This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Companies Help in Face of Health Care Hikes

Americans were reminded once again last week that there appears to be no obvious fix for nonstop health care inflation, notwithstanding the recent passage of national health care reform.

The latest health insurance premium increases, announced by Aetna (AET - Get Report) and a number of BlueCross/BlueShield plans, partly reflect pieces of the implementation of President Barack Obama's health care overhaul plan.

The announced increases were expected to be between 1% and 9%. Aetna, for example, said coming changes brought on by the overhaul forced it to seek rate hikes for new individual plans in California of 5.4% to 7.4% -- although it had sought increases of 19% for 65,000 policyholders there before acknowledging math errors and withdrawing the request. (Similar errors scuttled Anthem Blue Cross' proposed 39% rate increase request in April for 800,000 policyholders in California.)

But some increases were inevitable and virtually certain to continue in coming years at a minimum of low double-digit rates. Annual health care inflation -- and hence baseline premiums -- have already been rising 8% to 12% annually for two decades as insurers maintain profits and respond to medical claims experience and increased costs.

The insurance reform bill will modestly increase, not decrease, overall health care costs over the next decade with the mandated removal of pre-existing conditions and entry of 32 million uninsured Americans, the Office of the Medicare Actuary said last week.

This time around, most of the announced increases are affecting primarily individual and small-business policies, which don't enjoy the advantage of the law of large numbers to help mitigate health insurance risk. Over time, however, everyone pays for medical inflation, so corporate health insurance plans will also head upward.

Why is there ongoing runaway health care inflation? Unfortunately, the U.S. health care system simply can't seem to get its act together. One reason is that the U.S. essentially has a fee-for-service system, which means doctors and other health care providers are compensated based on the number of procedures they do, not on the results of their treatment. This contributes to enormous inefficiencies and mistakes. For example, studies have shown that about one in five medications administered at hospital bedsides are done so in error.

Yet another problem is "moral hazard," or the concept that people insulated from risk behave differently than if fully exposed to it. Have you ever noticed that people are hesitant to make claims on automobile and property insurance? Rarely do the costs of minor fender-benders result in an insurance claim. Why? Because people fear claims on their auto policies will result in either premium increases or the cancellation of their policies. So they pay the cost of minor accidents out of their own pockets.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AET $110.09 -2.60%
PBI $20.39 0.05%
AAPL $110.23 -0.50%
FB $93.08 -0.99%
GOOG $639.98 -0.23%


Chart of I:DJI
DOW 16,811.50 +35.07 0.21%
S&P 500 1,980.87 -6.18 -0.31%
NASDAQ 4,744.6560 -36.6080 -0.77%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs