Still No Death Blow for Insurers (AET, HUM, UNH)

The Obama speech to a joint session of Congress last night did not exactly deliver the death blow to health insurers.  It also did not give the insurers the keys to the palace.  Despite the call for an exchange and the notion of a public option still being included, there was a backdoor left open for this to be in regional markets where there is limited competition.  There are other potential workarounds that need to be met, and the real wild card is going to be over new entrants in pre-existing conditions.  So far we are seeing a positive move in top health insurers like Aetna Inc. (NYSE: AET), Humana Inc. (NYSE: HUM), and UnitedHealth Group, Inc. (NYSE: UNH).

The notion that could work against the healthcare and insurance providers is that President Obama made it clear that he is sticking with reform and that the public option is not off the table.  One new mandate is working on tort reform to allow doctors to practice medicine and not have to do over-treating because of lawsuits.

While many concentrate on the public option,  pre-existing conditions are perhaps the biggest dark horse in the entire scenario.  This is constantly vilified by President Obama and other critics.  It is an understandable argument.  It is also easy to argue against as certain major claims need to be adequately absorbed by someone.  Literally one hemophiliac in the insurance pool can effectively take up the premium profits for more than 1,000 healthy patients.   The math is scary and it gets easy to understand where a business owner would not want to be on the hook for that going in.

If the public options comes into play, this could affect the companies the most which offer individual insurance and small group coverage (under 50 employees).  This health care reform, ergo “health insurance reform,” is still a very unfinished chapter.

As long as no public option becomes the mandate and as long as companies won’t be crushed with new fees and taxes if they stay out of the public option, then the health insurers will not be systematically wiped out nor will they be relegated into a dwindling death spiral.  If insurance companies are forced to effectively be taxed to carry the public plan, well that will be a big thorn in their side. By the action in these stocks, there is still a long way to go before thinking insurance companies are going to get wiped out too badly.  Yet there is also no slam dunk in their favor either.

Aetna Inc. (NYSE: AET) is up 1.1% at $29.59, Humana Inc. (NYSE: HUM) is up 2% at $38.84, and UnitedHealth Group, Inc. (NYSE: UNH) is lagging with a gain of 0.2% at $28.40.  Be advised, that these stocks and this entire sector is going to be up for interpretation and will therefore be ongoing battleground stocks.  This is an unfinished chapter of a very long book in American history.

JON C. OGG
SEPTEMBER 10, 2009