Shares of health insurers and pharmaceutical companies gained yesterday (Monday) after a new version of the Senate's healthcare reform bill eliminated the so-called public option. But it's the next few weeks on Capitol Hill that will determine the long-term effects that Congressional reforms will have on health-related sectors.
As one of the worst December snowstorms on record passed over Washington last weekend, Senate Democrats successfully negotiated to get the 60 votes needed to clear the first of three motions to thwart further debate on the bill and pave the way for final passage of the bill on Christmas Eve.
"It defies logic that we are now expected to vote on the overall, final package before Christmas with no opportunity to amend it, so we can adjourn for a three-week recess even as legislation will not fully go into effect until 2014," said U.S. Sen. Olympia Snow, R-ME.
Senate Majority Leader Harry Reid, D-NV, came to last-minute agreements with moderate Democrats and two independents on the bill, which removed a government-sponsored insurance program that would compete with health insurers. Instead, companies like UnitedHealth Group Inc. (NYSE: UNH) and Aetna Inc. (NYSE: AET) would get 31 million new customers who would receive coverage by 2019, according to an estimate by the Congressional Budget Office (CBO).
While the Senate still has to reconcile its bill with the one the House passed on Nov. 7, Credit Suisse Group AG (NYSE ADR: CS) analyst Gregory Nersessian raised his price targets on seven insurance companies, including UnitedHealth and Aetna. The others were Amerigroup Corp. (NYSE: AGP), Cigna Corp. (NYSE: CI), Humana Inc. (NYSE: HUM), Molina Healthcare Inc. (NYSE: MOH) and Wellcare Health Plans Inc. (NYSE: WCG).
"The ultimate passage of health care reform, expected early next year, will serve as a positive catalyst for the managed care universe," Nersessian said in a note to investors obtained by The Associated Press.
Among the changes to the bill is a higher Medicare payroll tax increase to 0.9%, from 0.5% earlier, for those who make more than $200,000 or families making more than $250,000. And Reid dropped plans for a tax on cosmetic surgery, in favor of a 10% levy on indoor tanning salons.
Although Reid's bill would bring millions of new customers to medical-related companies, it comes at a price: billions of dollars a year in taxes, including a tax on insurers that offer high-value health policies.
Another concession Reid made to get the vote of moderate Nebraska Democrat Sen. Ben Nelson was for the rest of the 49 states to absorb Nebraska's estimated $45 million in costs to expand the reach of Medicaid, the federal-state health program for the poor.
The deal drew criticism from both Republicans and Democrats alike.
"For Senator Nelson - there's one state in the union where new enrollees for Medicaid will be signed up, and it won't cost anybody in that state money. It's not my state," said Sen. Lindsay Graham, D-SC, in an interview with CNN. "I've got a 30% African-American population, a lot of low-income African-Americans on Medicaid."
Speaking on the Senate floor yesterday (Sunday), Sen. Tom Coburn, R-OK, labeled Reid's deal with Nelson a "full Nelson."
"It's a shame the only way we can come to a consensus in this country is to buy votes," he said.
The Senate bill would set up new online purchasing exchanges so the uninsured could shop for policies. To get the necessary votes, Reid made a compromise that would separate government funds from being used to pay for abortions while also requiring the proposed exchange to offer at least one plan that doesn't cover the procedure.
Senate Finance Committee Chairman Max Baucus, D-MT, expects House and Senate negotiators to come up with a compromise bill before U.S. President Barack Obama gives his State of the Union address in late January or early February. Baucus expects the final bill to more closely resemble the public option-free Senate version.
"They're realists," Baucus said of House members after the vote. "You don't get 60, you don't get a bill. Passing health care is much more important than falling on their swords."
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