Health Insurer Stocks Rise Despite Obama's Call For Change
President Barack Obama's speech to Congress urging a health-care
overhaul eased investor concerns that insurers will face
competition from a government-sponsored health plan, helping move
stocks a bit higher Thursday.
The president's address, however, wasn't necessarily cause for
relief for the managed-care industry, as Obama called for changes
that could be troubling for the industry, such as suggesting
insurers should take on greater financial risks and provide more
affordable plans at the same time.
Obama, in an address Wednesday to a joint session of Congress,
advocated a public health-plan option while appearing willing to
consider alternatives. He called the public insurance option "only
one part of my plan" and "only a means" to the goal of making
coverage available to those without it.
Before the speech, managed-care stocks rallied, with
UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP) hovering
near their 52-week highs. The industry saw continued gains
Thursday, and Citi analyst Charles Boorady expects shares to
benefit further from higher member volumes as the passage of any
health-coverage legislation this year should expand enrollment.
Obama's speech was hardly friendly to the managed-care industry,
however, as the president said a public health plan would "keep
pressure on private insurers to keep their policies affordable and
treat their customers better," and avoid some of the "excessive"
administrative costs and executive salaries of private
Paul Keckley, a health-care economist and executive director of
the Deloitte Center for Health Solutions, said in a memo that "the
tone of the president's remarks was sharply critical of the
insurance industry, more so than of any other sector in the current
Even without a public health option, health-care analyst Sheryl
Skolnick, managing director at Pali Capital, sees troubles for
managed-care companies in Obama's proposals. She noted he called
for an end to annual and lifetime caps on the coverage people can
receive and for limits on out-of-pocket expenses, while also
demanding affordable options.
"And that combination ... I think is a near impossibility," she
said. "I don't know how you build an actuarially sound model" with
that kind of product. Eliminating coverage caps asks insurers to
take on great risk, and they can bear that risk "only at an
extremely high price." The Democrats, said Skolnick, want to tax
the high-premium health plans.
"This is where the devil is in the details," the analyst
Because it appears Obama will not garner significant Republican
support, the plan will be almost a purely Democratic one, and "that
means that there will be these pretty significant insurance market
reforms," Skolnick said. "He basically said insurance plans have to
be forced to offer products that have open ended risks at low
Obama called for charging insurance companies a fee for their
most expensive policies, "which will encourage them to provide
greater value for the money," he told Congress. That coincides with
the Senate Finance Committee's draft framework for health-care
legislation - one that analysts expect the overhaul to resemble -
which calls for a $6 billion annual fee on the health insurance
Hospitals, which earlier agreed to provide $155 billion in
Medicare and Medicaid savings over 10 years, "appear to be
unscathed in all of this," she said, and the proposals seem to be
positive for pharmaceutical companies, as Obama aims to fill the
gap in Medicare prescription coverage that forces many seniors to
pay high out-of-pocket costs.
Despite the lingering concerns about the overhaul, most managed
care stocks rose Thursday. Cigna Corp. (CI) recently traded up 4.3%
to $30.68, while Health Net Inc. (HNT) rose 4% to $17.29. Humana
Corp. (HUM) added 3% to $39.22, and other major health insurance
stocks climbed between 1% and 2%.
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285;