Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche

The Death Spiral

Will America’s Health Insurance System Collapse?

The coronavirus could cause the collapse of America’s health insurance companies and leave tens of millions with no way to pay for healthcare.

For instance, one health insurer UnitedHealth Group Inc. (NYSE: UNH) served 50 million people in 2018, ExapndedRamblings estimates. Additionally, UnitedHealth Group provided medical benefits to 6.2 million people in 2018. Moreover, UnitedHealth operated 55 hospitals and 275 clinics and outpatient centers in 2018.

I wonder what will happen to all those people if UnitedHealth runs out of money or collapses? Nor is it just UnitedHealth that worries me, Cigna Corp (NYSE: CI) offers Medicare Advantage plans in 17 states and Washington DC and Medicare prescription drug plans in 50 states.

If Cigna collapses, millions of Americans could lose their access to prescription drugs, and the ability to pay for lifesaving medical treatments. Thus, people could die if health insurance companies collapse.

Are Health Insurance Companies too big to Fail?

Optimists will say health insurance companies are too big and too powerful to collapse. Notably, UnitedHealth (NYSE: UNH) reported quarterly gross profits of $15.735 billion on quarterly revenues of $64.421 billion on 31 March 2020.

However, bears will say we have heard this argument before. Remember, the giant banks that were too big to fail, failed in 2007 and 2008.

The banks failed because a Black Swan catastrophe; the mortgage crisis. hit them. Now, health insurers such as UnitedHealth could face a similar nightmare in the form of Coronavirus.

Worldometers estimates coronavirus infected 848,717 Americans on 23 April 2020.  Additionally, Worldometers estimates Coronavirus had killed 47,659 Americans by 23 April 2020.

How Coronavrius can Bankrupt Health Insurance Companies

Coronavirus could bankrupt health insurance companies because of the high cost of hospitalization.

The New York Times estimates doctors hospitalized 18,279 coronavirus patients in New York on 9 April 2020. Meanwhile, estimates the average hospital stay costs $3,949 a day, or $15,734 for the total stay. Using’s numbers, I estimate it could $278 million to hospitalize the 18,279 New York coronavirus patients. Thus, I think insurance companies could run out of money if we have similar coronavirus outbreaks across the country.

Frighteningly, the federal will pay for coronavirus treatment for the uninsured but not for insured. Hence, health insurance companies face the choice of going bankrupt or not paying for coronavirus costs.

Coronavirus could bankrupt Millions of Americans

Disturbingly, private health insurance companies have not committed to covering coronavirus treatment costs, The Washington Post claims. However, insurers will waive coronavirus testing costs.

Thus, hundreds of thousands or millions of Americans could face huge hospital bills because of coronavirus. In addition, dozens of hospitals could face bankruptcy if health insurance companies refuse to cover coronavirus costs.

We could pay high health insurance premiums for a long time because coronavirus attacks the entire body. For instance, Chinese doctors found COVID-19 damages the lungs, the heart, the kidneys and other organs, The Jerusalem Post reports. Beyond that, physicians speculate the SARS-CoV-2 virus that causes COVID-19 could lie dormant in the body for fears and cause future medical problems.

Consequently, millions of Americans could require expensive medical care for decades to come. Disturbingly, Worldometers estimates 848,717 Americans had coronavirus on 23 April 2020.  

As a result, I think health insurance companies will have to limit coronavirus coverage at some point. Yet, most coronavirus victims will not have the money to pay for the treatments they need.

Coronavirus will lead to Medicare for All

Therefore, I think the federal government will have to pay all coronavirus bill. Hence, I believe coronavirus could force Congress to expand Medicare to cover all Americans.

However, many Congressional Republicans and Democrats oppose Medicare for All for many reasons. On the other hand, popular anger over health insurance costs cost change many Congressional minds.

Medicare for All will come because I cannot see how America’s economy could function if coronavirus bankrupts millions of people. Moreover, most of those bankrupt people can vote, and they will take their anger out on politicians.

How Medicare for All could speed Coronavirus Recovery

Fortunately, I there is a way to use Medicare for All to prevent high coronavirus bills from destroying the economy.

Congress could enact the Public Option promoted by presumptive Democratic presidential nominee Joe Biden (D-Delaware). Under the Public Option, the government offers a taxpayer-financed health plan that all citizens can buy into.

For instance, Congress could make all Americans eligible for Medicare for a premium of $100 a month regardless of age. Those, there could be insurance available to cover any coronavirus medical costs.

For instance, Congress could make all Americans eligible for Medicare for a premium of $100 a month regardless of age. Those, there could be insurance available to cover any coronavirus medical costs.

How UnitedHealth could cash in on the Public Option

For example, UnitedHealth could create a hybrid product that combines Medicare and additional coverage. In detail, UnitedHealth could offer a plan that covers all drug costs and Medicare.

Notably, UnitedHealth already offers Medicare Advantage plans. In a Medicare Advantage plan, both UnitedHealth and Medicare cover medical costs. In detail, Medicare Advantage plans include Medicare Part A (hospital insurance), Medicare Part B (medical insurance), and Medicare Part D (prescription drug plans).

 Consequently, UnitedHealth could cash in on the Public Option if Congress implements one. I suspect it is only a matter of time before Congress implements a Public Option.

Why We Need a Public Option for Health Insurance

America needs a Public Option as a backup for the private health insurance system. To explain, Americans could turn to the Public Option if private health insurers collapse or cut large numbers of people off.

Thus, the Public Option resembles the Federal Deposit Insurance Corporation’s (FDIC) deposit insurance. To clarify, the FDIC insures most bank accounts and some investment accounts for amounts up to $250,000.

We could reform Medicare to cover all health-insurance costs normally covered by Medicare. Thus, Medicare could kick in if private health insurance cannot pay. For example, if you went to the Emergency Room and your insurance did not pay, Medicare could.

Plus, they could modify the Public Option to offer premium free Medicare to the uninsured, instead of Medicaid. Hence, states could save money because the federal government administers Medicare, while states run Medicaid.

In addition, we could give health care providers the ability to bill Medicare for medical costs incurred by the uninsured. To explain, Medicare could then contact the uninsured person and give them a choice pay the medical bill or sign up for Medicare.

Is UnitedHealth a Good Investment?

UnitedHealth (NYSE: UNI) made money before coronavirus. For instance, UnitedHealth reported a quarterly operating income of $4.996 billion and a quarterly common net income of $3.382 billion on 31 March 2020.

Impressively, UnitedHealth reported an ending cash flow of $21.569 billion, a financing cash flow of $9.303 billion, and an operating cash flow of $2.943 billion for the quarter ending on 31 March 2020. Hence, UnitedHealth is a cash-rich company.

UnitedHealth had $24.445 billion in cash and short-term investments on 31 March 2020. Beyond that, UnitedHealth reported $189.067 billion in total assets and $129.204 billion in total liabilities on the same day.

Appealingly UnitedHealth Group (NYSE: UNI) shares paid a $1.08 quarterly dividend on 13 March 2020. Overall, credits UnitedHealth with 10 years of dividend growth, a dividend yield of 1.58%, an annualized payout of $4.32, and a payout ratio of 26.6%.

Thus, UnitedHealth was a good investment just before the COVID-19 outbreak. However, I think the lack of a Public Option to back up private health insurance plans gives UnitedHealth a low margin of safety. Consequently, I think Mr. Market overpriced UnitedHealth shares at $285.33 on 23 April 2020.