This is probably a bad idea. Anytime I talk health care, a fair number of Wealth Daily readers get mad at me. But ya know, now that I really think about it, people get mad at me no matter what I say, so what the heck.
The American health care system sucks. And I think it’s because we have for-profit companies managing the care we can get approved for. Isn’t it obvious that insurance companies make more money if they say to us, “Oh, we’re not paying for this,” and they say to doctors, “Oh, here’s what we’ll pay for that”?
Health insurance companies are incentivized to not spend our insurance money. Plus, there is no alternative, so they can raise rates every single year.
I currently pay nearly $600 a month out of pocket for my two kids and I. And I know plenty of you pay more than that. It really is ridiculous.
I have no problem with doctors making a lot of money. But did you know the CEO for United Healthcare made $20 million last year? And make no mistake about this: He’s not paid that huge amount because he’s made health care any better. He’s just increased profits for UHC by gouging Americans like you and me.
How much profit? $7 billion in fiscal 2016, and $5.8 billion in fiscal 2015. That’s $600 in profit for every American who is enrolled with United Healthcare per year.
I won’t complain when Apple makes that kind of loot. Because if I buy an iPhone, that’s my choice. I could buy a Samsung cheaper. Or I could forego a phone altogether. But you can’t just not have health insurance. Especially if you have kids. And if you get health care through your employer, you don’t even get a choice about the provider.
Health insurance is a quasi-monopoly. And it ticks me off every time I think about it.
I’m from the Government and I’m Here to Help
I never get tired of that quote. It’s genius. And it describes perfectly the failure of Obamacare.
Now, this is something I’m sure some people will disagree with me about, but I say the biggest failure of Obamacare was that it didn’t set up a truly not-for-profit third-party option that could challenge the health insurance profit margins.
I know, I know, “third-party option” is a nice way of saying “government-administered.” And in all likelihood, the government option would have been a disaster. Though I still can’t imagine it would be much worse than what we have now.
I mean, look at the change in UHC’s profits from 2016 to 2017. That’s a 20% jump, about $1.2 billion. And it happened because, instead of going after the HMOs’ profit margins, Obama simply gave them more customers and let the government pick up the tab. That’s sort of the opposite of how you should deal with a monopoly. You can tell, because premiums soared (again)…
Aetna is the third-largest U.S. health insurance company. Aetna is valued at $69 billion. Yesterday, the CEO came right out and said the U.S. health care system sucks…
There is an unmet consumer need in health care. Individuals and families want a simple, affordable and high-quality experience that helps them stay well.
The keywords are “unmet consumer need.” You could put “affordable” in there, too. But this CEO is coming straight out and telling us that companies like Aetna and United Healthcare aren’t getting the job done.
But there’s actually really good news here. It’s the reason the Aetna CEO would come out and offer this mea culpa. Funny how people will admit to their misdeeds when they are about to be taken to task for them…
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Disrupting Health Care
You see, yesterday, Amazon founder and CEO Jeff Bezos, JP Morgan CEO Jamie Dimon, and none other than Warren Buffett announced they had teamed up to fix health care.
You want a free market solution to the health care problem? This is it. And if I were head of an HMO — like that $20 million jerk at United — I’d be worried.
And as it happens, investors are a little worried: Over 100 points of that 350-point drop for the Dow yesterday was because UNH shares got hammered on this news.
It’s because everyone in America knows that if there’s one man who can make things cheaper, it’s Jeff Bezos. And what I’ll tell you is that if anybody can sell a new way of doing health care to Wall Street, it’s Jamie Dimon. And if anybody can sell it to the government, it’s Warren Buffett.
Now, whatever these guys come up with is going to be a trial balloon at their own companies first. So it will be a while before anything is ready for mass consumption. But here’s the thing: Just the announcement of this partnership will get these health insurance companies moving. They all know Bezos plays for keeps. And if he can drive them out of business, well, see ya.
Buffett said: “The ballooning costs of health care act as a hungry tapeworm on the American economy.”
He’s right. Health care costs are 18% of GDP. 18%. That’s a little over $3 trillion. And for many Americans, it’s just a sunk cost. You pay the premiums, but you collect nothing. And a portion of your money helps buy some CEO a vacation home or just sits in a bank account doing nothing.
If you’re a UNH investor, I wouldn’t worry too much about your investment getting upended right away. United and the others will enjoy their quasi-monopolies for a few years. But their time may come.
Some really smart people are now on this, and with an approach that reportedly ignores the profit concern. Ultimately, this is a big threat. And I wish them godspeed.
Until next time,
An 18-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.
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