Can the stock market predict health-care reform?
The graph above tracks the stock prices of Aetna, Wellpoint and United Healthcare Group over the past five years. Those three companies were chosen because they're large insurers with different business models (Wellpoint focuses more on the individual market than Aetna does) and different politics (Aetna is considered friendlier to reform than Wellpoint). You'll notice, at the rightmost edge of the graph, a small spike for the three insurers as the market reacts to news of health-care reform's likely passage.
Running the numbers, Silver estimates that the market values reform at $16 billion or so for the insurance industry. It's a necessarily uncertain estimate, but Silver's assumptions are fairly generous, so if anything, it's probably a bit high. And although $16 billion is a lot of money, it's peanuts in terms of the total reform package. As Silver says, "Over the course of the next ten years, the Senate's bill directs about $447 billion in public subsidies to people for the purchase of private health insurance. (This is in addition to another $400 billion or so in subsidies for the expansion of Medicaid). The $16 billion in value-added, therefore, represents about 3.6 percent of the subsidy."
I want to make a slightly different point: Look at the graph atop this post. This bill is not, in the market's estimation, a gamechanger for the insurance industry. All of these stocks have seen both larger rises and larger falls in the past. None of them have recovered to their pre-crash highs. The market is not viewing the insurance industry in a dramatically different light than was true a year ago.
This is, at best, back-of-the-envelope work. But so too is divining the true worth of the health-care reform bill by tracking the daily fluctuations in the stock prices of insurers. The market is a confusing beast. Maybe it doesn't understand how awesome the health-care bill really is for the private insurance industry. Maybe it foresees a future in which insurers make more money for a period, and then government continues regulating insurance industry behavior and profits, and insurers are eventually driven out of business or into a new type of business that doesn't allow for much in the way of profits. Maybe it thinks the fallout too uncertain for big bets. It's all hard to say. And it makes this sort of thing a bad way to understand the health bills.
December 22, 2009; 4:30 PM ET
Categories: Health Reform
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