What could go wrong here?

by | Aug 16, 2016 | Asset Management, Financial Planning, News

“What could go wrong here?” is a very powerful question to ask periodically.

Aetna announces a $200 million loss from Obamacare.

They forgot about Dental

When I started at EF Hutton back in 1983, people told me not to take a job there.  “They don’t offer dental” I was told.
Can you imagine turning down a job offer today because a company did not offer dental?

What they did not know was my brother in law worked as a VP in Employee Benefits at… EF Hutton.  And he helped me get a job interview, too.

He explained to me dental coverage (offered as an employee benefit) is one of the most expensive benefits — for an employee AND for an employer.  If efhuttonlogoyour company (back then) began a dental plan, seemingly every employee in the firm would get their teeth cleaned right away, and then again every few months.  And serious dental work they had been putting off would be scheduled.  And why not?  Now it will be covered through the company dental plan.

When the plan is rolled out, employees are happy.  Employers are happy.   What could go wrong here?

The next year (due to all the dental claims), the employer would have to pass along a massive price hike to the employees (the participants) in the dental plan.  And, consequently, participants would drop the dental coverage, because the dental plan is now “too expensive.”

Why am I bringing this up?

Today, one of the largest health insurance carriers (Aetna), announced massive cutbacks in their Obamacare business.  Their public-exchange options will only be available in Delaware, Iowa, Nebraska and Virginia.  Aetna announced the nearly $200 million in (annual) pretax loss was not worth the business. (emphasis added)

“Providing affordable, high-quality healthcare options to consumers is not possible without a balanced risk pool,” Aetna CEO Mark Bertolini said in the statement. “Fifty-five percent of our individual on-exchange membership is new in 2016, and in the second quarter we saw individuals in need of high-cost care represent an even larger share of our on-exchange population.”

There’s never a problem, until there’s a problem.

Essentially, they could have checked with their own Dental unit before getting mixed up in Obamacare.  Or asked the question, “what could go wrong here?”  (Realize I’m simplifying tremendously here).  But insurance carriers like Aetna didn’t really have that option to pass, when Obamacare was being rolled out.

Now, the flip-side of “what could go wrong here?” is a little saying I began saying (muttering to myself) when I was president of the Little League in Wall Township, “there’s never a problem… until there’s a problem.”  And I’ve carried that little reminder years later into the business here as well.  Asking “what could go wrong?” or reminding yourself, “there’s never a problem, until there’s a problem” may be good advice for individuals too.  Asking that little question can help examine (or re-examine) the risks involved.  There are risks involved in taking action — and risks involved in not taking action.  For example:

It seems nearly every week we get calls from clients and investors asking about an idea they heard:
–  I’m thinking of cashing in my IRA to …..
–  I’m thinking about buying life insurance (or a deferred annuity) to enhance my pension because…
–  I’m thinking about taking a loan from my 401(k) at work to….

Ask the question, “what could go wrong here?”  Just take a little time to examine all the potential outcomes.
And if you are unsure what could go wrong here, ask someone who should know.

Likewise, in the investment arena:
–  Real Estate limited partnerships in the 1980’s
–  Variable annuity sales in the 1990’s
–  Dot-com stocks in 2000
–  Sub-prime lending ten years ago
As an industry, too many never asked the question, “what could go wrong here?”

In 2016, Aetna (and other insurance carriers) have learned offering low-cost health coverage to all, and still plan on making money as a publicly-traded company may not work.  Plenty of folks signed up for the coverage and immediately began filing claims.  Aetna (and other insurance companies) really didn’t have a chance to ask what could go wrong.  When Obamacare was rolled out a few years ago, the insurance industry was backed into a corner to offer coverage.

The insurance business (particularly health insurance) in the United States today is a giant mess.  I do not know the way out of it, for consumers.  Health care is very expensive and if you have been seriously ill, you know how the costs go up exponentially.  But that’s not the message today.

What Aetna announced is a reminder to all.  Even on a personal investment level, we should periodically stop and ask the question, “what could go wrong here?”

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