President Obama was in fine political form last night, as he called for bipartisan compromise on health-care reform.
Good luck with that, Mr. President. The problem with giving everybody something he or she wants to hear is that you also give everybody something he or she hates.
In the biggest move of the night, the president did a 180 and supported a mandate that would require everyone to carry health insurance. That's a huge win for health insurers, because it increases the number of potential customers, and it will allow the companies to decrease costs. The insured indirectly pay about $1,000 per year for costs that hospitals and doctors use to provide services to the uninsured. If everyone is insured, those savings can be passed along through lower premiums.
The other big win for insurers -- and taxpayers, for that matter -- was that a government-sponsored public plan won't be supported by the government; the premiums collected will have to cover the medical costs. If the companies can work more efficiently than the government -- and I think they can -- the companies should be able to compete with a not-for-profit entity.
The requirements that the president is putting on health insurers aren't that bad. He wants them to have plans that:
- Cover all people regardless of preexisting conditions.
- Can't be dropped if the member gets sick.
- Don't have caps on annual or lifetime expenses.
- Limit out-of-pocket expenses.
- Cover routine checkups and preventive care at no additional cost.
Insurers can do that. In fact, it wouldn't surprise me if there's a plan out there right now that meets all those requirements. But it's important to keep in mind that insurance is like eating off the a la carte menu: You can have as many options as you want, but they're going to cost you.
The reason most insurance plans don't meet those requirements is that not doing so keeps costs down. It seems we may be headed in the wrong direction with this one, although cost savings in other areas could counteract the increases by these additional requirements.
The president also called for cutting back payments for Medicare Advantage. That'll compress margins, but companies were already well prepared for the cuts, and investors have been expecting them, too. Humana (NYSE: HUM ) , which has arguably the most exposure to Medicare Advantage, trades at a P/E of 7.6. On the surface, that's a pretty cheap stock, so even if earnings fall, there's a lot of cushion for investors.
While the president's proposal might not have been that bad, he certainly didn't help health insurance companies' bad reputation by listing isolated stories of companies' bad deeds, such as delaying treatment of a breast-cancer patient because of a case of unreported acne.
I've been a general supporter of seeing health insurers and drug companies make a buck off the sick, but these incidences are inexcusable, and they make the entire industry look bad.
Where to go from here
It's clear we need to do something. As the president said, the cost of health care is increasing the burden that Medicare and Medicaid puts on taxpayers, meaning that "our health care problem is our deficit problem."
And companies like Lockheed Martin (NYSE: LMT ) , Boeing (NYSE: BA ) , and Ford (NYSE: F ) are hurt by the high costs of health care as they try to compete internationally against companies that have lower health-care costs in their home countries. As investors, we should be getting behind health-care reform and pushing.
Whether taking an a la carte approach to health-care reform will persuade lawmakers to jump on board, or just entrench them farther away in their opposing camps, remains to be seen.
Let us know what you think about President Obama's speech in the comments section below. Workable? Despicable? Please share.