Speculators Bet Reform Won’t Hurt Industry


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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19 replies »

  1. 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, but that is a totally different matter, and a problem that they also created.)
    My insurance doesn’t pay for most of what I do to maintain my health and to remedy my illness. This is not my idea of Healthcare. It’s more like Health-No-Care. So, how can you IMPOSE insurance and infringe on my freedoms. I do not want to pay for Insurance at all. I personally do not want insurance. But, I also don’t want insurance to drive up the cost of treatment for those without insurance (like it is now). I do not want to pay for someone else’s poor life style or indiscretions. I want the rewards and consequences of my lifestyle to be mine. (I know there are those who are hurting and need our help. And we need to address this serious problem. But, insurance for all is not the answer. There are lots of other ways to solve this.)
    Currently I have health care insurance and they pay very little of what I determine I need for my own care. I am motivated to stay away from pills and conventional doctors and most especially hospitals. My healthcare includes Chinese Herbal medicine, Homeopathy, Visual Imaging, Physical Therapies, Vitimine therapy, and other effective forms. And these are very inexpensive and effective for me. At 65 I am healthy and taking no regular pills or medicine. I understand this to be quite a rarity these days.
    But insurance decides my practices do not qualify for their coverage- that “these are not effective.” So, I am left out- that is, I pay for insurance but cannot collect. And when insurance has great numbers (esp helped by legislation) behind them it tends to drive my healthcare practicioners out of business. What gives Insurance this right?
    In reality, the interests of Insurance, or any business, or any government, are not in the personal, nor the moral. And governments must take care to protect the minority. Even with good intentions, profit making, promotion of power and position, no one else can or should ever make my health decisions for me– not even in the name of money!
    So, I will refuse any mandated insurance and tax payers will spend their resources on enforcement of innocent citizens like me who will stand up for ourselves. I will say “show me where in the Constitution it says to be a citizen I must buy insurance.”
    Abraham Lincoln reminds us that Democracy is NOT rule by majority. It is manifested in the protection of the minority.

  2. 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.

  3. 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 anytime soon either.
    Eclipsys has some real issues going ahead forward including leadership & staffing issues and a somewhat saturated install base and is somebody I would look to potentially short as they have generally ridden the market rise but shorting any of the health IT vendors right now would be a gutsy (and probably stupid) move.

  4. 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?

  5. 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:
    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 the politicians who created the failed Medicare and Medicaid and VA Health Systems in charge of fixing our health insurance markets. Ted Kennedy’s old single-payer plan, which has failed to provide quality and affordable care in every country in which it’s been tried, won’t work in the U.S. either.

  6. 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 department stories. Avoid gas stations, movies, restaurant chains, etc. If you must get a staple go to a small local store. Let’s let our representative and big business know we have had it!
    Please take the risk. It will work.
    Pass this on…
    New Britain, CT

  7. 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?

  8. 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 Physician Insurers Association of America, a trade group of about 50 doctor-owned malpractice insurers, they cover about 60% of U.S. doctors in private practice and hospitals. Why are the profits of these doctor-owned insurance companies that doctors want to protect?
    Limits on the rights of people hurt by medical malpractice will victimize them and their families further while helping neither patients nor doctors. The real beneficiaries will be insurance companies, including the doctor-owned malpractice insurers.

  9. 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.

  10. “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. I think tort reform is used as cover for bill padding by hospitals and docs otherwise it could just be called fraud.

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  12. 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 in the mix of discussion. It’s time!

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

  14. “In Utah, our average monthly family rate is $867 for a $500 deductible plan. Some of the family rates within the ?Utah Insurance Exchange Portal? are approaching $700.00 now.”
    “The private insurance sector can be corralled…”
    You consider that, “corralled? So, is this bringing down health costs or just administrative/risk costs for insurers? Just wait a minute and I’ll write you a check for $8400.
    “$867 for a $500 deductible plan”
    what type of plan/coverage?

  15. Being a Utah health insurance underwriter for http://www.BenefitsManager.net and http://www.DentalInsuranceUtah.net I have the opportunity to consult within many state insurance committee meetings. Some interesting changes took place in Utah with the passage of House Bill 188 that other states should pay attention to and perhaps the federal legislation. The bill created a state insurance pool requiring private health insurance carriers to come together and underwrite risk. Through governmental guidelines (which I have traditionally opposed in the past) they created a arena of underwriting rules that essentially guarantees the participating insurance carriers a ?no loss? or ?no gain? over each other. What this essentially means is that they pool the underwriting medical risk and spread it evenly among each carrier. All the sudden, we see guaranteed issued policies. We see rates drop by as much as 13% In Utah, our average monthly family rate is $867 for a $500 deductible plan. Some of the family rates within the ?Utah Insurance Exchange Portal? are approaching $700.00 now. To see more of HB 188 and see how Utah wrangled change without increasing taxes or rationing go to: http://www.prweb.com/releases/utah_health_insurance/health_care_reform/prweb2614544.htm
    The private insurance sector can be corralled into cooperation where they can meet their goals. You have to understand that health insurance carriers are only looking for a 4-5% administration fee. That is it and they are more efficient as compared to a governmental portal that will cost more money. Take a look at Utah folks!

  16. It is true that a lot of money is spent on health information, but is also true that so far not found a cure for terrible diseases and quickly spread throughout the body, it calls on the authorities to have a better distribution of that money because it costs so far in vain, I have friends who suffer from cancer, HIV, Alzheimer’s, and so far we can not find any solution to the disease, only control their pain medication, but until you take the same? actually be one day cure? please you have to be sensible and remember that nobody is free of disease and therefore it is important for everyone, it is important to reflect on the subject and provide information on findrxonline, website has good information that can help different people in many the world.

  17. If this were to be true, in another five years, the $10,000 cost of family insurance will be $15,000 and more and more employers will have dumped people either into higher-deductible health plans or into the uninsured pool. The continued increases in health care costs will impact virtually everyone before it will create a constituency that will support universal health care, instead of the public option now. In the meantime, you’ll continue having a corporate bureaucrat between you and your doctor, who will become an employee of the local hospital.