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Health Insurers' Optimism May Be Overdone
On Tuesday, shares of major health insurance providers gained a temporary reprieve from comments that seemed to indicate that the Obama administration may be willing to soften its stance on the issue of healthcare reform. The iShares Dow Jones U.S. Healthcare Provider Fund (NYSE: IHF) moved 2.2% higher on the day, but the stocks that are holdings of this ETF may be getting ahead of themselves.
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Uncertainty Still Looms
Rahm Emanuel, the White House Chief of Staff, told The Wall Street Journal that competition among health insurers is of greater importance than a government-run healthcare plan. "The goal is to have a means and a mechanism to keep the private insurers honest," he said in an interview. "The goal is non-negotiable; the path is negotiable."
The final details of any comprehensive health care reform legislation are still very much up in the air, but these comments were enough for investors to latch onto hope that the administration does not have it in for insurers. WellPoint (NYSE:WLP), UnitedHealth Group (NYSE:UNH), Aetna (NYSE:AET) and Cigna (NYSE:CI) closed up 2.4%, 4.5%, 6.3% and 7.5% respectively.
Much of the health care reform debate has centered around whether or not the government should create a public insurance plan to compete with these private insurers. President Obama has been a strong advocate of such an option, but he may now be open to alternative solutions, provided that there is adequate competition among the major insurance companies. It is this competition that the White House sees as being essential in driving down health care costs and expanding coverage.
Absent any detrimental legislation, these insurers still have plenty of obstacles in their path despite the conventional wisdom that could lead these stocks to being labeled as "recession-proof." Cost containment issues have plagued this sector in recent quarters. And with the unemployment rate recently hitting a 26-year high of 9.5%, enrollment numbers in the commercial business segments of these insurance companies will continue to be challenged.
The Bottom Line
While the willingness of the Obama administration to work with the health insurers on industry reform legislation is unquestionably good news for shareholders in these companies, it may be too soon to pile new money into these stocks. A great deal of uncertainty will continue to plague this space until more concrete details emerge. Moving into these stocks, without a more complete picture as to the direction that government is ultimately going to take, could prove to be a source of regret further on down the road. (For an indepth look at the insurance industry, check out our Investopedia Special Feature: Insurance 101.)
IN PICTURES: 10 Insurance Tips For Homeowners
Uncertainty Still Looms
Rahm Emanuel, the White House Chief of Staff, told The Wall Street Journal that competition among health insurers is of greater importance than a government-run healthcare plan. "The goal is to have a means and a mechanism to keep the private insurers honest," he said in an interview. "The goal is non-negotiable; the path is negotiable."
Much of the health care reform debate has centered around whether or not the government should create a public insurance plan to compete with these private insurers. President Obama has been a strong advocate of such an option, but he may now be open to alternative solutions, provided that there is adequate competition among the major insurance companies. It is this competition that the White House sees as being essential in driving down health care costs and expanding coverage.
Absent any detrimental legislation, these insurers still have plenty of obstacles in their path despite the conventional wisdom that could lead these stocks to being labeled as "recession-proof." Cost containment issues have plagued this sector in recent quarters. And with the unemployment rate recently hitting a 26-year high of 9.5%, enrollment numbers in the commercial business segments of these insurance companies will continue to be challenged.
The Bottom Line
While the willingness of the Obama administration to work with the health insurers on industry reform legislation is unquestionably good news for shareholders in these companies, it may be too soon to pile new money into these stocks. A great deal of uncertainty will continue to plague this space until more concrete details emerge. Moving into these stocks, without a more complete picture as to the direction that government is ultimately going to take, could prove to be a source of regret further on down the road. (For an indepth look at the insurance industry, check out our Investopedia Special Feature: Insurance 101.)
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