It's easy to get confused with all the commentary on HCR.  

The other day, Dylan Rattigan on MSNBC was giving Rep. Wassersman-Schulz (D-Fl) a hard time about the health care package.  He disputed her contention the bill was a big win for consumers.  He wanted to know why the stock prices for Big Insurers (e.g.m, Aetna, Cigna, Wellpoint, United Health)shot up if this was such a big loss for them.  

Unfortunately, he was so exercised on the point, he didn't give his guest a chance to address the question.  This is an important question.  Asked another way, the question is "Why are stocks in this sector at a 52-week high if this legislation is such a blow to their profits?  

That's worth investigating.  Follow the money and things get real clear real fast.

The validity of the point Rattigan was trying to make is clear even with this thumbnail of a stock chart. This chart covers the last three months.  It compares the S&P 500 to stock prices for some large health insurance companies.   Each one is represented by a different color as follows:

  1. S&P 500       (brown)
  1. Cigna         (red)
  1. Aetna         (blue)
  1. Wellpoint     (gold)
  1. United Health (green)

If you look at the S&P 500, a broad indicator of the market, you see it is fluctuating but largely unchanged.  However, all the health insurers took a dump towards the end of September, for an average loss of about 12%.  They stay down throughout October.  However, they start rising in November to reverse those losses.  Last week they all moved again, this time to gain over the S&P.  In sum, these stocks have posted an average 10% gain, after making up their losses.  That's about a 20% swing in value.  That's a big move compared to the overall market.

It's true these stocks are more volatile than the overall index.  That's the point of the index, to smooth out volatility.  The fact these stocks all move in concert shows they are being affected by the same forces.  That's not surprising.  Stocks in the same sector should be responding in roughly similar ways to the same news.  The interesting point is when they made their moves.  That reflects the conversation of the time.  

Where were we in mid-September?

On September 9, Obama had made a clear pitch for the public option in his speech on health care.  This resonated with the public.  A CBS poll from that time showed growing public suport for a public option.  The reason people argue for a public option is to provide a competitive break on run away prices.  That would not be good for profits.  The stocks took a dump.

Where were we in early November?

Lieberman had become the center of attention.  He made it clear he wasn't supporting a public option.  Of course, it was not just Joe blowing smoke that moved the stocks.  Even if he did support it, the public option was so diluted it wouldn't matter.  As Ezra Klien noted, the public option at that point wouldn't be available to 90% of the people in states that allowed it.  Nor would it have any pricing leverage over private competitors.  Basically it was going to be hollow.  Safe in the knowledge their profits weren't going to get hammered, the stocks started to rise.
What happened in early December?

On December 10th, Pelosi caved on the public option.  That followed the death of expanded Medicare.  That killed any hope the House would force this back on track.  In other words, the profits of these companies are going to be just fine.  Once again, stock values jumped.  

The bottom line:  During those different time points a lot of ink got spilled, pixels got burned, and bytes bit it.  But for all the noise, one thing is clear. If you want to know how the insurance companies are viewing the legislation, just follow their stock prices.   The image on the left is a comparison for the same stocks over the last year.  See the cliff they all fell off towards the end of February?  That was their response to Obama's February 24 speech in front of a joint session of congress where he announced health care reform was a central pillar of his recovery strategy.  It didn't take the folks at Cigna long to figure out that was just noise.  They aren't alone.  Wellpoint and Aetna are both buying back large blocks of their own stock.

As noted in the comments below, all this shows is people who buy stocks are responding to the political kabuki by betting insurers will do just fine.  To boot, it looks like Obama is perceived as having less influence on the direction of heath care insurance reform now than in February.

Originally posted to 8ackgr0und N015e on Sat Dec 19, 2009 at 10:13 PM PST.

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