Isn't it ironic: health and life insurance companies have over $1.9 billion invested in fast-food companies, according to a news story on CNN.com. The fast-food companies include such health-promoting and life-extending chains as McDonald's, Burger King, KFC, and Taco Bell (that was some sarcasm to go with the irony).
The numbers come from a new report from Harvard Medical School researchers. The same researchers reported last year that health and life insurance companies owned $4.5 billion in tobacco company stock.
The CNN story includes analysis by public policy leaders who claim that the investments run counter to the insurance companies' financial interests. For example, Sara N. Bleich, PhD, a professor at the Johns Hopkins Bloomberg School of Public Health, is quoted as arguing, "They are essentially killing off their consumer base, so it's not a sustainable model in the long-term. Long-term goals should be consistent with health, because that ensures a large population from which to draw consumers."
But when I read this story, I was immediately reminded of a fantastic investigative report from this week's broadcast of NPR's This American Life. The episode explains how one hedge fund, Magnetar, helped fuel the recent housing bubble with the express purpose of profiting from the bubble's eventual collapse. Magnetar put up the initial money to help financial companies create investment products made up of very risky mortgages. In fact, Magnetar pressured the companies to include riskier and riskier mortgages, seemingly against all logic. The financial companies then sold those products off to other investors, including banks and mutual funds.
The stomach-turning twist: Magnetar was betting against those funds by buying credit-default swaps. This is a way to profit when an investment loses value, like short-selling in the stock market. In this way, if the mortgages defaulted, and the investment product went bust, Magnetar made money. Lots and lots and lots of money, far beyond what they initially invested to help the financial companies put the investment products together.
Magnetar claims that they were simply "hedging their bets." They say they expected the mortgages to be safe investments, but just in case, they bought credit-default swaps as insurance. But the evidence suggests otherwise, as they seem to have invested more money in the swaps than the actual products, and specifically asked that risky mortgages be included.
When I read the CNN story about health insurance investments, I couldn't help but wonder if there is a parallel here. At a minimum, it looks like they are hedging their bets. If Americans insist on choosing unhealthy lifestyles by smoking and eating a fast food diet, the insurance companies will presumably be forced to pay for those choices in healthcare reimbursments. So investing in fast food and tobacco is a kind of insurance -- they can make some money back from our unhealthy habits.
That, I think, is a charitable assessment. It's not exactly admirable, but it's not evil, either. But what if it's more like a Magnetar scenario. Magnetar, by appearance, was offering a product that would help people make money. But behind the scenes, they knew they would maximize their profit when the investments failed. Is it possible that health and life insurance companies actually profit more when our health behaviors deteriorate? As the CNN article points out, most of these companies charge more for people who smoke or are overweight.
Or it may be nothing more than lazy investing -- after all, most of us don't know every single company our retirement or mutual funds invests in. Unless you specifically invest in socially responsible or green funds, you're probably invested in some of these companies, too.
Whatever the reason, the insurance companies' investments are a reminder that turning over public health to a profit-seeking corporation has consequences. At the end of the day, making money has to matter more than health.
UPDATE: The NYT has an article today about a lawsuit against Goldman Sachs for betting against the mortgage funds they created and sold to others.
