Managing to Profit

Howard Rohleder

THE GAMBLING TRUISM says you can’t beat the house. That brings me to a recent HumbleDollar article that discussed choosing either a Medicare Advantage plan or traditional Medicare with an accompanying Medigap policy. Almost two dozen readers weighed in with comments.

My two cents: Never forget that the managed-care companies offering Advantage plans are mostly for-profit companies that are publicly traded. The government’s purpose is to transfer its insurance risk to those companies. These managed-care companies must then manage that risk through rationing, limiting choice and negotiating provider payments, as well as encouraging healthy behavior among their customers. To the extent they’re allowed, they deny coverage or charge higher rates to those with preexisting conditions.

Although Medicare Advantage was first offered in the late 1990s, enrollment really took off about 10 years ago. That was when Congress made the program more palatable to insurance companies. Advantage plans became their growth driver and industry marketing got more aggressive. Enrollment has doubled over the past decade.

I looked at the major national managed-care companies in the Medicare Advantage market over that time period. Here are their stock returns for the past 10 years, without dividends reinvested, as of Oct. 18:

  • Aetna (AET) +499%
  • Anthem (ANTM) +537%
  • Humana (HUM) +514%
  • UnitedHealth Group (UNH) +873%
  • S&P 500 (SPX) +271%

Over the long haul, the stock market recognizes value. Don’t imagine that managed-care companies are charitable ventures. This factors into how they “manage” your care. Rather than choosing one of their Advantage plans, your best bet might be to become a stockholder. That way, you can smile at your brokerage statement because you’ll be betting with the house.

I spent years in hospital administration sitting across the table from insurance companies. When it came time to decide, I opted for traditional Medicare plus a Medigap policy. It may cost more. But choice is a valuable commodity—and you see its true value at the most critical times in your life.

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