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Health insurance stocks are building high hurdles

Updated: November 6, 2012 2:04AM

Dear Mr. Berko: We are going to cash in a SunAmerica annuity in which we invested $60,000 in 2006 and should get a check for about $51,000, and that really angered us because the broker told us that we never would lose money in this annuity. We’d like to be a little aggressive and make back this loss, but we are concerned that the current prices of the Standard & Poor’s 500 index and the Dow Jones industrial average do not reflect what is going on in the world. Please give us some recommendations for where we could invest half this money and have good capital gains potential. What do you think of the health care stocks?

— RP, Portland, Ore.

Dear RP: You lost $9,000 during the six years of ownership because you paid annual fees to SunAmerica of 3.1 percent for mortality costs and management charges — plus other expenses — and then paid your broker a 6 percent commission to buy the bloody thing. Your annual cumulative charges (3.1 percent) for the time you owned SunAmerica were $10,000 plus a (6 percent) commission of $3,600, which totals $13,600. Considering that you only lost $9,000, I think you did fairly well.

Putting money in a market that explodes up or down on the basis of what Angela Merkel, Ben Bernanke or Mario Draghi has to say is like asking a deaf and blind man to repair a wood chipper while the blades are still running. And I think PIMCO founder Bill Gross’ belief that Europe and the U.S. are drifting further to the social and economic left is dead-on. Gross is certain that the ultimate aim of European and U.S. lenders is to confiscate private-sector money “because current public spending programs are not sustainable ... and are futile.”

We are in a global climate in which nations and municipalities are going bankrupt, unemployment is soaring and disposable incomes are falling. Therefore, can we expect General Motors to continue selling more cars or big steel to sell more steel and then increase earning and dividends this year? Can we expect Citigroup to grow deposits and income, Bed Bath & Beyond to sell more goods, Dillard’s to improve revenues and profits or Harley-Davidson to increase bike sales and post record earnings in 2013? But a rising S&P and Dow suggest it will be so.

I could be bullish on health insurance stocks, such as UnitedHealth Group (UNH-$56), Cigna (CI-$43), Aetna (AET-$37) and WellPoint (WLP-$56), to name a few. Most health insurers are fairly straightforward today. They treat policyholders with courtesy; they are candid about covered benefits, are reasonably quick to approve procedures, settle disputes equably, pay the hospitals and doctors in a timely fashion, and earn net profit margins of 4 to 6 percent. But the onset of the Affordable Care Act means things are a-changing, and the industry is quite likely to enter a medical care time warp that could add billions to their net profits. This will be a government-controlled “managed care” bureaucracy replicating the horrors of the 1980s and ’90s. And when the government stupids set the new standards for care, it’s inevitable that fraud, delay and procedure refusals will create enormous profit opportunities.

So insurers such as Aetna, UnitedHealth, WellPoint and Cigna are building high hurdles over which policyholders must jump and employing the same techniques that angered patients and antagonized physicians 20 years ago. The industry will return to its old ways — restricting physicians’ choices, requiring a doctor’s referral to visit a specialist, requiring prior approval for general surgeries, unanswered physician calls to insurance company personnel, slow approvals, second-guessing physicians’ opinions, larger out-of-pocket charges, changes in the method of payments to physicians and hospitals — ad nauseam. It’s beginning now; the pages of paperwork are hideous, and more than a few doctors are talking about closing their practices.

The big health insurers should profit enormously, as they did in the 1990s. And within the coming 24 months, the above companies and their smaller brethren could provide you with above-average capital gains.

Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at

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