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"We can no longer afford to put health care reform on hold."
--President Barack Obama's address to Congress on Tuesday night
Yeah, good luck with that.
No, really, good luck -- I'd like to see my health care costs go down. But, as the president astutely pointed out, we've been trying to reform health care for nearly a century, since Teddy Roosevelt was president. It's long overdue, but it's not going to be easy.
Sure, it's easy to call for lower health care costs, but the reality of the situation is that the United States subsidizes the cost of health care in other countries. Lowering our spending without a concurrent increase in their spending -- and good luck with that -- is just going to stifle innovation at Pfizer (NYSE: PFE ) and Merck (NYSE: MRK ) and keep developmental-stage drug makers like Exelixis (Nasdaq: EXEL ) and Seattle Genetics from ever forming in the first place.
You can't call for finding a cure for cancer in our lifetime in the same breath as calling for lowering health care costs. They're not entirely mutually exclusive, but the development of new drugs costs money, and someone has to pay for it.
Uncertainty is never a good thing for stock prices
While it's clear that the president's plan to boost alternative energy will be a boon to companies like First Solar (Nasdaq: FSLR ) and Suntech Power (NYSE: STP ) , which are currently predicting a difficult 2009, health care investors weren't so lucky in last night's speech.
The speech didn't bring much clarity to the situation -- all we got was a vague mention of electronic health records, which will benefit companies like Quality Systems (Nasdaq: QSII ) and Allscripts-Misys Healthcare Solutions, and another about preventative care.
But that's not what the drug and medical device industry has to worry about. No, the industry is agonizing over the possibility of sweeping widespread cuts to federal spending. The government is a major purchaser of drugs and medical devices through Medicare and Medicaid, which kind of puts it in the driver's seat.
The saving grace for the industry is that, while the government might succeed in lowering the per-person spending on health care, it's also planning on increasing the total number of insured individuals through some kind of universal health care. The two could eventually balance out, but the magnitude of each is still a big unknown.
That uncertainty is also hurting the health insurance industry. No one really knows what universal health care will eventually look like, but if HMOs like UnitedHealth Group (NYSE: UNH ) are involved, the program established by the government will almost certainly be a low-margin business. The companies can still make it work with a larger volume of members, but being dependent on the government for setting rates is a risky proposition. Just this week, health insurers took a major hit because of a miniscule increase in the reimbursement rate for Medicare Advantage. Their current gig of offering insurance through employers gives them much more pricing power than would government-established programs.
It could have been worse for health care investors. Obama could have made the promises he did during the election, and then let health care slip to the back of the line while he dealt with more pressing matters.
Instead, the president made it one of three pillars -- alongside energy and education -- to get the country back on track, and he plans to tackle the challenge head-on with a summit next week. The uncertainty shouldn't hover over investors for too much longer, and that's just what the doctor ordered.