries not to capsize the stock market because another crash could result in many more lost jobs and pensions. They are gambling with our wealth and lives. Goldman's report makes the Wall Street end game clear: prevent any reform at all costs.

Any significant move to throw these compulsive gamblers out of our house is a victory. Let's prove Goldman-Sachs wrong. Let's win the fight for the Public Option today.

Tomorrow, we'll come back for more.

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House Bill is the only vehicle that does anything. However ...

My family policy (low deductible/high premiums) just went up to $2,000 a month. With pre-existing conditions out of the way, if this is applied to individual policies, I may get some relief. For that reason alone, I'm in favor of passage of the bill. But I have little to no hope. Before the bill is signed, whatever form it takes, they'll eliminate that preexisting condition clause or limit it or put it off until 2012. If it survives and applies, I'll be shocked and pleased also. Those of use who are self employed and buy direct are screwed.

I respect your take on Dennis K but mine is different. I think he's about the only intellectually honest member of the House Democrats. There is no real public option, it is delayed in implementation, and there are other cave-ins.

As for Goldman, they're immune right now but all it takes is one honest prosecutor for the double dealing they did and it will be a long time until they're heard of again.

"Furthest from him is best, whom reason hath equaled, force hath made supreme above his equals." Milton