Word: premiums
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...after steep declines in the past month, prices are staggeringly high. Consider that the companies that make up Standard & Poor's 500 sell for at least 30% more than what it would take to replace all their tangible assets, down to the last paper clip. That's a record premium...
REIT investors have enjoyed a spectacular 35% gain in the past 12 months. That's why Barton Biggs, chief global strategist at Morgan Stanley, recently cut his exposure, noting that the stocks trade for 27% more than the underlying property they own. But that premium may be justified, given that REITs make it easy to buy and sell commercial real estate for any size portfolio. Besides, property values are rising from the ashes of the '80s bust, and rents are going up too. Biggs believes REITs will return 12% over the next 12 months. Steve Hash, an analyst at Lehman...
They too have bargaining power, since their contracts with employers often specify what medical insurance is to be provided for members. Some unions are exploring ways to put a greater percentage of their premiums into care. The United Automobile Workers and General Motors have launched pilot projects to work with hospitals and doctor groups to bring down the proportion of premium dollars going to administrative costs. In Flint, Michigan, they got hospitals to eliminate 450 unneeded beds so that more money from HMOs will go to care for patients in the beds that will be kept...
...such a pace that some analysts think the three that currently have 78% of the business will soon have all of it. They "would own all the doctors and hospitals and could charge us whatever they wanted," says a company official. Well before things got to that pass, companies' premium bills were rising rapidly, and no one could quite explain why. "We were writing checks into a system where we didn't know what we were getting for services in return," says Fred Hamacher, vice president of compensation and benefits for the Dayton Hudson department-store chain--though...
...omens are good: 1997 bids from medical groups came in at an average cost per patient per month that was 8.5% lower than B.H.C.A.G. had anticipated. But these estimates are basically guesses. If they are wrong, the companies as self-insurers will pay the difference between actual costs and premium revenues out of their own pockets. That will not bankrupt Pillsbury or Honeywell, but it might sour them on the idea...