Speculators Bet Reform Won’t Hurt Industry

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Speculators seem to be betting that a watered down health insurance reform bill won’t hurt health insurers, hospitals, drug makers or medical device and supply manufacturers.

Stocks for almost all of these health sectors and for exchange trade funds that track health stock indexes turned higher last week. Why?

1. Congress is not going to get health bills through the Senate or the House in face of strong opposition by a minority of Democrats in both houses. This means opponents of the health insurance reform bills will have at least 45 days to convince members of Congress and the public that the bills favored by the president and his hard left supporters in Congress are a bad idea.

2. It is very unlikely that Congress will create a public option health plan, or Government HMO (Fannie Med). The votes aren’t there. This is a bit bullish for health insurers over the short term. White House talk about taxing insurers that offer gold plated health benefit plans makes no sense because few do. If such taxes were enacted, insurers would stop offering or administering such plans, and self-insured employers probably would drop them as long as union contracts didn’t lock them into such plans.

3. If the very liberal Coastal Democrats who lead Congress and most of the five commitees drafting health insurance legislation want to get the support of Democrats from Western, Midwestern and Southern states, they’ll have to up Medicare payments to providers in those states. This is bullish for hospital chains, which operate mostly in the fly-over states.

4. The Congressional Budget Office Saturday threw cold water on the idea of putting MedPac, a panel of self-interested health care and medical experts who would be subject to tremendous political pressure from Congress, in charge of deciding what insurers would cover and how much they would pay for procedures. The panel would save only $2 billion out of trillions over 10 years, the CBO guessed. And it was being generous to the idea that MedPac would save anything. This is good for drug and medical device makers, because it lessens the threat of new price and utilization controls on their products.

5. While www.intrade.com bettors think there’s at least a 46% chance that some kind of health insurance reform will be enacted before year end, the polls are showing Americans are increasingly opposing the bills before Congress. The politicians who created the laws and regulations that make Medicare, Medicaid, SCHIP and state and federal regulations of health insurance markets unworkable failures are promising to fix the health markets. They have less and less credibility every day.

6. Proposals to tax millionaires to pay for covering the uninsured and increasing benefits for others are in trouble, if not dead on arrival.  The economy’s in no shape to be stalled by tax hikes, and there appear to be enough Democrats opposed to the tax to stop it.

7. While the so-called Blue Dog Democrats are stalling health insurance reform for economic and ideological reasons, the Congressional Black Caucus has made it clear that it won’t support a bill that the Blue Dogs will support. Throw in the opposition by anti-abortionists who don’t want the legislation to use taxpayers money to pay for abortions, and you have a pretty complex political problem for President Obama, Sen. Majority Leader Harry Reid (D-NV) and Speaker Nancy Pelosi (D-CA). While the Speaker claimed Sunday that she has the votes to pass health insurance reform, few believe her.

Some Democrats are saying that drafting health insurance reform bills is 70% to 80% done and it won’t take long to get a bill. Other Democrats are saying they want to take the time to write good legislation. The question is, can the Democrats and a few Republicans resolve the last 20% to 30% of the issues that need to be agreed upon to get a bill? It doesn’t look very good for health insurance reform at the moment, but some kind of a bill may pass in the next year or so, if not this year. Presidents Reagan, Clinton and Bush II all enacted major health legislation in their third and later years in office. All three bills have been financial and health care disasters.

Charts for health insurers are here.

Charts for hospital chains are here.

Charts for drug makers are here.

Charts for medical device and supply makers are here.

Charts for long-term care stocks are here.

Chart for health stock exchange traded funds are here.

Click on a chart to see a gallery of charts for a stock or ETF. Disclosure: I own BDX and options on STJ.

Don Johnson blogs at The Business Word Inc. Between 1976 and 1986 he was editor of Modern Healthcare magazine. As its top editor, Don helped build Modern Healthcare, a Crain Communications Inc. publication, into the hospital industry’s leading business magazine and one of the top magazines in the country.

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jackdyck dewidKevin McCoyMike TrusiewiczMG Recent comment authors
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jack
Guest
jack

Thank you. That was exactly what I needed to read today. ccie labs

dyck dewid
Guest
dyck dewid

Insurance is the fox guarding the hen house. Take insurance out of my healthcare decisions. They interfere. They don’t reduce cost at all. They cause a lot of bickering about what they should and don’t cover. Paperwork is horrendous. It’s a mess hardly any lay person understands and it ends up costing us all more. How can we expect someone (Insurance) to cut costs that they are creating by their existence and for which they stand to gain? This is just stupid. (I know they employ a lot of people who would lose their jobs, and that would need attention,… Read more »

Kevin McCoy
Guest

Hi! That’s a nice image of the Capitol. Where did you get it?

Mike Trusiewicz
Guest
Mike Trusiewicz

The companies are betting that their usual methods for controlling votes may work again. Health care reform cannot take its proper form unless congressmen are prevented from taking employment from health care companies or their subsidiaries when they leave office. It is too easy for big health care lobbyists to buy votes by promising future rewards as consultants, lobbyists, etc ….. This lobbying path must be shut down so that health care can be reformed for the benefit of the common person not for the bottom lines of the health care companies.

MG
Guest
MG

Justine – Epic is privately held and will never go public with an IPO as long as Faulkner is CEO. As for McKesson, they have a huge conglomerate with presence in several verticals besides HIT. As for Cerner, they are overvalued if you look at some metrics and are struggling against Epic badly to win the real big deals in the US but they have done a nice job of gradually expanding their presence in several overseas market to diversify away from the U.S. The time to buy Cerner is well past but I wouldn’t take a strong short them… Read more »

Medical insurance
Guest

Peter in Utah –
How long has Utah had a medical insurance exchange?
Does it threaten private health insurance existance?
What % of the market does private insurers have in UT?

Donald E. L. Johnson
Guest

http://www.intrade.com shows speculators think there is a 30% chance that health care reform will be enacted before midnight Dec. 31, 2009, down from 46% about three days ago. Link is here: http://www.intrade.com/ Health insurers’ and hospital companies’ stocks are soaring in anticipation of a watered down health deform bill or, even better, no bill. Link is here: http://www.businessword.com/ The consensus that’s emerging, in other words, is that Obama’s press conference last week hurt the drive to Canadianize health insurance markets in the U.S. Significant minorities of Dems in the House and Senate are showing the common sense to oppose putting… Read more »

Ted guhl
Guest
Ted guhl

If we want a real health plan for everyone we must act. The senate and congress will give in, are giving in, to the demands of insurance and drug industries. For the two days following Labor Day (September 8 and 9) join a nationwide strike to demand a public health plan. This comes from a concerned citizen. There is no organization, group or special interest promoting this. You don’t need to protest or parade – just stay home. Don’t shop, don’t go to work unless you are police, firefighter or medical worker. Close the schools, large pharmacies, grocery stores and… Read more »

Arihant Kothari
Guest

Why cant the benefit of reduced premiums given by employers (EGWP) be passed to employees ( common citizens)?
This practice if adopted properly will ensure that healthcare insurance benefits pass on from doctors, hospitals to common citizens.
What do the others have to say on this?

Greg Pawelski
Guest
Greg Pawelski

The only people who benefit by medical malpractice reform are the doctors and hospitals who commit the malpractice in the first place. Why should innocent victim’s rights to seek compensation be limited? That just rewards the wrongdoers. To help eliminate medical malpractice, state Medical boards have to do a better job of weeding out the bad doctors who cause most of the harm. Just 5.3 percent of doctors are responsible for 56 percent of medical malpractice payouts nationally, according to the NPDB. Why do malpractice premiums keep rising to astronomical levels? The doctors are the insurance companies! According to the… Read more »

Dr. Pandey
Guest

It takes a village to raise a child, reduce obesity. Same is true for health reform.
To succeed you need everyone and to fail you just need one to oppose. It is true everywhere. And here too.
rgds
ravi
blogs.biproinc.com/healthcare
http://www.biproinc.com

Peter
Guest
Peter

“We also have to address medical malpractice in this country. It is totally naive and incorrect of us to blame all of the issues within healthcare on every industry and leave the attorneys out.” Medical lawsuits amount to about 1% of healthcare costs, so eliminating them completely would not do much to bring down costs. Docs will argue that they over-utilize because of the fear of lawsuits, yet no doc on this blog has given comparisons of medical costs from states with and without tort reform. The infamous McAllen Tx has tort reform yet that has not stopped their over-utilization.… Read more »

Anoop Kumar
Guest

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Thank you
Anoop Kumar
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Sheila
Guest
Sheila

We are all talking about healthcare reform with insurance, drug companies, doctors etc, but no where have I heard a discussion on attorneys. What about tort reform? We also have to address medical malpractice in this country. It is totally naive and incorrect of us to blame all of the issues within healthcare on every industry and leave the attorneys out. I know that Washington is run by attorneys, so is not dealing with tort reform a way for Washington to protect their field? We cannot have healthcare reform without tort reform. They go hand in hand. Put the attorneys… Read more »

justine
Guest
justine

HIT companies are going to tank when the corruption is outed. Sell now. Short now. Buy puts. McKesson, Epic, Cerner, Eclipsys.