09-10-2009, 08:22 AM | #1 (permalink) |
Junkie
Location: Ventura County
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Health insurance companies, what is the truth.
I have never seriously looked at health insurance company financial's because I never perceived the industry as an attractive place to invest money. But given the recent comments about the insurance industry I decided to start to look at a few companies in the industry to see what I find.
This morning I looked at Cigna, their primary business is health care insurance. I took a look at historical stock quotes. Yesterday the stock price closed at $29.41. On 9/9/1999 the stock price was $27.83. The stock traded in the $50 range in 2007. In 1989 the stock traded in the range of about $5 per share (adjusted). Between 1995 and 2001 the stock had its biggest run going from about $10 per share to over $50 per share. another run was from 2003 to 2007 where the price went from about $12 to $50+. If timed properly an investor could have made an impressive return or could have lost a significant amount of money. The pattern for Cigna was not much different than the general market. There is nothing in the share price that would indicate anything unusual. I looked at the company's most recent 10K annual SEC filing, here is a link: EDGAR Pro The company's profit margin is about 3.2%. Nothing excessive. I looked specifically at their health care segment. They had $13.336 billion in revenue. They had $ 12.320 billion in benefits and expenses paid. a breakdown showed the following: Medical claims expense $ 7.252 in billions Other benefit expenses $.193 Mail order pharmacy cost of goods sold $.961 Other operating expenses $3.914 The profit before taxes was $1.016 billion. they paid $.352 billion in taxes, leaving a net profit of $.664 billion or a profit margin of 5%. Medical claims expense and the cost of pharmacy are payments that directly benefit the insured (hospital, tests, doctors, drugs, medical equipment, etc.) this was 67% of the total benefits and expenses paid, and 62% of total revenue. Other operating expenses would include things like employee costs, rent, utilities, equipment and generally those things every business needs to operate. The government's primary argument with the public option is that they could operate in this area at a significantly lower cost. And, then we are to believe that a company like Cigna could match the government to be competitive, and given that we have to believe that the management at Cigna would have ignored creating shareholder value not cutting those costs and increasing profit margins. The argument by Obama makes no sense to me, does it make sense to any of you and if so how?
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"Democracy is two wolves and a sheep voting on lunch." "It is useless for the sheep to pass resolutions on vegetarianism while the wolf is of a different opinion." "If you live among wolves you have to act like one." "A lady screams at the mouse but smiles at the wolf. A gentleman is a wolf who sends flowers." Last edited by aceventura3; 09-10-2009 at 08:25 AM.. |
09-10-2009, 08:56 AM | #2 (permalink) |
Junkie
Location: Ohio
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It makes no sense to me at all. Per your research a profit margin of 5% will become a considerable net loss if companies are forced to accept pre-ex's, cap out of pocket maximums, andd remove lifetime benefit limits. The only way they will be able to stay in business is to raise premiums to compensate. IMO this plan is meant to completely fase out insurance companies all together and move toward a single payor system in the near future.
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"Your life is Yours alone...Rise up and live it" |
09-10-2009, 09:55 AM | #3 (permalink) |
Easy Rider
Location: Moscow on the Ohio
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I'm not sure where Cigna would cut costs to compete with a not-for-profit alternative but the board must be pleased with the current management and existing profit margin. The CEO made $30.16 million last year and $120.51 million over the last 5 years.
I continue to believe that cutting insurance costs helps but is not the primary problem as long as the out of control health care provider costs which they insure continue to rise faster than people's incomes. #53 H Edward Hanway - Forbes.com |
09-10-2009, 10:18 AM | #4 (permalink) |
Asshole
Administrator
Location: Chicago
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You are missing something very important here - IBNR.
Incurred But Not Reported That's going to be 10-15% of their expenses and it's a number that may or may not ever be realized. Insurance company balance sheets are notoriously tricky to read. I submit that, unless you're an accountant with a strong insurance background or an accuary, that you aren't going to make sense of them, at least for this discussion.
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"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin "There ought to be limits to freedom." - George W. Bush "We have met the enemy and he is us." - Pogo |
09-10-2009, 10:55 AM | #5 (permalink) | |||||
Junkie
Location: Ventura County
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So on one hand we have a guy who has been with a company 30+ years, a company with a $8.5 billion market cap, $19 billion in revenues, 30,000+ employees, and we have a D-end who may get 10 sacks and sign a few autographs. Give or take a few mil, I am betting Cigna shareholders are getting a better deal. Oh, and Hanway's stock in the company (he owns .37% of it or assuming a market cap of $8 billion - $31,450,000 got a nice 50% haircut last year.) means he has skin in the game. {added} I love this, please stop me! Quote:
{added} Please...need help...please stop me. Quote:
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__________________
"Democracy is two wolves and a sheep voting on lunch." "It is useless for the sheep to pass resolutions on vegetarianism while the wolf is of a different opinion." "If you live among wolves you have to act like one." "A lady screams at the mouse but smiles at the wolf. A gentleman is a wolf who sends flowers." Last edited by aceventura3; 09-10-2009 at 10:44 AM.. |
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09-10-2009, 11:09 AM | #6 (permalink) | |
Asshole
Administrator
Location: Chicago
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Also ask CIGNA how the IBNR for their P&C business that they sold to Travelers (assets only, BTW) is doing 10 years after the transaction and still before the books are closed on it. Hint: 145% loss ratio. Ace, you're just not qualified to make sense of these numbers and you plain old don't know what you're talking about. I work in the industry and look at these numbers fairly often and I'm not qualifed either. You're WAY out of your depth, and it's glaringly apparent that you're making assumptions that are based in ignorance. If you want to have this argument about the government option, I'm happy to do so, but assuming that ANY insurance company has a handle on IBNR losses is assine, especially when I had the COO of Markel tell me 5 hours ago that it's impossible to do. The context was health care reform and the insurance industry. Yes, I spoke to Paul Springman this morning. I've known him for years.
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"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin "There ought to be limits to freedom." - George W. Bush "We have met the enemy and he is us." - Pogo |
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09-10-2009, 11:19 AM | #7 (permalink) | ||||||
Junkie
Location: Ventura County
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You assume you know my background and professional experience? what does that say about you? Quote:
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{added} Here is a challenge for you. Have him read what I wrote and ask him to comment. {added} Here is another challenge for you. If he gave me his loss results over the past 10 years or more and a current distribution of his existing book of business, I'll calculate his IBNR and be pretty close to what it will actually prove to be.
__________________
"Democracy is two wolves and a sheep voting on lunch." "It is useless for the sheep to pass resolutions on vegetarianism while the wolf is of a different opinion." "If you live among wolves you have to act like one." "A lady screams at the mouse but smiles at the wolf. A gentleman is a wolf who sends flowers." Last edited by aceventura3; 09-10-2009 at 11:34 AM.. |
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09-10-2009, 12:20 PM | #8 (permalink) | |
Easy Rider
Location: Moscow on the Ohio
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I don't think a comparison of insurance executive compensation with sports and celebrity superstars would be helpful in explaining how they can best compete with non-profits. |
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09-10-2009, 12:25 PM | #9 (permalink) | |||
Asshole
Administrator
Location: Chicago
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www.markelcorp.com
It's a publicly traded company. All the information will be right there. Knock yourself out. Quote:
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And poor investment returns rarely take down insurance companies. Ace, I don't have to assume that you're not qualified to have this kind of discussion, nor do I need to know your background. It's glaringly obvious that you don't know the first thing about how to read an insurance company's balance sheet since you are very obviously unfamiliar with the terms used on those sheets.
__________________
"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin "There ought to be limits to freedom." - George W. Bush "We have met the enemy and he is us." - Pogo |
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09-10-2009, 12:56 PM | #11 (permalink) | |||
Junkie
Location: Ventura County
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---------- Post added at 08:52 PM ---------- Previous post was at 08:41 PM ---------- Quote:
An insurance company does reserve for IBNR. IBNR is an expense item for them. Here is a link to some simplified info on insurance accounting for those interested. http://www.casact.org/library/studyn..._Final2007.pdf Quote:
I don't know what more to say. ---------- Post added at 08:56 PM ---------- Previous post was at 08:52 PM ---------- Gee, re-read what I wrote. The primary focus of looking at the 10K was on "overhead".
__________________
"Democracy is two wolves and a sheep voting on lunch." "It is useless for the sheep to pass resolutions on vegetarianism while the wolf is of a different opinion." "If you live among wolves you have to act like one." "A lady screams at the mouse but smiles at the wolf. A gentleman is a wolf who sends flowers." |
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09-10-2009, 01:15 PM | #12 (permalink) | |
Asshole
Administrator
Location: Chicago
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Kemper was specifically taken down by unexpectedly large IBNR claims in 2002, mainly because of the IBNR from the mid-90's. Reliance was around for 175 years but got taken down by - dundunDUN - under-reserved IBNR claims for Workers Compensation. Ace, let me know if you need me to find you this documenation. It's all readily available. You don't know what more to say because you've obviously reached the depths of your knowledge. None of this has been a personal attack. A personal attack would be "ace, you're a big stupidhead" when obviously you're not. You're just ignorant of many of the details of the topic at hand, which isn't an insult. It just means that you don't know what you're talking about.
__________________
"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin "There ought to be limits to freedom." - George W. Bush "We have met the enemy and he is us." - Pogo |
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09-10-2009, 01:37 PM | #13 (permalink) | |
Crazy, indeed
Location: the ether
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And even then your argument is circular. "If they could operate at a lower cost they would" isn't really a valid argument. |
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09-10-2009, 01:37 PM | #14 (permalink) |
Lover - Protector - Teacher
Location: Seattle, WA
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I love how internet experts with access to Google start to think they're on-par with actual experts.
I'm not sure this is worth your time, Jazz. It's patently clear from both the language and style that one person in this conversation has a specific personal understanding of the numbers involved here and one does not.
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"I'm typing on a computer of science, which is being sent by science wires to a little science server where you can access it. I'm not typing on a computer of philosophy or religion or whatever other thing you think can be used to understand the universe because they're a poor substitute in the role of understanding the universe which exists independent from ourselves." - Willravel |
09-10-2009, 02:41 PM | #15 (permalink) | |||||
Junkie
Location: Ventura County
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That IBNR is a guess?
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Ace, let me know if you need me to find you this documenation. It's all readily available. Quote:
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Do they use low wage employees, reducing professionalism and hurting service? Do they rent cheap office space? Do they buy pens at volume discounts? Or, is the thought that government can pull that trick off bullshit? Assume the government can do it. How is Cigna going to compete. Are they going to fire highly paid employees? Are they going to be able to match the fact that the government pays no income tax? Are they going to go from being profitable to losing money? How long will that last? Will they cut services? will they go out of business? What??? Think it through for me, and give me your conclusion of what happens with the public option.
__________________
"Democracy is two wolves and a sheep voting on lunch." "It is useless for the sheep to pass resolutions on vegetarianism while the wolf is of a different opinion." "If you live among wolves you have to act like one." "A lady screams at the mouse but smiles at the wolf. A gentleman is a wolf who sends flowers." |
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09-10-2009, 02:52 PM | #16 (permalink) | |
Crazy, indeed
Location: the ether
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The four main components of overhead in American companies are marketing, underwriting, corporate services and dealing with claim eligibility in a system with so many different plans and options. A simple payer system has lower overhead in all these areas. Since that is not in the cards for the US, a public option can significantly improve on costs at least as related to marketing and corporate services. And all of this without even touching on the issue of whether you are actually reading the reports right, as Jazz seems a lot more qualified to do that than I am. |
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09-10-2009, 03:21 PM | #17 (permalink) | ||
Asshole
Administrator
Location: Chicago
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Yes, ace. Because any good actuary will tell you that IBNR is, at the root, a "best guess". It is impossible to accurately predict, as seen with the California regulatory changes for WC in the late 90's.
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__________________
"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin "There ought to be limits to freedom." - George W. Bush "We have met the enemy and he is us." - Pogo |
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09-10-2009, 03:28 PM | #18 (permalink) |
... a sort of licensed troubleshooter.
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More than one of every five requests for medical claims for insured patients, even when recommended by a patient's physician, are rejected by California's largest private insurers, amounting to very real death panels in practice daily in the nation's biggest state, according to data released today by the California Nurses Association/National Nurses Organizing Committee.
I hope I'm not that 1 in 5 the next time I need heart surgery, especially if it's an emergency (which is a real possibility). |
09-10-2009, 03:31 PM | #19 (permalink) |
Asshole
Administrator
Location: Chicago
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That's an excellent point, Will. "Death committees" are very much alive and well and doing a brisk business. Why, just the other day, they denied a liver transplant to a teenaged girl in Texas, who subsequently died.
__________________
"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin "There ought to be limits to freedom." - George W. Bush "We have met the enemy and he is us." - Pogo |
09-10-2009, 04:03 PM | #20 (permalink) |
... a sort of licensed troubleshooter.
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I can forgive turning down a few cases here and there, perhaps over things like elective surgery or so experimental that they were a danger to the patient, but turning down cases recommended by doctors and at that high a frequency really makes me question whether or not the industry—at least here in California—can handle the responsibility of providing the service.
Jazz, if (and this is of course a massive if) the US were to ever become single-payer, would you be willing to shift over to doing administrative work in the public medical service? |
09-10-2009, 07:31 PM | #22 (permalink) | |
Easy Rider
Location: Moscow on the Ohio
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09-10-2009, 07:57 PM | #23 (permalink) | |
... a sort of licensed troubleshooter.
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You don't go into business to help people, you go into business to make money. That's what businesses do. If you can make a ton of money by helping people, great, but that's pretty rare. Medical insurance companies employ lawyers, too, and they're likely very good at ensuring that the language denying the claim is air tight. "That wasn't covered" or "the procedure is investigational" are incredibly difficult to demonstrate as fraudulent in court. |
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09-10-2009, 08:27 PM | #24 (permalink) | |
Junkie
Location: Ohio
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Being in the industry I have to take slight offense to the assumption that these claims were denied for illegal means. there is no proof that this is the case. You are inferring something without any proof, this is something that you jump all over conservatives for,(birthers, death panels etc) without substantial proof this is irresponsible on your part to make the claim.
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"Your life is Yours alone...Rise up and live it" |
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09-10-2009, 08:47 PM | #25 (permalink) |
... a sort of licensed troubleshooter.
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I never claimed anything was illegal (nice strawman). It's not illegal to deny a valid claim because validity is a matter of opinion. What is fact, something no one can hope to deny, is that medical insurance companies deny claims that are backed up by doctor recommendations, putting a bureaucrat between you and your doctor. What is fact is a 40% denial rate. What is fact is that medical insurance companies are for-profit businesses, and publicly traded insurance companies have a responsibility to stockholders. What is fact is some people are denied care despite the fact that the care would save their lives.
Edit: and speaking as a victim of the greed of the insurance companies—I pay about $8000 a year for my insurance because I have a "preexisting condition"—I take offense to the uninformed defenders of the industry. Last edited by Willravel; 09-10-2009 at 08:50 PM.. |
09-11-2009, 04:40 AM | #26 (permalink) | |
Asshole
Administrator
Location: Chicago
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2) I'm primarily a negotiator/salesman, more than anything else, and I imagine I would be spectacularly bad at administrative work. 3) Even in a single payer world, there is still the need for folks like me, as demonstrated by the fact that London is the largest insurance market in the world and has a single payer system. I'd probably just change my focus.
__________________
"They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin "There ought to be limits to freedom." - George W. Bush "We have met the enemy and he is us." - Pogo |
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09-11-2009, 07:30 AM | #27 (permalink) | |
Junkie
Location: Ohio
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__________________
"Your life is Yours alone...Rise up and live it" |
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09-17-2009, 10:09 AM | #28 (permalink) |
Living in a Warmer Insanity
Super Moderator
Location: Yucatan, Mexico
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Not to change the entire track of the discussion but I'm confused by some points being made. One day I turn on the news and I hear the US can not have a public option because the government is incapable of doing anything well, certainly not within budget. The next day I hear the same group of people complaining that the public option would work so well no insurance company could possibly compete. Then you have the complete BS of "death panels" et el.
Seems like throwing crap at a wall and hoping something sticks to me.
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I used to drink to drown my sorrows, but the damned things have learned how to swim- Frida Kahlo Vice President Starkizzer Fan Club |
09-17-2009, 10:19 AM | #29 (permalink) | |
... a sort of licensed troubleshooter.
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09-17-2009, 02:39 PM | #32 (permalink) |
Darth Papa
Location: Yonder
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A friend of mine had an emergency appendectomy a week or two ago. Laparoscopy being what it is, he was up and going--slowly, but going--by the end of the day. Amazing.
His insurance company is covering the surgery.... But not the anesthesia. I guess their preference would have been that he bite on a stick. Discuss. |
09-17-2009, 03:08 PM | #35 (permalink) |
... a sort of licensed troubleshooter.
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That doesn't tell you there's a problem with the system? If a doctor can't fill out the proper paperwork to help to heal or even save the life of a patient... what's the benefit of having the insurance company? And are you really suggesting that 1/5 cases in California are turned down due to clerical error? If that's true, there is a systemic clerical error problem that's costing lives. If it's not true, the insurance companies are turning down people even though everything is in order.
It's lose/lose. |
09-17-2009, 03:11 PM | #36 (permalink) | |
Junkie
Location: Ohio
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__________________
"Your life is Yours alone...Rise up and live it" |
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09-17-2009, 03:31 PM | #38 (permalink) |
Getting it.
Super Moderator
Location: Lion City
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This is one of the reason why the Canadian system is good. The only one deciding who gets what procedure is the doctors. There are no insurance types dictating what can or cannot be done.
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09-21-2009, 04:05 AM | #40 (permalink) | |
Junkie
Location: Ventura County
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If you are suggesting that there are insurance companies that "guess" thier IBNR and have gone out of business because their "guess" was wrong - I accept that. I would also add that may be the reason they went out of business. If you know actuaries who call what they do making "best guesses", I don't know what to say to that - but the irony is that even when I go to Vagas and play craps or blackjack I don't make guesses - I know the odds of each bet and make informed choices.
__________________
"Democracy is two wolves and a sheep voting on lunch." "It is useless for the sheep to pass resolutions on vegetarianism while the wolf is of a different opinion." "If you live among wolves you have to act like one." "A lady screams at the mouse but smiles at the wolf. A gentleman is a wolf who sends flowers." Last edited by aceventura3; 09-21-2009 at 04:08 AM.. |
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