Tickers in this Article: UNH, WLP, CI, AET, MHS
Many health care stocks have performed fairly well in the last year. In spite of the down market, the health insurance and drug providers have kept their businesses robust, showing that health care has been as near to a recession-proof business as there is. However, with political reform on the horizon for the health care system, it is unclear as to how extensive changes in the health care business will be and what changes will result for the stocks.

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Reform - Really, This Time
Going back at least as far as the 1970s, there has been talk alongside the growth of health care costs and the health care industry of reform. Coverage for the uninsured has been an ongoing national issue and some partial attempts (such as in the Clinton administration) were aimed at changing the health care system, but the task seemed to overwhelm Washington. So this time, with the Obama administration, will it be different?

There is a sense that health care costs have reached the point where reform will actually happen. Costs have continued to grow significantly and the U.S. spends far more per capita on health care than many other countries yet receives less value. With the system in place largely employer-based, what might reform mean for the providers and their stocks? (For more, see Fighting The High Costs Of Healthcare.)

Two Leading Stocks, For Now
United Health Care (NYSE:UNH), one of the leading firms in the healthcare sector, rebounded from its March low to within 20% of its former 52-week high. Analysts' estimates still peg its 2009 earnings at $3.06 a share with $3.28 a share for 2010. The company has been historically well-run and is a cost-conscious operation, but a recent Standard & Poor's outlook has mentioned no positive outlooks for any health insurers, as S&P describes the economy still as "deteriorating" and cites the potential negative effects that health care reform will have as it may blunt the sector's business.

Aetna (NYSE:AET), another major health care provider, was also smashed in the market, its stock price falling to $14.21 from a high of $47.54 a share in the past year. It has since rebounded to $26.00, while analysts' consensus sees the company with healthy earnings growth in the next couple of years. As in the case of United, this might be tempered by the x-factor of the potential government reform. In one extreme scenario mentioned in the S & P outlook, if the government takes a significantly larger role and mandates a universal system with controls in pricing and services, the industry's emphasis would have to change from network management to plan and service design, which would alter the operations models for the companies. This could mean less money for the providers than their current managed care models.

Broad-Based Change?
Wellpoint (NYSE:WLP), Cigna (NYSE:CI) and Medco Health Solutions (NYSE:MHS) are other large health care providers that have included integrated pharmacy benefit plans (PBMs). Wellpoint, however, sold its NetRx unit to PBM Express Scripts for nearly $4.675 billion, while speculation recently centered on Cigna possibly following suit by selling its PBM unit. Whether sales of the PBM units mean a shift away from integrated health care provider models for companies, or whether it has anything at all to do with positioning companies in light of anticipated industry reform is a question investors might wonder about.

Medco, which handles the prescription services for the bulk of United Health's commercial accounts, along with its extensive other prescription drug-related services, is still a huge player in the prescription drug services field with its $21.75 billion market cap. But how this potentially dominant position will be re-shuffled through possible reform is unknown. Susan Heavey speculates in a Reuters piece on potential winners and losers after reform that the managed care providers such as United Health and Wellpoint, along with pharmaceutical companies "as having the most to lose." The managed care companies are on the front lines of most of the hot issues having to do with cost. (For a look at other components of the healthcare sector, see Measuring The Medicine Makers.)

From Stable to Uncertain
Health care stocks of all stripes have been long regarded as staple stocks that are recession resistant and have exhibited the properties of long-term growth. Their relative stability or at least resiliency in terms of rebounding during this market downturn has been impressive, but cannot be taken for granted given the uncertainty of health care reform. The days of health care stocks being automatic winners may end. Most likely, the changes made will not run to the extremes; any potential reform will probably be mitigated by the political process which never speaks with one voice. But the central question is who pays? Ultimately, investors, consumers and taxpayers is usually the answer, and it seems no different here. (For more, see Investing In The Healthcare Sector.)

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