Not wanting to sound like a broken record, but it’s been more than a year now since I’ve thought health plan stocks (and I include the PBMs in this category) were well over-extended. Luckily I haven’t had my money where my mouth has been as they’ve kept on going up, not the least of which has been Pacificare’s unbelieveable 80% increase since the election. For the past five years health plans have benefitted mightly from the rise in health care costs. While they have been able to pass on the increase in their costs to their customers such as employers and governments, they have also been able to use more sophisticated techniques to assess the risks in their insured populations to make much more profit per member. Some plans such as Aetna have used this to great effect in turning around seemingly losing businesses, while others like Pacificare have benefitted from the current political ideology that is going to try to shift more of the Medicare population into the private sector.

But at some point the gravy train must end.

Meanwhile PBM stocks have also rallied as they have been able to continue to sell their services to employers, even while some of their customers such as the new watchdog group RxCollaborative are clearly unsure of what value the PBMs bring in reducing their Rx costs. Of course PBMs will also benefit from adminstering the new Medicare Part D. While these insurers will continue to be a powerful force in the business of health care, it may be that their fast growth in earnings in the last few years will take a pause. That means buyers of their stock at these levels might have second thoughts.

In evidence let’s introduce the action in Pacificare’s stock today. It beat its nubmers according to the Street, although not according to some other sources. But in any event its profits have nearly doubled over the last year.

I’m not quite brave enough to go short, but The Street, which is often thouguth of as being a mouthpiece for Wall Street Bears is clearly signalling its thoughts. Meanwhile Pacificare’s stock didn’t react too well to the earnings news.

The giant health insurer, best known for its Medicare coverage, posted fourth-quarter earnings Thursday that handily beat Wall Street expectations. But the stock, which has rocketed nearly 80% since President Bush’s re-election, tumbled 1.8% to $61.78 after the report.