The Gathering Storm!

Aetna CEO Ronald A. Williams gave an interview on the Charlie Rose show.  For those of you interested in reading the entire interview I have provided a link to the BusinessWeek article.  

http://www.businessweek.com/magazine/content/10_14/b4172015497854.htm

 Here is what Mr. Williams predicted:

 Health insurance premiums will increase dramatically for the following reasons:

  1. This bill levies significant taxes on the insurance industry that will have to be paid during the first year.
  2. The recent premium increase was the result of a combination of inflation from hospitals, physicians, drugs, devices and technology and a major change in demographics: 

There are a lot of baby boomers and they are getting older.

Healthy people are cancelling their insurance, reducing the amount of premium available to pay claims.

Young people are not buying insurance at all.

  1.  He thinks that there is a significant chance that smaller health insurance companies will go insolvent as a result of this legislation.
  2. The Obama administration started out talking about health-care reform, but they shifted to focusing solely on health-insurance reform.  As a result, nothing was done to change the fundamental factors that are causing the increase in health care premiums. 

If he is right, and I believe he is, then we are going to experience immediate and sustained economic fallout from this legislation.  Here are things to watch for in the coming weeks and months:

  1. Large corporations will have to make a significant one-time adjustment to earnings.  Certainly, any Fortune 500 company that provides drug insurance benefits to retirees will have to do this.  This plan reduces the tax deduction for providing drug benefits for retirees.  Since this is a retiree benefit, under ERISA accounting standards the company must book the anticipated costs now.  They cannot wait until they occur.  
  2. Insurance premiums are going to go up rapidly.  Some carriers will simply stop accepting new customers at all.  This plan requires insurance companies to change underwriting rules by accepting people who are ill, or who have pre-existing conditions.  That may be a noble thing to do, but it will result in an increase in costs.  In addition, there is already a proposal to cut Medicare fees to doctors and hospitals by an additional 21%.  Medicare fees are already inadequate to cover costs.  Doctors and hospitals will have to increase charges to insurance companies to cover this shortfall.
  3. More and more doctors and hospitals will decline to treat Medicare patients.  Doctors who treat Medicare patients are already losing income because of inadequate compensation.   
  4. Companies are not going to be able to absorb the cost of increased heath care premiums.  They will cut benefits and increase co-payments.  They will increase employee contributions, and they will have to lay off a significant number of workers. 
  5. All of the above developments are likely to take a poor performing economy and make it immediately worse.

The Obama administration will try to fight back by demanding that large employers and insurance companies prove that their costs have really increased.  There will be hearings, charges and executive orders to try and prevent companies from taking the actions I have described above.  But, these costs are all too real, and companies who fail to make these changes will not be able to survive economically. 

Pelosi, Obama and Reid (“POR”) now own health care reform.  If you think we have “buyer’s remorse” with regard to putting Democrats back in power, it will be nothing compared to the remorse that will be felt by those politicians foolish enough to hitch their political careers to this turkey.

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