Values of Health Care Stocks Increase Fearlessly as Public Option Is Dead by Dennis Kucinich

Dandelion Salad

by Dennis Kucinich
kucinich.us
Dec. 22, 2009

Wall Street Celebrates Senate’s “Significantly Watered Down” Health Care Bill

Dear Friends,

Wall Street is celebrating “Health Care Reform.” According to an industry insider report yesterday by MarketWatch (Gibson and Britt) health care stocks rallied as the bill moved through the Senate, particularly since there is no public option in the bill to compete or compare with insurance company rate-making.

“Health care investors find themselves having confronted their greatest fear, and, while there will be legislation, it will be significantly watered down …” said Mike O’Rourke, chief market strategist at BTIG LLC. As a result, shares of Aetna gained 4.7%, while Cigna rose 3.9%. United Health and Wellpoint “rallied to 52-week highs.”

Once the bill becomes law, insurance companies will gain at least 26 million new customers and as much as $50 billion in new annual revenue from private-pay and from government subsidies as people will be required by law to purchase private insurance. While certain expenses are capped in the bill, it appears that premium costs are not.

The Senate’s move prompted Gregory Nersessian of Credit Suisse to raise his price targets [predicting greater strength of stock performance] on seven insurers: Aetna, Cigna, Amerigroup Corp., Humana Inc., Molina Healthcare Inc., UnitedHealth Group Inc. and Wellcare Health Plans Inc.

” … the [bill] is a positive first step” Nersessian said in a note to clients. “The heavy lifting will come when Congress is forced to slow the rate of medical cost growth through more aggressive payment restrictions and utilization controls down the road,” he said – meaning that this particular industry insider is predicting limitations on benefits.

Marketwatch also wrote that none of the new standards on how much the industry must spend on medical expenses will “impose great hardship on any insurers.”

Tomorrow: My analysis of the health care legislation as it currently stands.

Sincerely.
Dennis

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