Health Care Stocks Anticipate Weak Reform Bill, If Any

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 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 that 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.

Comments

[Graham and ...:]

This sounds about right; a palliative for now. Real reform should wait until the modern 1960s, because we're in the modern 1930s, and have more pressing needs like financial and foreclosure reform.

Jul 27 01:50 PM

[Conrad de A...:]

Even if the bill is stronger than the consensus fears/hopes, some stocks in the sector should do well. They tend to be smaller and do business in certain niches. Here’s more if you’re interested:

moneywatch.bnet.com/in.../

Jul 27 01:52 PM

[YoYoMama:]

If all you say is true, I guess we'll have to wait another 10 years for substantive change.

By that time, our insurance premiums will have DOUBLED yet again, as they did from 1999 to 2009, and bankruptcy filers WITH insurance will likely rise to nearly 100% from a current 75%.

Don't worry, those without insurance will continue to do fine, thanks to the taxpayer. With no changes or requirements for insurance coverage they will continue to max out our emergency rooms and send us, the taxpayers, the bill. I'm sure we're all happy about that.

In the meantime, as you say, insurance companies will continue to prosper, racking up impressive profits that please the shareholders by rationing out care based on denying pre-existing conditions, and paying on claims only when they feel about it.

And with no cost-containment measures such as torts reform or Medicaid fraud prevention even entering the current discussion, expect more claim rationing by insurance companies as they seek to maintain their profitability.

Gee, I feel so much better!

Jul 27 02:38 PM

[Donald Johnson:]

As I've blogged many times, most of the problems with the health insurance markets could be resolved with some changes in state and federal insurance regulations that wouldn't cost taxpayers a dime.

If ObamaCare goes down the drain, maybe the hard left members of Congress who've been blocking real reforms because they wanted to force Americans into a Government HMO (Fannie Med) will start listening to Sen. Jim DeMint and others who have better ideas than Teddy Kennedy and Henry Waxman.

Jul 27 04:17 PM

[Donald Johnson:]

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: 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:

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 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.

Jul 28 05:13 PM

[YoYoMama:]

All this I would agree with. I'm not an Obama Care fan, per se. But I am all for health insurance reform.

Like it or not, Obama has Congress and the country talking about this issue. This has only happened with Democratic presidents, which is a shame. Republican leaders and Republicans in general have a knee-jerk, baby-out-with-the-bath... reflexiveness about this issue that makes me a little ashamed of my party.

Without reforms of any kind, the system, as it stands, will continue to penalize those who need health care reform the most - those with pre-existing conditions, small businesses, and self-employed individuals.


On Jul 27 04:17 PM Donald Johnson wrote:

> As I've blogged many times, most of the problems with the health
> insurance markets could be resolved with some changes in state and
> federal insurance regulations that wouldn't cost taxpayers a dime.
>
>
> If ObamaCare goes down the drain, maybe the hard left members of
> Congress who've been blocking real reforms because they wanted to
> force Americans into a Government HMO (Fannie Med) will start listening
> to Sen. Jim DeMint and others who have better ideas than Teddy Kennedy
> and Henry Waxman.

Jul 29 08:55 AM

[lorddarley:]

How could any rational person say they want this "reform" law when they don't know what's in it? What's the rush?

We deserve to see a detailed description before it is passed. And we should get a certification from all these elected "reformers" that they, not some kid on their staff, has actually read the fine print.

I've been to Town Meetings where the average citizen is more informed and better prepared than Congress.

Jul 30 08:15 AM

[User 253261:]

Why the hell would any insurance company cover people for pre-existing conditions? Thats not insurance.

If you crash your car without insurance, can you go get insurance to cover you for the damage already done?

If the bill fixed anything you mentioned I'm sure a lot more people would be behind it. Just because it says "Health Care Reform" on the title page, doesn't mean its going to help.


On Jul 27 02:38 PM YoYoMama wrote:

> If all you say is true, I guess we'll have to wait another 10 years
> for substantive change.
>
> By that time, our insurance premiums will have DOUBLED yet again,
> as they did from 1999 to 2009, and bankruptcy filers WITH insurance
> will likely rise to nearly 100% from a current 75%.
>
> Don't worry, those without insurance will continue to do fine, thanks
> to the taxpayer. With no changes or requirements for insurance coverage
> they will continue to max out our emergency rooms and send us, the
> taxpayers, the bill. I'm sure we're all happy about that.
>
> In the meantime, as you say, insurance companies will continue to
> prosper, racking up impressive profits that please the shareholders
> by rationing out care based on denying pre-existing conditions, and
> paying on claims only when they feel about it.
>
> And with no cost-containment measures such as torts reform or Medicaid
> fraud prevention even entering the current discussion, expect more
> claim rationing by insurance companies as they seek to maintain their
> profitability.
>
> Gee, I feel so much better!

Aug 04 07:53 AM

[Bianca Cast...:]

has it dawned on you yet that a good many of the uninsured ARE taxpayers?


On Jul 27 02:38 PM YoYoMama wrote:

> Don't worry, those without insurance will continue to do fine, thanks
> to the taxpayer. With no changes or requirements for insurance coverage
> they will continue to max out our emergency rooms and send us, the
> taxpayers, the bill.

Aug 15 09:19 PM