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Just Like The Airlines

Just Like The Airlines

Last week, the Department of Justice opened an investigation of the airline industry to determine if the major carriers are colluding to keep fares high.  I have no idea if they have colluded, but one thing is for sure, there is far less competition due to decades of carrier mergers.  These mergers were sold to the public as ways to cut costs and deliver better service.  Does anyone believe that has happened?

Now merger mania is hitting the medical carriers.  The number of insurers has already dwindled over the past two decades.  In many markets, mergers have left consumers and businesses with only a handful of competitors to choose from.  Now, Anthem wants to buy Cigna, Aetna wants to buy Humana, and Assurant just wants out.  This will mean fewer competitors and even less choice, and will only lead to higher costs and premiums along with take it or leave it service (kind of like cable TV).

It’s being sold to us as their chance to bargain with hospitals, doctors, and big pharma with more clout, cutting medical expenses.  But with reduced competition and large market shares assured, they will have no incentive to cut those costs – in fact they would benefit from higher medical costs.  Obamacare limits their gross profit to 15-20% of premiums.  So the higher the medical expenses (a minimum of 80-85%+ of premiums), the higher our premiums are, and the higher their cut and profit is.  Think of them like waiters – the higher the cost of the entree, the more they make.

Fasten Your Seatbelt!

The Bottom Line:  Higher premiums in healthcare are likely due to reduced insurer competition.

--Michael Ross, CFP®

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