Aetna (AET) bailing on Obamacare as ACA reaps the whirlwind

Ill-conceived, hyperpartisan imposition of socialized medicine fails rapidly as major insurers exit exchanges citing losses. Is this a bug, or an ACA feature?

Early Christmas presents coming for Obamacare participants? (Cartoon by Branco, reprinted with permission. See below.)*

WASHINGTON, Aug. 16, 2016 – Aetna (symbol: AET) announced today that it’s bailing out of Obamacare exchanges in a substantial number of U.S. counties and states. This action follows on the heels of United Health’s and Humana’s massive ACA exits and even more threatened exits by longtime health insurance giant Anthem.

Given the wholesale closings of the much-vaunted, “low-cost” state insurance co-ops—also a centerpiece of the hyperpartisan Obamacare package—it looks like the implosion of this ill-considered legislative sausage-making operation is proceeding almost entirely as critics had predicted.

CNBC’s Dan Mangan would seem to agree, saying,

Aetna‘s actions — and those of other big insurers — speak louder than nice words about Obamacare.

The decision by Aetna to bail out next year from 11 of the 15 states where it sells Obamacare plans is just the latest move by a major insurance company to pare back — sharply — its involvement in the markets for individual health plans that are a key component of the Affordable Care Act.

But it came less than a week after federal health regulators suggested that a big concern about the viability of that business wasn’t justified by the actual data. Insurers have been saying Obamacare customers are, overall, less healthy than the companies need them to be so that the medical costs covered by the plans don’t exceed the premiums the customers pay in each month.

That disparity between the two events reinforces an idea, long stated by Obamacare analysts, that 2017 will be a crucial year for the ACA. This is expected to be when it will become much clearer if insurers can make money in the market, or whether the law needs a fix to allow that to happen.

Aetna, like UnitedHealth and Humana before it, cited financial losses from its individual plans as the reason it would reduce the number of counties where it sells such plans.

In other words, the failure of Obamacare in the “crucial year” of 2017 is now pretty much assured, as insurance companies indeed cannot make money—ever—in the ridiculously convoluted Obamacare “marketplace,” which, in fact, is no marketplace at all.

The other shoe is likely to drop soon as well on this Potemkin village of a socialized medicine plan. Remaining insurers are likely to increase plan premiums once again in the 16-30 percent range, likely upping those never-discussed deductibles, too, effectively increasing the cost of these plans still further.

After all, this is what happens in socialized medicine. More people pay more money for worse healthcare. It’s always “going to be different this time,” but it never is because these plans never function as promised.

It’s all typical socialism at work. Instead of working to help citizens work their way up to better lives, the aim of socialism is to bring everyone down to the same level of rottenness experienced by the most impoverished citizens. Instead of spreading the wealth around, it’s misery that’s spread around instead.

Too bad the entirety of Americans weren’t allowed to “keep” their doctors and their previous plans, as they were promised by Barack Obama in one of the 21st century’s most notorious lies.

Aetna’s shares are down slightly today, but not by much, indicating shareholders essentially approve of their position.

Speculation is rife, of course, that Aetna is using its mass exit as a bargaining point as it tries to get the feds to stop interfering with and blocking their proposed acquisition/merger with Humana, a supposition immediately provided by the socialist senator from Massachusetts, Elizabeth “Fauxahontas” Warren. And maybe they are.

But so what? Such a merger, and other proposed mergers are exactly what Obamacare’s cynical architects were looking for anyway: either a consolidation of big insurance companies into an effective “single payer” situation, or the entire takeover of the system directly by the federal government.

The totally government-controlled single-payer path has always been what Obamacare was all about to begin with—the federal government takeover of the entire healthcare system, allowing our brilliant “betters” in Washington D.C. to gain life and death control over the health and ultimately the lifespans of all of us.

We’ll see how all this works out, though we suspect the prognosis is not good. The public continues to vote for the Democrats, the party that’s been responsible for gulling them shamelessly since at least the presidency of Lyndon Baines Johnson and his oh-so-successful “War on Poverty.”

We used to think the electorate would wake up some day and smell the coffee. But the majority today continues with its predictable Pavlovian response at the ballot box, which has brought us to this point in history. It’s 50-50 whether they’ll demonstrate that they’ve finally learned their collective lesson in November. We thought they’d learned it in 2012. But we were wrong.

The market itself is having a notably mediocre day today, as opposed to Monday’s surprising rally. We’re back into the “lose 0.25-0.50 percent per day” mode in all three major averages, with tech the hardest hit. Crude oil continues its “OPEC will play nice” rumor-driven rally, with WTI currently up 90 cents to stand at $46.64 bbl. as of 3:30 p.m. EDT Tuesday, while Brent crude is up about the same, standing, however, at close to $50 bbl., roughly its traditional premium to WTI.

Effectively, though, stasis continues so aside from our “I toldya so” comments today on the rolling Obamacare disaster—which we predicted from Day One—nothing much to write home about.

Trading diary

We’re still standing pat as we’ve mostly done since we turned the calendar over to Aug. 1. We continue to slip in tiny amounts of shares in Schwab’s International Stock and REIT ETFs (SCHF and SCHH respectively) though neither has been turning in particularly stellar performances. We’re attempting to buy a couple of new-issue preferreds in the Gray Market as well, although this has been a thankless task lately.

In the Gray Market, mere mortals like the Maven are flying blind. We can’t see a real bid or ask price on securities trading there, so we have to guess. This is typically the way we attempt to get hold of newly issued preferred stocks that trade there before being listed on regular exchanges anywhere from a few days to a few weeks after issue.

The reason for playing this seemingly foolish game is that you can often pick up these brand new preferred stocks at a price “below par,” i.e., less than $25 per share, which is usually par value or the value that a share will ultimately be redeemed for if the issue is called, which a great many issues are.

Indeed, if you pick up a “term preferred”—a preferred stock with a specific redemption date, you’ll know just how long it will be before you effectively have to turn those share back in. At par. Which means if you bought below par, you’ll also nab a capital gain. If you buy above par, often (though not always) the case when a preferred finally arrives on one of the regular exchanges, then you’ll have a capital loss for any amount of money above $25 that you paid for those shares.

If you know this, of course, and still find that a high-yielding, brand new preferred can only be obtained at slightly above par, you’ll likely make back considerably more than the money you lose at redemption by collecting those swell dividends over x years. But if you buy preferreds too high over par, that might not be the case, depending on what interest rates do while you’re holding these positions.

In other words, the way the system works, we’re incentivized to go shopping for Gray Market preferred stocks if we can pin them down, because we can often get a better price here. If we pin them down.

Problem is, more and more people are onto this game, so it’s easy to get suckered into paying too much for these shares since you can’t see either side of the bid-ask, only the last price at which the preferred stock traded.

“The boyz,” of course, know what the spread is, because they buy these stocks in mass quantities in the Gray Market, which is essentially why that market exists: mainly to make available discounts only available to institutional customers. It’s another way that the rich get richer.

Knowing this, we cautiously go on fishing expeditions for new issues that we like. Unfortunately, it used to be easier to get these shares in the Gray Market. Now, we suspect, a variety of forces have combined to stymie our efforts.

We’ll keep on trying, of course. But we haven’t scored a discount preferred in the Gray Market for at least six months now, though we’ve tried to do so at least once or twice each month as new issues arise. Every time the little guy finds a deal on Wall Street these days, it seems that TPTB (The Powers That Be) quickly discover that we’re getting in on the deal and quickly close the windows and bar the doors.

We’ll keep you posted.

*Cartoon by Branco. Reprinted by arrangement and with permission from ComicallyIncorrect.

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