Hospital Index's Decline Suggests Obamacare Plan Is in Question

We watched President Obama’s press conference from Tuesday and spent the last 18 hours internalizing it. There are a couple of key takeaways that are worth emphasizing that relate to a few Research Edge TAIL (up to three years) investment themes.

The first relates to healthcare. Our Healthcare Sector Head Tom Tobin has been involved in grass root efforts to advise the Obama Administration on developing a palatable healthcare plan. He’s also written some very poignant notes on the topic, so we’d encourage you to chat with him. In effect, healthcare reform is becoming a major political issue for President Obama. Our summary of President Obama’s comments relating to healthcare from the press conference are outlined below:

Complicated issue, very optimistic about progress. Forming the plan will not add to the deficit, thereby burdening the taxpayer. We will find the money within the existing healthcare system. Want to reduce cost, “can’t throw good money against bad habits.” If you like your existing plan, you can keep it, but maybe you don’t. We need to fix the system now, so it won’t be broken for everyone. 1 of 5 dollars we spend will be on healthcare in next decade. Status quo unacceptable. Reform is a necessity.

President Obama is making it very clear that he will expend political capital to reform healthcare, or at least attempt to reform healthcare. This is obviously very controversial, especially with independents who were the key factor in electing Obama. We have seen Obama’s approval rating nose dive over the last few weeks, which has a direct correlation with the hospital stocks and, of course, his ability to actually get meaningful legislation passed.

Our healthcare team put together the chart that is attached below, which compares President Obama’s approval versus the hospital index. In lockstep, the hospital index has declined with Obama’s approval rating. The biggest drain on earnings for hospital companies is bad debt, which should only accelerate in the coming quarters with the increase of unemployment, even if at a lesser rate. Therefore, Obamacare would in theory benefit hospitals as the insured become a larger percentage of the populous, which should lead to a decline in bad debt. The action in hospital stocks seems to be suggesting that the viability of the Obama’s plan is very much in question.

The other obvious call out from President Obama’s press conference is a real lack of the focus on foreign affairs. As the Politico reported:

A couple of surprising words were missing from President Obama’s 55-minute news conference on Wednesday: “Iraq” — and “Afghanistan. Also MIA: “Korea,” “Pakistan,” “soldiers,” “surge” and “war” — as well as the Army, Navy, Air Force and Marines. The omissions were partly a result of the short attention span of the press, which did not ask about those topics after the president did not mention them in his opening statement. But the silence on those subjects also provides a striking illustration of one of the singular differences between Obama and his predecessor.

We have been discussing this point repeatedly. For better or worse, President Obama is much less focused on foreign affairs than his predecessor. The TAIL risk here is that this public representation, i.e. not discussing foreign affairs, is a representation of a private allocation of time. In a time, when foreign policy risk is becoming more and more serious in North Korea, Iran, and Pakistan, there is risk that a lack of focus by the administration will lead to an inadequate, or reactionary response. While playing defense on a potential North Korean missile launch towards Hawaii is appropriate if the North Korean regime is not a serious risk, it does send a message to other enemies of the United States that could potentially embolden them, which is a TAIL risk we need to consider.

Comments

[Mad Hedge F...:]

It's fear of the unknown that is killing theI met with Dr. Christina Romer, chairman of the Council of Economic Advisors, who practically tore my ear off proselytizing her new found religion, health care reform. Appointed by Obama to advise him on all things economic, Dr. Romer had this hot potato dropped in her lap six weeks ago in one of her daily briefings to the President. With the enthusiasm and ebullience of a new found convert, Dr. Romer laid out goals that were nothing less than revolutionary. She plans not to just “socialize” medicine, but to fundamentally rebuild the entire health care infrastructure of the US. Tax incentives will be created to encourage value over volume. People can keep existing plans they like. Technology will be applied to cut costs, not only to come up with more complicated and expensive cures. Existing subsidy programs for the poor will be folded into the new plan, offering coverage to 46 million uninsured. Providers will get cash incentives for prevention. Individuals will gain the advantages of risk pooling. Pre-existing conditions will be covered. All of this will be made revenue neutral through the taxation of employer paid insurance and savings through new efficiencies. If the administration can pull all of this off, the benefits will be huge. An annual 1.5% reduction in health care costs will add 8% to GPD and increase family incomes by $10,000/year by 2040. This will boost corporate profitability and competitiveness, labor mobility, the quality of life, and reduce the budget deficit and unemployment. Failure will see health care spending rocket from the current 18% to 33% of GDP in 30 years, and the number of uninsured explode to 76 million. Romer spewed out statistics as only an economics PhD from MIT can. Oh, and now or the stuff you care about. The economy will shrink in Q2, see no growth in Q3, and turn positive by Q4. The issue doesn’t affect me, as I have always avoided health care, insurance, pharmaceutical, and biotech stocks like the plague; they being subject to capricious government approvals, and therefore inherently unpredictable. These are the opening shots of a political dogfight that will ensue over the next three months and dominate the media.
m.

Jun 25 08:29 AM

[hsr0601:]

As we know, the public option currently being discussed is modeled after Massachusetts Plan, under which about 97% of all Massachusetts residents are now covered. However, in recent estimates, CBO left out two crucial features, including a 'public health insurance option' and 'employer mandate and an individual mandate'. The estimates with 'no employer mandate and an individual mandate' ended up with 36 million uninsured.
By contrast, in case the proposed provisions with respect to the strong public option, medical IT, increased efforts in prevention, and a broader array of cost-saving plans and beyond add to the Massachusetts Plan with the provision of employer mandate and an individual mandate, the cost containment does not matter at all. And most importantly, the promising stem cell research is making its way.
To date, private insurers have coexisted profitably with Medicare and Medicaid for many years.
Basically, healthy society leads to better productivity and better performance.

Jun 25 09:50 AM

[hsr0601:]

It is untenable that the ailing people who need to take some rest are forced to keep working, due to the employment-based system with no other choice, and overly high health care prices. It may be one of the reasons that America spends over $2 trillion annually on health care, and today 75 percent of that money goes to chronic disease, there are 133 million Americans with one or more chronic illnesses, such as heart disease, arthritis, hypertension and diabetes.
As seen in the case of swine flu, most of the patients who took some rest and care at early mild stage have got recovery avoiding deadly outcome.
The employment-based system in the U.S. with no other choice and overly high health care prices is similar to an automobile without 'a brake' or 'a safety system', which come at at price, yet is even better than a fatal accident.
Public and private schools across the world help each other, and to date, private insurers have coexisted profitably with Medicare and Medicaid for many years. As we know, public health and education are essential parts of life, in my understanding, health comes first. That is why all of the industrialized countries have public policy in place, I guess.

Jun 25 09:50 AM

[ozzy:]

This is a slippery slope, one that BHO does not understand, or does not care what the outcome is. Every country in the G20 that has nationalized health care has worse outcomes than the US. Cut doctor fees 20% and do you think we will get the best and brightest to go into medicine? I think not. Do not be fooled by the comparison to the Canadian system, their outcomes do not compare to the US. We need to change the system, but exactly what does that mean?Those that have coverage and can afford it get penalized to help those that can't take care of themselves, or chose not to??

Jun 25 11:42 AM

[Duude:]

Anyone who listened to the President would have easily concluded that he managed to hit the softballs, but got called out on not swinging the bat at all with any harder questions. He dodged answering questions by doing what is so common today, by ignoring the question and just saying what was on his own mind. One would have thought he would have had some preparation. Hitting softballs isn't anything more than an infomercial. Obama says we can keep private insurance, and I don't doubt some of the most luxiourous plans bought by the well to do will exist hereafter. What I find disturbing is Obama's silly schoolboy response to questions pertaining to health insurance companies going bankrupt. He states that those that believe in free market economy ought not to doubt the ability of private enterprise. Obama clearly doesn't understand that with the government both the referree and the player, they will set the rules as to what must be covered by insurance companies, which the government plan will cover as well. But where insurance companies are in the business of exchanging risk for potential profit, the government subsidizes their plan making them impossible to beat from the consumer's standpoint. For instance, while insurance companies may institute a plan with a co-pay, the government can make their plan free. The end result is people will naturally flock to the government plan and insurance companies are out of business. Is this bad? Yes. With the government firmly in control of heatlhcare insurance for all but the richest Americans, they WILL then start dealing with widening deficits. They will ration care. They will restrict certain care for people that are deemed to be too old. They will tax sodas, alcohol, cigarrettes, and junk food to engineer behavior change. They will cut payments to hospitals while characterizing them as greedy. They will then seek to lower the bar of physician qualifications to work in the field of health. This is just the way things evolve.

Jun 25 02:01 PM

[diogeron:]

"Romer spewed out statistics as only an economics PhD from MIT can."

Perhaps it's because I also hold a Ph.D., but I strongly prefer an "evidence based" approach to decision making as opposed to the "faith based" approach of Obama's predecessor.

Jun 25 03:46 PM

[User 419446:]

VIDEO Canadian Healthcare Is Cracking - Multiple Months Waiting List Just To See A Doctor

current.com/items/9015...

> This is a slippery slope, one that BHO does not understand, or does
> not care what the outcome is. Every country in the G20 that has nationalized
> health care has worse outcomes than the US. Cut doctor fees 20% and
> do you think we will get the best and brightest to go into medicine?
> I think not. Do not be fooled by the comparison to the Canadian system,
> their outcomes do not compare to the US. We need to change the system,
> but exactly what does that mean?Those that have coverage and can
> afford it get penalized to help those that can't take care of themselves,
> or chose not to??

Jun 25 06:24 PM

[a. palmer jr.:]

One way that will convince me to go with Obama's plan is when the Congress of the United States is on the same plan I can get on, and for the same price.

Jun 25 09:15 PM