Dear Mr. Berko: In one of your columns, you recommended several health insurance stocks as good investments. You stated that health stocks would make record profits because of greatly expanded government health care and that growing revenues, earnings and dividends would push those stocks higher. So I bought Humana at $152 and Aetna at $91 in January. Now the government has said it is reducing payments to Humana and Aetna. Do these companies still have “above-average growth potential,” or should I sell both and lock in my gain? If I were to keep just one stock, which one should I keep?
— SS, Jonesboro, Ark.
Dear SS: You’re thinking like all those yahoos who have a soda straw view of the stock market.
The Centers for Medicare & Medicaid Services (until recently, the agency was called the Health Care Financing Administration) is considering a modest decline in payments to insurers that provide Medicare Advantage plans for the public. These MAPs are health plans offered by private insurance companies that contract with Medicare to provide seniors with all of their Part A and Part B benefits. MAPs include HMOs, PPOs, Private Fee-for-Service plans, Special Needs plans and Medical Savings Account plans. (Did you know that some insurers intend to offer MAPs for household pets when Congress eventually approves legislation?) MAPs have more bells, whistles and freebies (prescription drugs, eyeglasses, dental care, health club memberships, hearing aids, etc.) than the government-run plan. However, you can only use the docs approved by the MAP insurer, and some of those docs have trouble speaking English. Meanwhile, the government pays MAP insurers more per month than it deducts from the Social Security checks of Medicare participants.
Aetna’s (AET-$109.50) CEO, Mark Bertolini, expects Washington to reduce funding to his company by 1 percent in 2016, while Humana’s (HUM-$170) CEO, Bruce Broussard, expects Medicare Advantage funding to decline by 1.5 percent next year. Frankly, those cuts will have about as much impact on the earnings of AET and HUM as would the advent of another fly to a slaughterhouse. Be mindful that the prime directive of AET and HUM is to make billions of dollars for their shareholders by ruthlessly slashing costs and denying claims so that earnings and dividends improve every year. So Mark and Bruce will do everything within their power to keep shareholders happy, including raising copays, reducing drug benefits, denying medical/surgical procedures, restricting visits to specialists, increasing physicians’ patient loads, employing unacceptable doctors in your network, and on and on until the squeezing becomes unmerciful. And the feathers will really hit the fan if you need to talk to a real person at AET or HUM. Personnel lost through attrition will not be replaced, so policyholders will have long waits just to talk to a machine directing them to press series of numbers, which are often wrong. By comparison, the IRS, the Department of Motor Vehicles and the Postal Service are caring angels.