Healthcare Speech: No News Is Good News

Healthcare stocks are rallying on Thursday in the wake of the President’s address to the joint sessions of Congress on healthcare reform. The lack of additional information in the President’s speech prompted Leerink Swann & Co. healthcare analyst John Sullivan to say, “The plan for healthcare reform Obama introduced last night consisted of broad strokes…We’ve heard it all before.”

Understandably investors of insurers and managed care providers have been extremely interested in any clue as to the likely outcome of the proposed reforms, and a worst case scenario could severely damage their ability to generate profit. The public option that is part of the proposal would pit private insurance companies against a government insurance plan, and has been seen by investors as a losing proposition. President Obama said that the public option is not the centerpiece of his plan, and would be willing to discuss other possibilities. Some suggest that the crux of the plan may be reforms regarding the treatment of pre-existing conditions. Either way, the fact that the much anticipated speech did not have any unexpected sanctions or proposed taxes to insurance companies can be seen as a positive.

“We still expect benign signed reform legislation in 2009 and view such an outcome as good news for health-care investors,” Sullivan said.

Benign legislation, in that view, would be one without a public option, one that calls for insurance cooperatives, or one that only offers a public option if other health-care reform initiatives don’t drive down costs. — MarketWatch.com 9/10/2009

There is no doubt that conditions in the industry are evolving very rapidly, and insurance stocks are going to be very volatile on any news out of Washington these days. Stocks such as Humana (HUM), Health Net (HNT), and CIGNA (CI) are all higher by at least 3% on the news, or lack there of, from the President’s address. At Ockham, we are positive on the valuations of many stocks in the sector like Humana and Wellpoint (WLP), as you can tell from our valuation chart for those we cover in health care plans industry. Of course, many of these companies are selling well below their historical valuation ranges due to the uncertainty.

However, we think it is much too turbulent a time to really know what the value of these companies will be in two or three years (much less next month). The historical valuations may be of little consequence when all is said and done. For that reason, we are not advocating buying these stocks until the future is a bit more clear. Speculators may want to catch a bounce believing that the President will not be able to pass all of his proposed reform, but that is not our game.

Original post

Comments

[Dirk McCoy:]

I don't get the complaints about how much of our GDP is spent on health care. What do folks want to spend it on- food? Government? Gasoline?

As living standards continue to go up worldwide (as free trade and technology enable the continued march towards greater productivity) why wouldn't we spend more money on feeling better and living longer?

But there are better ways to assure people get healthcare than create a healthcare version of public schools where thousands of dollars are confiscated and then the "free" option becomes the (nearly) only game in town. If Congress would enable school vouchers, perhaps I'd have more confidence that a public option won't eventually create a subsidized, inefficient bureacracy that doesn't offer choice as some central planning authority determines we're spending "too much" on healthcare...

Sep 10 09:37 PM

[Alan Young:]

Dirk, why do all other developed countries provide health care to ALL their citizens at 30-60% less cost than we do? Obviously we could improve on this, with a big bonus for other sectors from the $$ we don't waste.


On Sep 10 09:37 PM Dirk McCoy wrote:

> I don't get the complaints about how much of our GDP is spent on
> health care. What do folks want to spend it on- food?

Sep 11 12:16 AM

[YoYoMama:]

Because our system is FOR PROFIT, controlled by the insurance companies, who are driven not to provide care, but to make money.

As the costs of health care rise, insurance companies seek more ways to limit ways to pay on your care. They cut back in nefarious ways, targeting individuals with NO bargaining power, rescinding policies and eliminating those with so much as a sniffle on their medical records. While those on group plans find their rates increasing about 10% every year, those of us on personal plans find our rates raised 20%+ every year, with reduced benefits.

You people on group plans don't feel the pain we do, because your employer is eating part of the rising costs on your behalf. But let me ask you this - are you finding your rates being REDUCED every year, or increasing? Is your coverage getting BETTER every year, or worse?

I thought so. So do you now still believe that the rising costs of health care are no big deal?

If you still do, come walk in my shoes as a personal health insurance policy holder for 7 years. I guarantee you will start complaining, and big time.

On Sep 10 09:37 PM Dirk McCoy wrote:

> I don't get the complaints about how much of our GDP is spent on
> health care. What do folks want to spend it on- food? Government?
> Gasoline?
>
> As living standards continue to go up worldwide (as free trade and
> technology enable the continued march towards greater productivity)
> why wouldn't we spend more money on feeling better and living longer?
>
>
> But there are better ways to assure people get healthcare than create
> a healthcare version of public schools where thousands of dollars
> are confiscated and then the "free" option becomes the (nearly) only
> game in town. If Congress would enable school vouchers, perhaps
> I'd have more confidence that a public option won't eventually create
> a subsidized, inefficient bureacracy that doesn't offer choice as
> some central planning authority determines we're spending "too much"
> on healthcare...

Sep 11 09:49 AM

[BullnBear:]

I have watched over the last several days as many of our financial channel reporters here in the U.S. have put out the opinion that they believe the Health Insurance providers are strong and will have no problem with the current Health care reform legislation. They are probably basing this opinion based on analyst who report on this sector because if they really looked at everything else they are reporting on in the capital markets they would see that this is an impossible argument.

I don’t believe that the Heath Insurance companies will look anything like what you see today with our current administration and in fact I believe they will be non-existent in the future as publicly traded entities. My opinion isn’t political; simply a matter of following the money trail and that money trail is going away.

If you caught the news late Friday on the Tire tariffs with China you will understand that our administration has absolutely no intentions of letting health care reform fail. When we are so dependent on China for purchasing our debt but we are willing to appease some who are critical to the health care debate in congress by stepping on China then you have a clear picture of what is important here.

Look at the insider sales at UNH, WLP, and CI and ask yourself why is so much of this taking place and please don’t bother to tell me the “insiders sell for a variety of reasons” argument because I just look back to the mortgage crisis and things look real similar now with the health insurance companies insider sales as they did then with the mortgage companies and the way that the insiders were dumping shares at that time.

For disclosure purposes I’m short WLP via shares as well as puts.

Sep 12 02:21 PM