Which Comes Next? It’s Our Choice

Would You Rather 2 or 3 Big Health Insurance Companies,
or Government Run Single Payer?

The Gilmer Free Press

The Supreme Court’s recent blessing of Obamacare has precipitated a rush among the nation’s biggest health insurers to consolidate into two or three behemoths.

The result will be good for their shareholders and executives, but bad for the rest of us – who will pay through the nose for the health insurance we need.

We have another choice, but before I get to it let me give you some background.

Last week, Aetna announced it would spend $35 billion to buy rival Humana in a deal that will create the second-largest health insurer in the nation, with 33 million members. 

The combination will claim a large share of the insurance market in many states – 88 percent in Kansas and 58 percent in Iowa, for example.

A week before Aetna’s announcement, Anthem disclosed its $47 billion offer for giant insurer Cigna. If the deal goes through, the combined firm will become the largest health insurer in America.

Meanwhile, middle-sized and small insurers are being gobbled up. Centene just announced a $6.3 billion deal to acquire Health Net. Earlier this year Anthem bought Simply Healthcare Holdings for $800 million.

Executives say these combinations will make their companies more efficient, allowing them to gain economies of scale and squeeze waste out of the system.

This is what big companies always say when they acquire rivals.

Their real purpose is to give the giant health insurers more bargaining leverage over employees, consumers, state regulators, and healthcare providers (which have also been consolidating).

The big health insurers have money to make these acquisitions because their Medicare businesses have been growing and Obamacare is bringing in hundreds of thousands of new customers. They’ve also been cutting payrolls and squeezing more work out of their employees.

This is also why their stock values have skyrocketed. A few months ago the Standard & Poor’s (S&P) 500 Managed Health Care Index hit its highest level in more than twenty years. Since 2010, the biggest for-profit insurers have outperformed the entire S&P 500.

Insurers are seeking rate hikes of 20 to 40 percent for next year because they think they already have enough economic and political clout to get them. 

That’s not what they’re telling federal and state regulators, of course. They say rate increases are necessary because people enrolling in Obamacare are sicker than they expected, and they’re losing money. 

Remember, this an industry with rising share values and wads of cash for mergers and acquisitions.

It also has enough dough to bestow huge pay packages on its top executives. The CEOs of the five largest for-profit health insurance companies each raked in $10 to $15 million last year.

After the mergers, the biggest insurers will have even larger profits, higher share values, and fatter pay packages for their top brass.

There’s abundant evidence that when health insurers merge, premiums rise. For example, Leemore Dafny, a professor at the Kellogg School of Management at Northwestern University, and his two co-authors, found that after Aetna merged with Prudential HealthCare in 1999, premiums rose 7% higher than had the merger not occurred.

The problem isn’t Obamacare. The real problem is the current patchwork of state insurance regulations, insurance commissioners, and federal regulators can’t stop the tidal wave of mergers, or limit the economic and political power of the emerging giants. 

Which is why, ultimately, American will have to make a choice. 

If we continue in the direction we’re headed we’ll soon have a health insurance system dominated by two or three mammoth for-profit corporations capable of squeezing employees and consumers for all they’re worth – and handing over the profits to their shareholders and executives. 

The alternative is a government-run single payer system – such as is in place in almost every other advanced economy – dedicated to lower premiums and better care.

Which do you prefer?

~~  Robert B. Reich ~~

Wall Street Rallies on Greek Deal; Tech Stocks Jump

The Gilmer Free Press

U.S. stocks finished sharply higher on Monday, with the Dow Jones industrial average re-emerging in positive territory for the year, after euro zone leaders reached a tentative deal to bail out Greece.

The improved European picture led to best three-day run this year for the S&P 500 and NASDAQ Composite.

Facebook (FB.O), Netflix (NFLX.O) and Amazon (AMZN.O) all hit record highs, while Apple’s (AAPL.O) 1.93% rise gave the biggest boost to the NASDAQ.

Greece won conditional agreement to receive a possible $95 billion over three years, along with an assurance of talks to bridge a funding gap until a bailout is ready. The deal is contingent on Greece meeting a tight timetable to enact strict reforms.

“Headlines out of Greece are going to dissipate a bit and with that the U.S. earnings picture is going to start to emerge as the important factor,“ said Mike Binger, a portfolio manager at Gradient Investments in Shoreview, Minnesota, with $850 million under management.

Also making Wall Street more confident, Chinese stocks rose for a third straight day as data showed exports rose while imports slipped in June, a tentative sign global demand might be on the mend.

Historically high stock valuations may attract fresh attention when U.S. companies post second-quarter results over the next several weeks. Wall Street expects a 2.9% dip in quarterly earnings, according to Thomson Reuters I/B/E/S.

Pointing to expectations of calmer trading, the CBOE Volatility index .VIX fell 16% on Monday. Its 29% decline in the past two sessions is the largest two-day drop since Jan. 2, 2013.

The Dow Jones industrial average .DJI rose 217.27 points, or 1.22%, to end at 17,977.68. The S&P 500 .SPX gained 22.98 points, or 1.11%, to 2,099.6 and the NASDAQ Composite .IXIC added 73.82 points, or 1.48%, to 5,071.51.

All of 10 major S&P 500 sectors were higher, led by the technology index .SPLRCT, up 1.62%. The financial index .SPSY rose 1.09%. Upcoming quarterly earnings reports from banks are expected to benefit from a recent rise in long-term yields relative to short term yields.

Crude tumbled on progress toward a nuclear deal that would end sanctions on Iran, allowing more oil onto the market. The energy index .SPNY stayed positive but has been the worst-performing S&P sector over the last month, falling over 5%.

The oil slide boosted U.S. airline stocks .DJUSAR. American Airlines (AAL.O), United Continental (UAL.N), JetBlue (JBLU.O) and Alaska Air (ALK.N) were all up between 1 and 3%.

Apple (AAPL.O) was up 4.66% in the past two days for its best back-to-back run since January.

Markwest Energy Partners (MWE.N) rose 13.96%. MPLX (MPLX.N), Marathon Petroleum’s (MPC.N) master limited partnership, said it will buy the natural gas processor for about $15.63 billion. MPLX (MPLX.N) fell 14.51 while Marathon rose 7.88%.

Advancing issues outnumbered decliners on the NYSE by 2,242 to 830. On the NASDAQ, 2,002 issues rose and 808 fell.

The S&P 500 posted 43 new 52-week highs and 10 new lows; the NASDAQ recorded 149 new highs and 42 new lows.

About 5.9 billion shares traded on all U.S. platforms, according to BATS exchange data, below the month-to-date average of 6.9 billion.

U.S. Wholesale Stockpiles Post Biggest Gain in 6 Months in May

The Gilmer Free Press

WASHINGTON, D.C. — U.S. wholesalers boosted their stockpiles in May by the largest amount in six months, while sales rose by a modest amount.

Wholesale stockpiles rose 0.8%, double the gain in April and the largest one-month rise since November, the Commerce Department reported Friday. Sales were up 0.3% in May following a 1.7% surge in April. That had been the biggest sales increase in more than a year.

The strong increase in inventory building in May could be evidence that businesses are growing more confident about the future. A decision to accelerate inventory stocking would help bolster overall economic growth.

The May rise left inventories at the wholesale level at a seasonally adjusted $449.8 billion, 3.8% below a year ago.

Economists believe sales at both the wholesale and retail levels will rebound in coming months after a slowdown in the first quarter that was caused in part by unusually frigid weather. A pickup in consumer spending, which accounts for 70% of economic activity, is expected to translate into stronger economic growth for the rest of the year.

The government has already reported that retail sales accelerated solidly in May.

The big inventory gain in May reflected larger stockpiles of autos and auto parts as well as furniture, lumber and computers.

In the January-March quarter, the harsh weather and other factors sent the economy into reverse with the gross domestic product contracting at an annual rate of 0.2%. But analysts are forecasting a strong pickup in the current growth to GDP growth of around 2.5%.

They expect growth will accelerate further in the second half of the year to a rate around 3%.

Average U.S. Rate on 30-Year Mortgage Falls to 4.04%

The Gilmer Free Press

WASHINGTON, D.C. — Average long-term U.S. mortgage rates fell this week, retreating from high levels for the year amid economic turbulence overseas. The lower rates brought an incentive for prospective purchasers toward the end of the spring home buying season.

Mortgage giant Freddie Mac said Thursday the average rate on a 30-year fixed-rate mortgage declined to 4.04% this week from 4.08% a week earlier. The rate on 15-year fixed-rate mortgages eased to 3.20% from 3.24%.

Markets around the world have been nervously watching tumult and a nearly month-long slide in China’s stock markets, and Greece’s economic crisis as it tries to negotiate a rescue from its European partners. That has pushed investors to seek safety in U.S. Treasury bonds, pushing interest rates lower.

Bond yields for Treasurys have been pushed lower by the rise in bond prices. The yield on the key 10-year Treasury note dropped to 2.20% Wednesday from 2.42% a week earlier. Mortgage rates often follow the yield on the 10-year note. It traded at 2.27% Thursday morning.

To calculate average mortgage rates, Freddie Mac surveys lenders across the country at the beginning of each week. The average doesn’t include extra fees, known as points, which most borrowers must pay to get the lowest rates. One point equals 1% of the loan amount.

The average fee for a 30-year mortgage was unchanged from last week at 0.6 point. The fee for a 15-year loan fell to 0.5 point from 0.6 point.

The average rate on five-year adjustable-rate mortgages fell to 2.93% from 2.99 percent; the fee remained at 0.4 point. The average rate on one-year ARMs declined to 2.50% from 2.52 percent; the fee was stable at 0.3 point.

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