A little known settlement in New York holds the keys to a stealth stimulus, and 146% gains
“$700 billion here… $700 billion there… after a while, you are talking about real money!”
Yeah, I filched the line. Supposedly it was originally uttered by famed Illinois Senator Everett Dirksen. Except it was supposed to be about a mere couple billion dollars. And no one’s really sure if he actually said it.
Here’s something I know he said, as I filched it from the Congressional Record of June 16, 1965:
Ah, That Ain’t Nuthin’
Way back in the dark ages around the middle of the previous century, Dirksen worried that President Lyndon Baines Johnson’s “Great Society” might bankrupt the country: “If some people get any cheer out of a $328 billion debt ceiling, I do not find much to cheer about concerning it.”
LBJ is infamous in conservative circles as a “BigGovernmentTaxandSpendLiberal,” second only to the big cheese himself, FDR. But he can’t hold a candle to the numbers thrown up by the supposedly fiscally conservative administration that is just now giving up control of the White House.
In 2008, the U.S. budget deficit was $455 billion. In the first three months of the current fiscal year of 2009 (commencing in October ’08), they managed to rack up a $452 billion gap. Looking forward, the folks at the Treasury, the Federal Reserve and the FDIC have committed to spending something along the lines of $7.2 trillion.
Something’s Got to Give
Now, before you get out your fountain pen and stationery: I know Mr. Bush had to deal with a war or two, a massive financial crisis and a democratic majority on the Hill. It’s the raw numbers I want to focus on, and how they are likely to impact a couple of key early decisions on the part of the incoming Obama administration.
In 2007, one particular area that was only tangentially connected to wars or finance sucked up about a quarter – some $700 billion – of that $2.7 trillion Federal budget.
I’m talking about healthcare.
Not only did Washington spend a mint on doctors, hospitals, x-rays, drugs, et al, in 2007, the country as a whole doled out some $2.45 trillion, roughly 18% of our entire $13.81 trillion annual GDP.
Something’s got to give, if Obama is to have any sort of free hand at all, and I suspect I know what couch he will look in for some loose change.
Getting Killed at the Doctors
You won’t find a clue in Washington, that’s for sure. Rather, you have to look to a small (at least in comparison to the huge figures we’ve been bandying about) fraud case being settled as we speak up in New York state.
Seems that one of our larger health insurance companies has been bilking its policyholders for years now. Here’s how the scam allegedly worked: Your insurance company only covers a portion of the fee, no matter how much the doctor charges you for a visit or procedure. They call this fraction “usual and customary.”
UnitedHealth Group (UNH: NYSE) was supposedly determining usual and customary reimbursement through “independent research from across the industry.” That is to say, they weren’t taking anyone any worse than any other insurance company.
The Best Revenge
Turns out that all their “independent research” was coming from a single source, an outfit called Ingenix.
Now on the one hand, lots of other big insurers, like Aetna, Cigna and Blue Cross, also use Ingenix. On the other hand, Ingenix is solely owned and operated by… (wait for it)… UnitedHealth!
Unsurprisingly, management at UnitedHealth “respectfully disagrees” with New York Attorney General Andrew Cuomo’s finding that they cooked the books and overcharged millions of Americans. But they clearly don’t disagree all that much, because they are paying out $50 million to a special fund that will reimburse patients.
So here’s your first takeaway from today’s column: mid-dated, at-the-money puts against UnitedHealth Group (UNH: NYSE) could stand to make between 65% and 146% over the next few weeks as UNH’s recent rally unwinds.
The “Even-Newer Deal’s” Stealth Stimulus Plan
But here’s where it gets truly interesting. As I mentioned earlier, many of the other giants in this industry also use Ingenix to determine how much or how little they reimburse clients.
I believe that Cuomo’s case was just a trial balloon. (Think about how the states went after Big Tobacco last time they needed a little spending money.) This time around, they will basically force the big insurance companies to create a whole second “stimulus package” without writing a single government check.
I will keep you up to date as these cases progress, and offer additional short plays on the victims.
“$700 billion here… $700 billion there… after a while, you are talking about real money!”
Yeah, I filched the line. Supposedly it was originally uttered by famed Illinois Senator Everett Dirksen. Except it was supposed to be about a mere couple billion dollars. And no one’s really sure if he actually said it.
Here’s something I know he said, as I filched it from the Congressional Record of June 16, 1965:
One time in the House of Representatives [a colleague] told me a story about a proposition that a teacher put to a boy. He said, ‘Johnny, a cat fell in a well 100 feet deep. Suppose that cat climbed up 1 foot and then fell back 2 feet. How long would it take the cat to get out of the well?’
Johnny worked assiduously with his slate and slate pencil for quite a while, and then when the teacher came down and said, ‘How are you getting along?’ Johnny said, ‘Teacher, if you give me another slate and a couple of slate pencils, I am pretty sure that in the next 30 minutes I can land that cat in hell.’
Johnny worked assiduously with his slate and slate pencil for quite a while, and then when the teacher came down and said, ‘How are you getting along?’ Johnny said, ‘Teacher, if you give me another slate and a couple of slate pencils, I am pretty sure that in the next 30 minutes I can land that cat in hell.’
Ah, That Ain’t Nuthin’
Way back in the dark ages around the middle of the previous century, Dirksen worried that President Lyndon Baines Johnson’s “Great Society” might bankrupt the country: “If some people get any cheer out of a $328 billion debt ceiling, I do not find much to cheer about concerning it.”
LBJ is infamous in conservative circles as a “BigGovernmentTaxandSpendLiberal,” second only to the big cheese himself, FDR. But he can’t hold a candle to the numbers thrown up by the supposedly fiscally conservative administration that is just now giving up control of the White House.
In 2008, the U.S. budget deficit was $455 billion. In the first three months of the current fiscal year of 2009 (commencing in October ’08), they managed to rack up a $452 billion gap. Looking forward, the folks at the Treasury, the Federal Reserve and the FDIC have committed to spending something along the lines of $7.2 trillion.
Something’s Got to Give
Now, before you get out your fountain pen and stationery: I know Mr. Bush had to deal with a war or two, a massive financial crisis and a democratic majority on the Hill. It’s the raw numbers I want to focus on, and how they are likely to impact a couple of key early decisions on the part of the incoming Obama administration.
In 2007, one particular area that was only tangentially connected to wars or finance sucked up about a quarter – some $700 billion – of that $2.7 trillion Federal budget.
I’m talking about healthcare.
Not only did Washington spend a mint on doctors, hospitals, x-rays, drugs, et al, in 2007, the country as a whole doled out some $2.45 trillion, roughly 18% of our entire $13.81 trillion annual GDP.
Something’s got to give, if Obama is to have any sort of free hand at all, and I suspect I know what couch he will look in for some loose change.
Getting Killed at the Doctors
You won’t find a clue in Washington, that’s for sure. Rather, you have to look to a small (at least in comparison to the huge figures we’ve been bandying about) fraud case being settled as we speak up in New York state.
Seems that one of our larger health insurance companies has been bilking its policyholders for years now. Here’s how the scam allegedly worked: Your insurance company only covers a portion of the fee, no matter how much the doctor charges you for a visit or procedure. They call this fraction “usual and customary.”
UnitedHealth Group (UNH: NYSE) was supposedly determining usual and customary reimbursement through “independent research from across the industry.” That is to say, they weren’t taking anyone any worse than any other insurance company.
The Best Revenge
Turns out that all their “independent research” was coming from a single source, an outfit called Ingenix.
Now on the one hand, lots of other big insurers, like Aetna, Cigna and Blue Cross, also use Ingenix. On the other hand, Ingenix is solely owned and operated by… (wait for it)… UnitedHealth!
Unsurprisingly, management at UnitedHealth “respectfully disagrees” with New York Attorney General Andrew Cuomo’s finding that they cooked the books and overcharged millions of Americans. But they clearly don’t disagree all that much, because they are paying out $50 million to a special fund that will reimburse patients.
So here’s your first takeaway from today’s column: mid-dated, at-the-money puts against UnitedHealth Group (UNH: NYSE) could stand to make between 65% and 146% over the next few weeks as UNH’s recent rally unwinds.
The “Even-Newer Deal’s” Stealth Stimulus Plan
But here’s where it gets truly interesting. As I mentioned earlier, many of the other giants in this industry also use Ingenix to determine how much or how little they reimburse clients.
I believe that Cuomo’s case was just a trial balloon. (Think about how the states went after Big Tobacco last time they needed a little spending money.) This time around, they will basically force the big insurance companies to create a whole second “stimulus package” without writing a single government check.
I will keep you up to date as these cases progress, and offer additional short plays on the victims.