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Lets look at stock market returns from when Obamacare passed, March-2010, to today for tech and health insurance stocks: SPY: about 4X QQQ: about 6X GOOGL: a

Lets look at stock market returns from when Obamacare passed, March-2010, to today for tech and health insurance stocks: SPY: about 4X QQQ: about 6X GOOGL: about 6X CI: about 9X (Cigna health) ELV: about 10x (formerly Anthem) AAPL: about 19X UNH: about 20X (united healthcare) Health Insurance stocks in the US did better than tech stocks after Obamacare passed. Why?

NLPlatypus 4y ago
Perhaps it was revenue from the tens of millions of Americans now getting healthcare? This analysis shows the majority of health insurers becoming less profitable after Obamacare? https://www.commonwealthfund.org/publications/issue-briefs/2016/jul/how-has-affordable-care-act-affected-health-insurers-financial https://www.commonwealthfund.org/publications/issue-briefs/2...
- thrown_22 4y ago
  So you think that a 10% increase in customers should lead to a 500% increase in revenue?
  - lotsofpulp 4y ago
    It would depend on the cost of healthcare being delivered to those customers. Considering that an out of pocket maximum did not exist prior to affordable care act, and insurers were allowed to deny people with pre existing conditions, I would expect drastically higher spending on new insureds because they would finally start getting healthcare. Now the insurance company has to pay the hundreds of thousands and millions per NICU/hemophiliacs/cancer patients etc, so why wouldn’t their expenses go drastically higher?
    - thrown_22 4y ago
      That's profit, not revenue. I'm asking why their revenue for increased exponentially for having 10% more clients.
      - lotsofpulp 4y ago
        That is not profit. If an insurance business picks up 10% more clients that cost 5,000% higher expenses, they cannot just increase premiums 10%. They have to increase premiums a lot more. Not to mention that the ACA forced insurers to subsidize old people from the young (maximum age rating factor), health to sick (can only price based on age, location, and tobacco status), and imposed out of pocket maximums. All of these mean the insurance company is spending a lot more after ACA than before ACA, and all of that had to be recouped as revenue from premiums, otherwise you have bankruptcy. Also, all the US health insurance company financials are public. You can see their profit margin is a steady ~5% for over a decade. They are spending $95 for every $100 in premiums they take in.
        thrown_22 4y ago
        So why then are they also more profitable?
        lotsofpulp 4y ago
        They are not. UHG is punching slightly above average, but they have considerable non insurance operations. > Also, all the US health insurance company financials are public. You can see their profit margin is a steady ~5% for over a decade. https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-group/profit-margins https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-g... https://www.macrotrends.net/stocks/charts/ELV/elevance-health/profit-margins https://www.macrotrends.net/stocks/charts/ELV/elevance-healt... https://www.macrotrends.net/stocks/charts/CVS/cvs-health/profit-margins https://www.macrotrends.net/stocks/charts/CVS/cvs-health/pro... https://www.macrotrends.net/stocks/charts/CI/cigna/profit-margins https://www.macrotrends.net/stocks/charts/CI/cigna/profit-ma... https://www.macrotrends.net/stocks/charts/HUM/humana/profit-margins https://www.macrotrends.net/stocks/charts/HUM/humana/profit-... https://www.macrotrends.net/stocks/charts/CNC/centene/profit-margins https://www.macrotrends.net/stocks/charts/CNC/centene/profit... https://www.macrotrends.net/stocks/charts/MOH/molina-healthcare/profit-margins https://www.macrotrends.net/stocks/charts/MOH/molina-healthc... Going back to testfoobar’s comment comparing tech companies and health insurers, I do not think any investors will be impressed by health insurance companies’ low single digit profit margins compared to tech’s 20%+ profit margins.
csa 4y ago
> Health Insurance stocks in the US did better than tech stocks after Obamacare passed. Why? Is this a genuine question or is it rhetorical? I can’t really tell these days. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5145008/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5145008/ Short answer is that insurance companies were “limited” to 20% profits and 80% expenses by ACA. Smarter insurance companies realized quickly that they not only had zero incentives to cut costs, but they were actually incentivized to let costs increase to be as high as legally possible, thereby increasing their profit cap in absolute dollars. I don’t know if this was the idea of one party, a bilateral backroom negotiation with the insurance companies, or a comprehensive lobbying victory, but it ended up being a massive boon for insurance companies and hospitals and a complete shitshow for consumers. If this part of the ACA doesn’t change, it will break the US healthcare system.
- lotsofpulp 4y ago
  You can easily see that all the health insurance companies’ profit margins are in the 5% range, which is not a lot. It is a competitive business without a lot of pricing power. But what it will do is provide consistent, reliable returns. And since more people are getting more healthcare, the magnitude of the profits will obviously be higher, hence the increase in stock price. Basically, the market caps now reflects what are essentially utilities that earn ~5% profit margin on huge revenues. This was not clear in the early ACA days, but investors have obviously warmed up to them.
  - csa 4y ago
    > It is a competitive business without a lot of pricing power. But what it will do is provide consistent, reliable returns. And since more people are getting more healthcare, the magnitude of the profits will obviously be higher, hence the increase in stock price. It seems like you’re theory-crafting here rather that describing what is actually happening in the industry. 1. I somewhat sloppily used the term “profits” in my previous post, and I should have used “gross margins”. Specifically, 80% of premium payments have to be used on healthcare expenses. Their profit (~5% as you mentioned) comes after they pay their relatively consistent operating expenses out of their gross margins. 2. The increased number of people getting insured is not what has driven up the insurance companies profits. Those numbers don’t add up. 3. The prices of name brand insurance have increased fairly consistently. It’s not competitive at all, imho. It’s an oligopoly. 4. If you know people who work in medical billing and/or you’ve known a handful of people with substantial medical bills, you will know that hospitals have increased prices for many things to ridiculous levels, and they “nickel and dime” patients at ridiculous markups for anything possible. Why? Insurance companies don’t bat an eye at these expenses any more, and they are not incentivized to do so. As money out increases via payments to providers, money in can increase via premiums, and thereby absolute gross margin can increase proportionally. If you need further proof, check out the actual prices that people pay when insurance doesn’t cover something. Miraculously, charges come down and substantial portions of the bill will be forgiven/waived. 5. Investors have warmed up to the idea that health insurance is a government-supported racket that ultimately screws people who have to pay their own premiums in part or in whole. Note that I am a fan of most parts of the ACA, but the 80/20 rule (and the misaligned incentives that it facilitated) needs to be fixed. That said, the hospitals and insurance companies are feeding at the trough, they have established a new excessive normal, and they will fight any change to the 80/20 rule by comically pleading poverty.
JamesBarney 4y ago
What about instead of looking at health insurance market caps which can be affected by 20x different factors besides the cost of healthcare, we look at the cost of healthcare. Which has gotten more expensive, but there's no inflection point when Obamacare passed.

NLPlatypus 4y ago

Perhaps it was revenue from the tens of millions of Americans now getting healthcare? This analysis shows the majority of health insurers becoming less profitable after Obamacare? https://www.commonwealthfund.org/publications/issue-briefs/2016/jul/how-has-affordable-care-act-affected-health-insurers-financial https://www.commonwealthfund.org/publications/issue-briefs/2...

thrown_22 4y ago
So you think that a 10% increase in customers should lead to a 500% increase in revenue?
- lotsofpulp 4y ago
  It would depend on the cost of healthcare being delivered to those customers. Considering that an out of pocket maximum did not exist prior to affordable care act, and insurers were allowed to deny people with pre existing conditions, I would expect drastically higher spending on new insureds because they would finally start getting healthcare. Now the insurance company has to pay the hundreds of thousands and millions per NICU/hemophiliacs/cancer patients etc, so why wouldn’t their expenses go drastically higher?
  - thrown_22 4y ago
    That's profit, not revenue. I'm asking why their revenue for increased exponentially for having 10% more clients.
    - lotsofpulp 4y ago
      That is not profit. If an insurance business picks up 10% more clients that cost 5,000% higher expenses, they cannot just increase premiums 10%. They have to increase premiums a lot more. Not to mention that the ACA forced insurers to subsidize old people from the young (maximum age rating factor), health to sick (can only price based on age, location, and tobacco status), and imposed out of pocket maximums. All of these mean the insurance company is spending a lot more after ACA than before ACA, and all of that had to be recouped as revenue from premiums, otherwise you have bankruptcy. Also, all the US health insurance company financials are public. You can see their profit margin is a steady ~5% for over a decade. They are spending $95 for every $100 in premiums they take in.
      - thrown_22 4y ago
        So why then are they also more profitable?
        lotsofpulp 4y ago
        They are not. UHG is punching slightly above average, but they have considerable non insurance operations. > Also, all the US health insurance company financials are public. You can see their profit margin is a steady ~5% for over a decade. https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-group/profit-margins https://www.macrotrends.net/stocks/charts/UNH/unitedhealth-g... https://www.macrotrends.net/stocks/charts/ELV/elevance-health/profit-margins https://www.macrotrends.net/stocks/charts/ELV/elevance-healt... https://www.macrotrends.net/stocks/charts/CVS/cvs-health/profit-margins https://www.macrotrends.net/stocks/charts/CVS/cvs-health/pro... https://www.macrotrends.net/stocks/charts/CI/cigna/profit-margins https://www.macrotrends.net/stocks/charts/CI/cigna/profit-ma... https://www.macrotrends.net/stocks/charts/HUM/humana/profit-margins https://www.macrotrends.net/stocks/charts/HUM/humana/profit-... https://www.macrotrends.net/stocks/charts/CNC/centene/profit-margins https://www.macrotrends.net/stocks/charts/CNC/centene/profit... https://www.macrotrends.net/stocks/charts/MOH/molina-healthcare/profit-margins https://www.macrotrends.net/stocks/charts/MOH/molina-healthc... Going back to testfoobar’s comment comparing tech companies and health insurers, I do not think any investors will be impressed by health insurance companies’ low single digit profit margins compared to tech’s 20%+ profit margins.

csa 4y ago

> Health Insurance stocks in the US did better than tech stocks after Obamacare passed. Why? Is this a genuine question or is it rhetorical? I can’t really tell these days. https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5145008/ https://www.ncbi.nlm.nih.gov/pmc/articles/PMC5145008/ Short answer is that insurance companies were “limited” to 20% profits and 80% expenses by ACA. Smarter insurance companies realized quickly that they not only had zero incentives to cut costs, but they were actually incentivized to let costs increase to be as high as legally possible, thereby increasing their profit cap in absolute dollars. I don’t know if this was the idea of one party, a bilateral backroom negotiation with the insurance companies, or a comprehensive lobbying victory, but it ended up being a massive boon for insurance companies and hospitals and a complete shitshow for consumers. If this part of the ACA doesn’t change, it will break the US healthcare system.

lotsofpulp 4y ago
You can easily see that all the health insurance companies’ profit margins are in the 5% range, which is not a lot. It is a competitive business without a lot of pricing power. But what it will do is provide consistent, reliable returns. And since more people are getting more healthcare, the magnitude of the profits will obviously be higher, hence the increase in stock price. Basically, the market caps now reflects what are essentially utilities that earn ~5% profit margin on huge revenues. This was not clear in the early ACA days, but investors have obviously warmed up to them.
- csa 4y ago
  > It is a competitive business without a lot of pricing power. But what it will do is provide consistent, reliable returns. And since more people are getting more healthcare, the magnitude of the profits will obviously be higher, hence the increase in stock price. It seems like you’re theory-crafting here rather that describing what is actually happening in the industry. 1. I somewhat sloppily used the term “profits” in my previous post, and I should have used “gross margins”. Specifically, 80% of premium payments have to be used on healthcare expenses. Their profit (~5% as you mentioned) comes after they pay their relatively consistent operating expenses out of their gross margins. 2. The increased number of people getting insured is not what has driven up the insurance companies profits. Those numbers don’t add up. 3. The prices of name brand insurance have increased fairly consistently. It’s not competitive at all, imho. It’s an oligopoly. 4. If you know people who work in medical billing and/or you’ve known a handful of people with substantial medical bills, you will know that hospitals have increased prices for many things to ridiculous levels, and they “nickel and dime” patients at ridiculous markups for anything possible. Why? Insurance companies don’t bat an eye at these expenses any more, and they are not incentivized to do so. As money out increases via payments to providers, money in can increase via premiums, and thereby absolute gross margin can increase proportionally. If you need further proof, check out the actual prices that people pay when insurance doesn’t cover something. Miraculously, charges come down and substantial portions of the bill will be forgiven/waived. 5. Investors have warmed up to the idea that health insurance is a government-supported racket that ultimately screws people who have to pay their own premiums in part or in whole. Note that I am a fan of most parts of the ACA, but the 80/20 rule (and the misaligned incentives that it facilitated) needs to be fixed. That said, the hospitals and insurance companies are feeding at the trough, they have established a new excessive normal, and they will fight any change to the 80/20 rule by comically pleading poverty.

JamesBarney 4y ago

What about instead of looking at health insurance market caps which can be affected by 20x different factors besides the cost of healthcare, we look at the cost of healthcare. Which has gotten more expensive, but there's no inflection point when Obamacare passed.