Health Insurance Companies See Stocks Soar Post-mass. Election
Health Insurance Companies See Stocks Soar Post-Mass. Election
The Republican party isn't the only group celebrating Scott Brown's surprising Senate win in Massachusetts. Health insurance companies are also reaping the benefit. Brown campaigned and won largely on his opposition to Democratic-led healthcare reform. His presence in the seat belonging to the late Ted Kennedy makes healthcare reform more difficult, if not impossible, to pass. With his victory, the Democrats lost the 60-vote Senate super-majority needed to prevent Republicans from mounting a filibuster and preventing the bill from passing.
As the special election results rolled, many health care investors were optimistic. Brown had been leading in polls for the past several days prior to the election. Their optimism led to the Dow Jones Industrial Average reaching a 15-month high. The stocks of individual health insurance providers were largely responsible for the jump to 10,725.43. Even if political maneuvers in Washington manage to get health insurance reform passed, it will likely be in a further watered-down form.
Congress has spent most of this month negotiating provisions of the nearly $1 trillion-worth bill. Many in the House of Representatives have tried to insert more progressive provisions into the legislation, an effort that will most likely be futile after these Massachusetts election results. The health insurance industry has gradually become more comfortable with the Senate's less comprehensive version of reform, especially when compared with the bullet they dodged in the form of the public option. Shareholders have followed suit. This development will be even more amenable for them. The probability of healthcare reform legislation failing entirely has increased from 10% to nearly 30% since Brown's election, according to experts.
Why do health insurance companies and their investors look negatively upon healthcare reform? Obviously, a government-run public option that would be able to compete with and undercut private insurers was a huge threat; however, that possibility appeared like a lost cause even prior to the special election. The Senate plan currently hanging in the balance would provide financial subsidies to uninsured Americans whose annual incomes fall under specified income levels. That would bring millions of new customers to the market seeking low cost medical insurance. The trade-off for insurers is that they would have to participate in regulated federal exchange markets in order for their plans to be subsidized. These markets come with increased regulations, which will ban health insurance companies from denying coverage to people with pre-existing conditions, charging women more for health insurance than men, or charging older individuals significantly more than younger individuals. All of these new rules have the potential to increase costs and decrease profits for insurers. The chance of not having to contend with those laws is heartening to shareholders.
In total, the investor rally resulted in managed care health insurance stocks trading up by one to five percent. HMOs such as Coventry Health Care (6% increase), Humana (7.1%), and Aetna (4.2%) led the charge. Financial analysts predict that those firms with the largest Medicare Advantage market share will benefit most; the Senate's healthcare reform proposal includes a cutback of subsidies for that program.
Pharmaceuticals' stocks also benefited from Massachusetts' election of Scott Brown. It makes it less likely that drug companies--including Merck, Eli Lilly, and Pfizer--will face shorter patent protection periods for new biotech medications. Unfortunately, hospitals have not been as lucky. Major hospital groups are poised to benefit from healthcare reform, because they shoulder the the cost of treating uninsured patients in their emergency rooms. They would be reimbursed for the cost of treatment if millions of those people acquired medical insurance. With that becoming less likely, the stocks of companies like Tenet are down up to three percent.
The Republican party isn't the only group celebrating Scott Brown's surprising Senate win in Massachusetts. Health insurance companies are also reaping the benefit. Brown campaigned and won largely on his opposition to Democratic-led healthcare reform. His presence in the seat belonging to the late Ted Kennedy makes healthcare reform more difficult, if not impossible, to pass. With his victory, the Democrats lost the 60-vote Senate super-majority needed to prevent Republicans from mounting a filibuster and preventing the bill from passing.
As the special election results rolled, many health care investors were optimistic. Brown had been leading in polls for the past several days prior to the election. Their optimism led to the Dow Jones Industrial Average reaching a 15-month high. The stocks of individual health insurance providers were largely responsible for the jump to 10,725.43. Even if political maneuvers in Washington manage to get health insurance reform passed, it will likely be in a further watered-down form.
Congress has spent most of this month negotiating provisions of the nearly $1 trillion-worth bill. Many in the House of Representatives have tried to insert more progressive provisions into the legislation, an effort that will most likely be futile after these Massachusetts election results. The health insurance industry has gradually become more comfortable with the Senate's less comprehensive version of reform, especially when compared with the bullet they dodged in the form of the public option. Shareholders have followed suit. This development will be even more amenable for them. The probability of healthcare reform legislation failing entirely has increased from 10% to nearly 30% since Brown's election, according to experts.
Why do health insurance companies and their investors look negatively upon healthcare reform? Obviously, a government-run public option that would be able to compete with and undercut private insurers was a huge threat; however, that possibility appeared like a lost cause even prior to the special election. The Senate plan currently hanging in the balance would provide financial subsidies to uninsured Americans whose annual incomes fall under specified income levels. That would bring millions of new customers to the market seeking low cost medical insurance. The trade-off for insurers is that they would have to participate in regulated federal exchange markets in order for their plans to be subsidized. These markets come with increased regulations, which will ban health insurance companies from denying coverage to people with pre-existing conditions, charging women more for health insurance than men, or charging older individuals significantly more than younger individuals. All of these new rules have the potential to increase costs and decrease profits for insurers. The chance of not having to contend with those laws is heartening to shareholders.
In total, the investor rally resulted in managed care health insurance stocks trading up by one to five percent. HMOs such as Coventry Health Care (6% increase), Humana (7.1%), and Aetna (4.2%) led the charge. Financial analysts predict that those firms with the largest Medicare Advantage market share will benefit most; the Senate's healthcare reform proposal includes a cutback of subsidies for that program.
Pharmaceuticals' stocks also benefited from Massachusetts' election of Scott Brown. It makes it less likely that drug companies--including Merck, Eli Lilly, and Pfizer--will face shorter patent protection periods for new biotech medications. Unfortunately, hospitals have not been as lucky. Major hospital groups are poised to benefit from healthcare reform, because they shoulder the the cost of treating uninsured patients in their emergency rooms. They would be reimbursed for the cost of treatment if millions of those people acquired medical insurance. With that becoming less likely, the stocks of companies like Tenet are down up to three percent.
Source...