Day: December 11, 2010

Flavors of Insurance, Part VII (Health)

Flavors of Insurance, Part VII (Health)

Health insurers have changed over the past thirty years. Thirty years ago, health insurers were strictly indemnity-based, and there were many of them. Many multiline insurers had health insurance subsidiaries. The creation of HMOs and Preferred Provider Organizations [PPOs] were innovations that helped lead to a consolidation in the sector. Today few health insurance providers are part of multiline insurers. Health insurers are specialists.

Another trend among health insurance is the slow but steady demutualization of Blue Cross/Blue Shield affiliates. The greatest expression of this is found in the merger of Anthem and Wellpoint, where the combined entity covers thirteen states, and makes it the second largest health insurance provider in the US.

Health insurance only became a profitable venture on an underwriting basis recently. If you added up underwriting profits and losses from health insurance through the 1990s, the profitability was breakeven. Since then, expense control on medical providers and at health insurers helped bring the group to sustained profitability. Part of that might be attributable to larger health insurance companies gaining additional bargaining power. The increase in market share of the major health insurers has helped to raise barriers to entry in the space. It is difficult to replicate the advantages of the largest health insurers in terms of buying power, or in terms of the ability to service national accounts.

People in the United States want the best of two incompatible worlds with health care. They want it to be inexpensive to users, and yet be available “on demand” with services of the highest-tech nature. Individuals and firms want it to be socialistic if their own costs are heavy, and “free market” if they are small. Add onto this the demand of perfection of results, enforced by tort attorneys, which drives up costs. Doctors practice defensive medicine in order to avoid malpractice claims, which is costly.

Because of their buying power, government-related purchasers of health care also tend to be price-sensitive purchasers of health care, leading health care providers to shift costs to private purchasers that are price-insensitive in the short run. Health insurers are middlemen in this situation, attempting to deal with the conflicting goals of controlling costs, while providing an amount of services that keeps users of the system happy.

Because of the foregoing, costs have been rising at rates in excess of the inflation rate in the general economy. There is consistent political pressure against the profits of health insurers, but it has not affected profit margins over the past three years. The health insurers have been able to pass through their cost increases so far, but the possibility of government actions makes future results less predictable.

The stock performance of the health insurers was fairly flat through the end of the nineties. In the 2000s, return improved dramatically, due to the advantages of scale and expense control. The advantage of scale is not going away, but the above average profits of the last four years may prove difficult to maintain, as the government will find it difficult to not increase regulation in response to complaints over high health insurance premiums in the face of what are viewed as high profits.

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Bringing it to the Present

After fighting off federal regulation 2004-2008, health insurers did a deal with the devil, deciding that it would be better to be health utilities than dead.? At this point, I do not know how things will go:

  • Will ObamaCare be ripped out two+ years from now?
  • Will ObamaCare be defunded?
  • Will ObamaCare persist?
  • And if there are changes, what will replace the current system?

The one thing presently in favor of the health insurers is the graying of the Baby Boomers.? There will be increased need, but how will it be filled?

On Book Reviews

On Book Reviews

When I started Aleph Blog, I had no idea that I would do so many book reviews.? When I wrote for RealMoney, my wife noted that I stopped reading books.? “Don’t have time,” was my reply.? It’s not that I have more time now, but that I am using my time better.? I always have a book with me, and when I get a break, I read.? My wife tells me she could never read a book that way.? I tell her that I must do it that way, or the books will not get read.

One surprise to me is that the publishers are so free with their books.? When I ask for a book, I get it 80% of the time.? And I get books that I would never have thought of asking for.? PR flacks contact me and ask if I am willing to do something special for their author.? The answer is usually “no,” but for special books I will do more.

The books that I ask for usually get better reviews than the ones that come gratis.? There is a degree of self-selection here; I choose books that I am likely to like.

I receive books.? They presently fall into these categories:

  • Read, but not reviewed (7 at present)
  • Reading (1 book at a time)
  • Hot books (3 at present)
  • Waiting (10 books)

I read the books that seem the most promising.? Since I never promise to review a book, occasionally a book will get dropped from the review queue after a scan.? My objective is to highlight good books for readers, and warn on popular books that should be avoided.

But let me point out a bias of mine.? I think it is hard to write good books on asset allocation, technical analysis, or quantitative investing.? Why?? The books overpromise and underdeliver.? There are no easy solutions when all you need to know is the math, because the computers at hedge funds mop up those inefficiencies easily.

I would like to write a piece on how to write a good investment book, but I shy away from writing it, because I have never written a book, and who am I to dictate to those who made the effort to write a book.

But all that said, I have been asked by readers to rank my book reviews.? Well, here it is.? Please understand that the rankings are often close, and I don’t put a lot of weight into them.? I did my best, but if there is no link to buy the book at Amazon, it is because I think no one should buy it.? Note to Michael Covel: to that degree, you are on my buy list.

So here is my list of book reviews, sorted by category and rank:

Review Amazon Stars Category Rank in Category Amazon Widget
Book Review: Financial Shenanigans 5 Accounting 1 Financial Shenanigans
Book Review: Quality of Earnings 5 Accounting 2 Quality of Earnings
Book Review: Early Warning and Quick Response 4 Accounting 3 Early Warning and Quick Response
Book Review: Dynamic Asset Allocation 3 Asset Allocation 1 Dynamic Asset Allocation
Book Review: 7Twelve 2 Asset Allocation 2
Book Review: The Flexible Investment Playbook 1 Asset Allocation 3
Book Review: Co-opetition 5 Business 1 Co-Opetition
Book Review: Warren Buffett on Business 4 Business 2 Warren Buffett on Business
Book Review: All the Devils are Here 5 Crisis 1 All the Devils Are Here
Book Review: Street Fighters 5 Crisis 2 Street Fighters
Book Review: Complicit 5 Crisis 3 Complicit
Book Review: Confidence Game 5 Crisis 4 Confidence Game
Book Review: Slapped by the Invisible Hand 4 Crisis 5 Slapped by the Invisible Hand
Book Review: 13 Bankers 4 Crisis 6 13 Bankers
Book Review: Financial Shock 3 Crisis 7 Financial Shock
Book Review: When Giants Fall 2 Crisis 8
Book Review: The Volatility Machine 5 Economics 1 The Volatility Machine
Book Review: Priceless 5 Economics 2 Priceless
Book Review: Fault Lines 5 Economics 3 Fault Lines
Book Review: Where Keynes Went Wrong 5 Economics 4 Where Keynes Went Wrong
Book Review: Monetary Regimes and Inflation 4 Economics 5 Monetary Regimes and Inflation
Book Review: Making Sense of the Dollar 4 Economics 6 Making Sense of the Dollar
Book Review: Secrets of the Moneylab 3 Economics 7 Secrets of the Moneylab
Book Review: The Economics of Food 3 Economics 8 The Economics of Food
Book Review: Manias, Panics, and Crashes 5 History 1 Manias, Panics, and Crashes
Book Review: Devil Take the Hindmost 5 History 1 Devil Take the Hindmost
Book Review: This Time Is Different 5 History 2 This Time Is Different
Book Review: 100 Minds That Made The Market 5 History 3 100 Minds That Made the Market
Book Review: The Trouble With Prosperity 5 History 4 The Trouble With Prosperity
Book Review: The Wall Street Waltz 5 History 5 The Wall Street Waltz
Book Review: Mr. Market Miscalculates 5 History 6 Mr. Market Miscalculates
Book Review: Reminiscences of a Stock Operator (Annotated Edition) 5 History 7 Reminiscences of a Stock Operator Annotated Edition
Book Review: The Myth of the Rational Market 5 History 8 The Myth of the Rational Market
Book Review: Wealth, War & Wisdom 5 History 9 Wealth, War and Wisdom
Book Review: Once in Golconda 4 History 10 Once in Golconda
Book Review: The Last of the Imperious Rich 4 History 11 The Last of the Imperious Rich
Book Review: Fallen Giant 4 History 12 Fallen Giant
Book Review: A History of Interest Rates 4 History 13 A History of Interest Rates
Book Review: The Intelligent Investor 5 Investing 1 The Intelligent Investor
Book Review: The Aggressive Conservative Investor 5 Investing 2 The Aggressive Conservative Investor
Book Review: Dear Mr. Buffett 5 Investing 3 Dear Mr. Buffett
Book Review: The Only Guide to Alternative Investments You?ll Ever Need 5 Investing 4 The Only Guide to Alternative Investments You’ll Ever Need
Book Review: Margin of Safety 5 Investing 5
Book Review: Buffett Beyond Value 4 Investing 6 Buffett Beyond Value
Book Review: The Only Three Questions That Count 4 Investing 7 The Only Three Questions That Count
Book Review: Super Stocks 4 Investing 8 Super Stocks
Book Review: The Dick Davis Dividend 4 Investing 9 The Dick Davis Dividend
Book Review: Diary of a Hedge Fund Manager 4 Investing 10 Diary of a Hedge Fund Manager
Book Review: The Elements of Investing 4 Investing 11 The Elements of Investing
Book Review: Outperform 4 Investing 12 Outperform
Book Review: Market Indicators 4 Investing 13 Market Indicators
Book Review: Why are we so Clueless about the Stock Market? 4 Investing 14 Why Are We So Clueless about the Stock Market?
Book Review: TradeStream Your Way to Profits 3 Investing 15 TradeStream Your Way to Profits
Book Review: 7 Commandments of Stock Investing 3 Investing 16 7 Commandments of Stock Investing
Book Review: Higher Returns from Safe Investments 2 Investing 17
Book Review: Buying at the Point of Maximum Pessimism 1 Investing 18
Book Review: Soros on Soros 5 Macro Investing 1 Soros on Soros
Book Review: The Alchemy of Finance 5 Macro Investing 2 The Alchemy of Finance
Book Review: The Great Reflation 5 Macro Investing 3 The Great Reflation
Book Review: The Predictioneer?s Game 5 Miscellaneous 1 The Predictioneer’s Game
Book Review: Navigating the Financial Blogosphere 4 Miscellaneous 2 Navigating the Financial Blogosphere
Book Review: Book of isms 4 Miscellaneous 3 The Economist Book of isms
Book Review: While America Aged 5 Pensions 1 While America Aged
Book Review: Pension Dumping 5 Pensions 2 Pension Dumping
Book Review: Easy Money 5 Personal Finance 1 Easy Money
Book Review: That Thing Rich People Do 5 Personal Finance 2 That Thing Rich People Do
Book Review: The Bogleheads? Guide to Retirement Planning 4 Personal Finance 3 The Bogleheads’ Guide to Retirement Planning
Book Review: The Insured Portfolio 4 Personal Finance 4 The Insured Portfolio
Book Review: How to Be the Family CFO 1 Personal Finance 5
Book Review: Finding Alpha 5 Quantitative Investing 1 Finding Alpha
Book Review: Investing By The Numbers 5 Quantitative Investing 2 Investing by the Numbers
Book Review: Triumph of the Optimists 4 Quantitative Investing 3 Triumph of the Optimists
Book Review: Quantitative Strategies for Achieving Alpha 4 Quantitative Investing 4 Quantitative Strategies for Achieving Alpha
Book Review: The Complete Guide To Option Pricing Formulas, and Derivatives 4 Quantitative Investing 5 The Complete Guide to Option Pricing Formulas
Book Review: Models on Models 4 Quantitative Investing 6 Derivatives Models on Models
Book Review: Two Books on Options by Anthony Saliba 4 Quantitative Investing 7 Option Spread Strategies? Option Strategies for Directionless Markets
Book Review: The Guru Investor 3 Quantitative Investing 8 The Guru Investor
Book Review: Beating the Market, 3 Months at a Time 3 Quantitative Investing 9 Beating the Market, 3 Months at a Time
Book Review: The Fundamental Index 3 Quantitative Investing 10 The Fundamental Index
Book Review: Nerds on Wall Street 3 Quantitative Investing 11 Nerds on Wall Street
Book Review: Expectations Investing 2 Quantitative Investing 12 Expectations Investing
Book Review: What Works on Wall Street 2 Quantitative Investing 13 What Works on Wall Street
Book Review: Quantitative Equity Investing 2 Quantitative Investing 14
Book Review: The New Science of Asset Allocation 2 Quantitative Investing 15
Book Review: The Quant Investor?s Almanac 2011 1 Quantitative Investing 16
Book Review: Fortune?s Formula 5 Risk Control 1 Fortune’s Formula
Book Review: Risk and the Smart Investor 5 Risk Control 2 Risk and the Smart Investor
Book Review: No One Would Listen 5 Risk Control 3 No One Would Listen
Book Review: MarketPsych 4 Risk Control 4 MarketPsych
Book Review: Who Can You Trust With Your Money? 4 Risk Control 5 Who Can you Trust with Your Money?
Book Review: The Flaw of Averages 3 Risk Control 6 The Flaw of Averages
Book Review: The Club No One Wanted To Join 3 Risk Control 7 The Club No One Wanted To Join
Book Review: Think Twice 2 Risk Control 8 Think Twice
Software Review: Dragon NaturallySpeaking, Version 11 5 Software 1 Dragon NaturallySpeaking Home, Version 11
Book Review: The Heretics of Finance 4 Technical Analysis 1 The Heretics of Finance
Book Review: Beat the Market: Invest by Knowing What Stocks to Buy and What Stocks to Sell 3 Technical Analysis 2 Beat the Market: Invest by Knowing What Stocks to Buy and What Stocks to Sell
Book Review: Trend Following 2 Technical Analysis 3 Trend Following
Book Review: The Ten Roads to Riches 4 Wealth 1 The Ten Roads to Riches
Book Review: Rich Like Them 4 Wealth 2 Rich Like Them

If you want to read a review, click on the left link.? If you want to buy, click on the right link.

Full disclosure: If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.? Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.? Whether you buy at Amazon directly or enter via my site, your prices don?t change.

Full disclosure: This book was sent to me, because I asked for it.

If you enter Amazon through my site, and you buy anything, I get a small commission.? This is my main source of blog revenue.? I prefer this to a ?tip jar? because I want you to get something you want, rather than merely giving me a tip.? Book reviews take time, particularly with the reading, which most book reviewers don?t do in full, and I typically do. (When I don?t, I mention that I scanned the book.? Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.? Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.? Whether you buy at Amazon directly or enter via my site, your prices don?t change.

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