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Today in FinReg amendments

Here's what the Senate is considering adding to the financial-regulation bill:

* Collins amendment to mandate minimum leverage and risk-based capital requirements for insured depository institutions, depository institution holding companies, and nonbank financial companies that the Council identifies for Board of Governors supervision and as subject to prudential standards. (#3879)

* Brownback amendment to provide for an exclusion from the authority of the Bureau of Consumer Financial Protection for certain automobile manufacturers, and for other purposes. (#3789, as modified)

* Snowe-Pryor amendment to ensure small business fairness and regulatory transparency. (#3883)

* Specter amendment to amend section 20 of the Securities and Exchange Act of 1934 to allow for a private civil action against a person that provides substantial assistance in violation of such Act (#3776, as modified)

* Leahy amendment to restore the application of the Federal antitrust laws to the business of health insurance to protect competition and consumers. (#3823)

* Sessions amendment to provide an orderly and transparent bankruptcy process for non-bank financial institutions and prohibit bailout authority. (#3832)

* Durbin amendment to ensure that the fees that small businesses and other entities are charged for accepting debit cards are reasonable and proportional to the costs incurred, and to limit payment card networks from imposing anti-competitive restrictions on small businesses and other entities that accept payment cards. (#3989)

* Franken amendment to instruct the Securities and Exchange Commission to establish a self-regulatory organization to assign credit rating agencies to provide initial credit ratings. (#3991)

I need to go check out that Collins amendment, which looks like a really positive addition.

By Ezra Klein  |  May 13, 2010; 9:55 AM ET
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Under new Bill, Medical insurance is a must, but now you can easily find medical insurance under $40

Posted by: talbertjo13 | May 13, 2010 11:00 AM | Report abuse

"Leahy amendment to restore the application of the Federal antitrust laws to the business of health insurance to protect competition and consumers. (#3823)"

Doesn't this risk increasing the power of providers? Especially the providers with a reputation for high quality? If there are one or two big insurers in a given state, then providers need to make a contract or risk losing a lot of business. If there are tons of small insurance companies, providers can say look, your customers want us in your network, and you have to accept such and such a rate - if you balk well who cares you only cover 1.0% of the state's population - and soon less once our hospital is out of your network.

Do health insurers act like monopolists? UnitedHealth took in $87.1 billion of revenue in 2009 and earned $3.8 billion in net income, about a 4.4% profit margin. That doesn't exactly scream monopolist.

WellPoint took in $65.0 billion and made $4.7 billion - a bit better than UnitedHealth, but in 2008 WellPoint's numbers were a bit worse - $61.3 billion in revenue and just $2.5 billion in net income. Most of the difference seems related to a surge in other revenue ($3.3 billion in '08 to $7.8 billion in '09 - potentially market related gains? not sure here).

There is scant evidence of monopoly power in health insurance than in some other industries, and even those cases don't stand up well under scrutiny. Many people called Microsoft a monopolist, but it doesn't really act like one and it faces intense competition from Apple, Google, Sony, Mozilla, etc.

Posted by: justin84 | May 13, 2010 12:27 PM | Report abuse

@ justin84 : The net income figures don't reflect the massive lobbying money they spend or the ultra lavish pay to the top 1/3 of executives, so the small profit margins are somewhat misleading. Corporations are experts at hiding net profits through accounting gimmicks and subsidiaries. When 1-2 companies dominate the marketplace and effectively enter into non-competitive collusion, its a monopoly regardless of the % of paper profits.

Posted by: srw3 | May 13, 2010 2:23 PM | Report abuse


UnitedHealth's CEO made $9 million last year.

Let's assume that they spend $87 million year on all executives. Most executives don't make anywhere near what the CEO/COO/CFO make - probably more in the mid six figures. That's 0.1% of revenue. Triple that amount, and it's still peanuts in the grand scheme of things.

On page 34, we have the financials. $65 billion went to medical care, or 82% of total premiums paid. Sure, there is overhead, but what organization doesn't have overhead? Medicare is cited for having low overhead, but the costs of its fundraising (IRS) usually aren't included, and almost 10% of Medicare's payments are fraudulent. Medicare probably has too little overhead.

Posted by: justin84 | May 13, 2010 10:32 PM | Report abuse

Insurance companies may have an oligopolistic market structure within some states, but they are beholden to both providers and consumers. Like Wal-Mart, having a large presence means you can squeeze better discounts our of providers. More competition for insurance companies might mean less leverage over providers - the primary source of high and growing prices - and more competition might increase the necessary overhead.

In any case, they have 80,000 full-time employees. Assuming that the average employee costs $100,000/yr (which after FICA, health insurance, retirement and office equipment doesn't mean a spectacular salary), and you've accounted for $8 billion of that $12.7 billion of operating costs.

Why do firms hide their profits? That seems strange for managers who receive a large portion of their compensation in restricted stock and options - lower profits mean lower stock prices, not to mention the ever present threat of a fraud case which could bring down the firm. Then again, there is a political cost of profits, both in higher taxes and political attacks, so I'll admit the incentive is there.

That said, Microsoft's profit margin is nearly 30%. Microsoft has actually been targeted as a monopolist, and I believe the EU found them guilty of some form of monopoly abuse. Why are health insurers so much better at hiding monopoly profits than Microsoft?

In any case, if you want to increase competition, a better way to do it is to regulate insurance at the federal level and let it be sold across state lines, rather than bring anti-trust cases against firms within states, as you might end up with a lot of little, high overhead firms with weak bargaining positions vis-a-vis providers.

Posted by: justin84 | May 13, 2010 10:35 PM | Report abuse

I oppose the Brownback Amendment (S.#3789) to the Consumer Financial Protection Bureau (or Agency, CFPA) Bill and oppose a similar Snowe-Landrieu Amendment or any exemption to coverage of any entity to the CFPA. Here is my experience in dealing with an auto dealership, the subject of Brownback and Snowe-Landrieu bills. When I bought a car in 2008 I financed a balance through the dealer, who used the manufacturer’s financial branch. I did something un-customer-like, I read the conditions on the purchase agreement. On the front was a statement that the conditions on that page were the contract. On the rear of that paper was a statement that if the loan would be paid early, then the interest would be credited according to the “Rule of 78”. I ask the salesman what that meant … he did not know. Likewise the General Sales Manager, Credit Manager and Owner the agency did not know … 4 persons accustomed to offering credit said they did not know. I felt like the ad of a person asking for the CARFAX. By Googling, I found that “78” in lending refers to the sum of the number of 1 through 12, 1+2+3+4+5+6+7+8+9+10+11+12 = 78 … 12 being the number of monthly payment periods in a year. But my monthly payment periods were for 4 years, 48 months. A proper description would have been the “sum of the numbers” (of payments). There is a simple formula to calculate the sum of the numbers: Sum = (N+1) x (N/2). In this 48-month case it is 1176, calculated (48+1) x (48/2). The statement continues that you will be credited (huh?) the amount on interest according to that method (huh, again). Well in turns out that the interest you paid is not relevant. On the 1st month you owe the entire total interest less 1/1176th of that original total interest. That would make the effective APR enormous. On the second month the credit would be 2/1176ths of the total … and so on. Pee yew!!! I bet not one in a thousand borrowers understands that.
Really, no entity that charges interest should be exempt from the oversight by the CFPA. That agency should change the method of calculating the current antiquated, financially- mathematically-UNTRUE simple-interest annual percentage rate listed in the Truth in Lending Act of 1968 to the mathematically-TRUE compounded APR that is used in the Truth in Savings Act of 1991. It is a on-line statement, “Wherever the words ‘multiplied … by’ occur, change them to ‘compounded … for’”. The CFPA should also ban the “Sum of Number” rebate method. If one exemption (amendment) is allowed to the CFPA then “in the dark of night”, other exemptions will miraculously jump-on.
A F “Bob” Blair Jr.

Posted by: afblair | May 14, 2010 1:07 AM | Report abuse

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