Insurance Quotes & Advice

A recent research study shows that many Americans are struggling with the cost of healthcare even when they have insurance. 

“On the national level, we’ve seen rates of foregoing care because of costs rise dramatically from 2001-2007. We’ve also seen medical bills and debt rise since 2005,” says Michelle McEvoy Doty, PhD, one of the study’s authors and director of survey research for The Commonwealth Fund.

An important finding is that the underinsured, in some cases, have similar rates of problems as the uninsured. “This indicates that policy makers also need to worry about the content of insurance, not just covering more of the uninsured,” says Dr. Doty.

As the study points out, even in Massachusetts which became the first state in the nation to implement universal health coverage, residents are struggling to meet out of pocket expenses.  However a big source of cash outflow for most states is the cost of uninsured medical care which has seen a significant drop off in Massachusetts.

As the state is quickly finding out though, it’s a lot more expensive than they though it would be.  Some thought this could be the test case for other states or even a national program but the numbers really don’t add up.

The problem isn’t the cost of insurance it’s the cost of medical care in this country.  If you look at other country’s with successful universal healthcare systems in place, the key is their lower per capita medical costs.

You can’t say the government isn’t spending enough because they spent nearly 50% of all medical expenditures in this country last year.  A nearly bankrupt Medicare system is hemorrhaging money at an alarming rate as medical costs continues to outpace inflation. 

Now I’m not sure how they can go about lowering medical costs but I do believe that is what needs to be focused on at least initially.  Could the country implement universal health coverage now?  Probably, but it would be ridiculously expensive and somebody would have to be taxed to pay for it.

American International Group got a new deal on Monday, when the government announced a new $150 billion aid package to the struggling insurance company.  This pretty much replaces the Fed’s initial $85 billion loan to the company which originally had an exorbitantly high interest rate.

Monday’s restructuring provides AIG with easier terms on the original Fed loan. The new package reduces the interest rate AIG will pay and will extend the loan term to five years from two, reducing the need for AIG to sell off business lines and other assets at firesale prices to repay the government.

Under the new $52.5 billion package, the loans will last for six years. Through two new facilities, the Fed will fund the purchase of both residential mortgage-backed securities from AIG’s portfolio, and collateralized debt obligations, which are complex financial instruments that combine various slices of debt.

The move gives the company some breathing room and it doesn’t have to be in a rush to break up.  Trying to sell off assets during an economic downturn isn’t one of the smartest moves.

The government appears to be in it for the long run with AIG, providing massive support and taking on the potential for huge taxpayer loss.  Although is the government trying to make a profit out of all this?

The company does have a trillion in assets and the government’s ownership stake is estimated at about 80%.  Now obviously they are trying prevent a destabilization of the financial system if AIG were to collapse but the scenario is intriguing.

Of course we won’t see what will happen until the economy recovers but basically the government made a huge investment in the world’s largest insurer when it’s price was nearly rock bottom.  Is the government spending it’s way to control of big business?

We see it happening already in the banking system with the equity exchange in the government’s re-capitalization program.  Now the auto industry is wanting billions to retool it’s plants but now that the precedent has been set, should they only receive aid if the government get’s a stake?

Don’t get me wrong, the government has gone to great lengths to prevent economic collapse.  I don’t think it’s a bad thing if the government ends up making money on this deal because surely they are going to lose money somewhere else with it’s $700 billion relief package.

 The bond insurance industry has been reeling for over a year now and in the third quarter, losses have continued to pile up.  Their troubles have created instability in bond markets as declining ratings impact the underlying securities they insure. 

During the credit and real estate boom earlier this decade, these bond insurers sold derivative-based guarantees on mortgage-backed securities and other more complex housing-related securities known as collateralized debt obligations, or CDOs.

Now that house prices have slumped and foreclosures surged, Ambac and MBIA have to pay up on some of those guarantees, while recording permanent impairments on the others.

They’ve also lost their crucial AAA ratings, making it more difficult to sell new guarantees. Further rating agency cuts could put even more stress on these companies.

With the financial crisis coming to a head last month, it is now even more difficult to find credit these days.  Further liquidity problems could force the industry to turn to the government for help.

The growing troubles in the insurance industry in general will increase pressure on Congress to implement a National Insurance Commission.  The days of a hands off approach to financial services are over and in the coming years we likely see an increase to federal regulations across the board.

Now obviously these companies would prefer to survive without the government’s help and the longer the credit crunch lasts the worst off they will become.  The two largest bond insurers, Ambac and MBIA appear to have enough reserves to survive the next quarter at least but they are quickly running out of options.

Their significant exposure to toxic debt makes it so that their fortunes are inexorably tied to the housing market and things continue to look bleak in those circles.  Yeah it’s possible they can survive without intervention but that doesn’t help bond markets or their clients for that matter.

The investors and municipalities who are paying the price for all this won’t see relief until these companies raise their credit ratings once again and that’s probably not possible short of a housing recovery or the more likely scenario, re-capitalization through government means.