Before 'Obamacare' Falls Sell The Health Insurers

Includes: AET, ANTM, CI, UNH
by: Dana Blankenhorn

Most of those who watched the Supreme Court's recent arguments on the Affordable Care Act came away convinced the act will be declared unconstitutional.

So the time has come to take action, before your portfolio is hammered by this news.

Sell the health insurers.

All the major health insurers, like Aetna (AET), UnitedHealth (UNH), Cigna (CI) and WellPoint (WLP), have been rising this year, based on strong results as the costs of "Obamacare" sink in. Benefits to the industry, especially the broadening of the market to include most all workers, aren't due to kick in until 2014, but the court is due to act by the end of June.

This may sound counterintuitive to some, because insurers lobbied against the bill. What emerged was a regulatory trade-off - control over terms and "community rating" combined with a guarantee of new customers.

If that's gone, what's left?

Doing nothing is one option. But the act was passed specifically because the insurers were losing customers. Employers and employees were finding themselves priced out of coverage, with no control over costs. "Health savings accounts" offer no cost controls, and simply shift the burden from employers to employees, who increasingly opt-out.

The so-called "public option" was that people could buy into Medicare, and that is alive after court action. This takes high-risk groups out of the insurance market, limiting what that market can do to filling gaps in the system, and if offered to more people could savage insurers by making them compete with the government for customers.

A "single payer" system, like that used by the Veterans Administration, is the insurers' worst nightmare. They would be cut out of that system entirely. Their businesses would disappear. But no one is arguing that the VA is unconstitutional, or that government offering healthcare directly to citizens is unconstitutional.

Obamacare, in short, is the best hope insurers have of continuing to thrive, not just survive, and this reality has been reflected in both their results and their stock prices since the act came into force. It is the best possible outcome for the industry.

Anything else, for insurers, is certain to be worse.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.