Tuesday, January 29, 2013

Shareholder Equity

Shareholder equity is a term very familiar to business owners and citizens that own stock. Quite simply, shareholder equity represents the net value of a company divided by the number of shareholders.

If you own stock in McDonalds (MCD) the shareholder equity is roughly $14 trillion which translates in to about $94 per share. McDonalds is a simple business based on delivering a consistent product to their customer base.

It is also a profitable business.

Profit is a dirty word to some but profit provides jobs and funds retirement for  employees and . . . shareholders.

The United States also has shareholders in a manner of speaking. Just like McDonald's shareholders, U.S. citizens have a financial stake in the stability of the country.

The balance sheet of the U.S. doesn't look anything like the balance sheet of McDonalds. For the most part the U.S. government is devoid of any assets unless you want to count all those buildings and implements of destruction.

But the U.S. does have debt.

Lot's of it.

About $16 trillion worth.

The shareholders, those responsible for funding the government, are now called taxpayers. You can't sell your share to anyone but you can pass it on to your children and grandchildren when you die. You can also pass it on to your spouse.

According to recent figures, if you are a taxpayer, your share of the federal debt is roughly $194,000 (CNS figures).

This does not include unfunded debt which is about 5x the accrued debt. But let's not worry about that for now.

What does all this have to do with health insurance?

More than you may think.

If all goes as planned, in January of 2014 citizens will be able to purchase health insurance through state and federal run exchanges. Many think this is a great thing for citizens and a windfall for health insurance carriers.

But if it is so great for the carriers, why are so many closing down their operations or indicating they will not participate in these exchanges? What could be better than a bunch of folks with money in hand (taxpayer subsidies) ready to buy health insurance? Even better, everyone is REQUIRED to have health insurance.

The folks in DC don't understand basic human psychology.

When something is free or heavily discounted it loses its' value and is subject to abuse. Consider free and government subsidized housing. How long do these places last before they are run down and in a state of disrepair?

Many doctors refuse to treat Medicaid patients. In part because of the low government reimbursement but also because of the attitude of many of their Medicaid patients. 

Why is the government in the Medicaid business and not the insurance carriers?

Insurance carriers have shareholders who expect the carrier to participate in markets that are profitable. The government taxpayers (shareholders) really don't care if the government makes a profit or not and most of them don't know or comprehend the magnitude of their share of the national debt.

If you own a house and are still making mortgage payments you get a statement every year that shows how much you owe and how much you have paid on your loan during the prior year.

But the U.S. government doesn't do that. They don't send you a statement showing how much you have paid in taxes and how much you owe on the national debt.

Perhaps they should.

So why are carriers running away from the exchanges?

For the same reason they have no interest in sharing the risk of Medicaid patients. If health insurance carriers thought they could make a profit by offering insurance on the exchanges you would have to lock the door and beat them off with a stick.

But they are not clamoring to get in. They are running away. And the U.S. shareholders should be afraid.

Very afraid.

Because their share of the national debt is about to go up.

But of course they will never get a statement, so most will never know. But they will see their paychecks shrink.

And their shareholder equity rise . . . which is not a good thing.
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