Political Theater: More Entertaining Than Helpful

Viewers could enjoy some nice political theater during yesterday's seven-plus hour bipartisan health-care conference -- including a little campaign-flashback debate between President Obama and Sen. John McCain -- but as you might expect, nothing much came of the daylong event.

The two sides are just too far apart on their solutions for how to decrease health-care costs and increase the number of insured individuals.

What they could agree on
Democrats acknowledged that setting limits on malpractice suits has the potential to save some money, although how much it'll save is still up for debate.

Republicans seem willing to back Democrats' health exchanges as an alternative to a government-sponsored public plan. The exchanges will likely cut into health insurers' margins, but insurers might be able to compensate with increased volume.

Both sides would like to see Americans with preexisting conditions get insurance, but they differ on the most effective way to solve the problem. Democrats want a mandate requiring everyone to carry coverage, to help dilute the higher costs incurred by individuals with pre-existing conditions. Republicans would rather see those with preexisting conditions put in a separate pool, to avoid forcing people to carry health insurance coverage.

That's not enough to get things done
Unfortunately, everything in our health-care system is tied together, and a partial solution won't do much. It's too expensive to help fund insurance for the tens of millions of uninsured Americans if we can't also create corresponding cost cuts. The easiest way to decrease the cost is to get that large pool of younger, healthier, currently uninsured people to enter the system. You really can't have one without the other.

Some of the cuts, like encouraging comparative medicine to get the best bang for the buck, are possible on their own. Perhaps that's the solution to get the ball rolling: Start by passing saving measures that might decrease costs slightly, and then give health-care reform another stab when it seems more politically feasible.

Limbo should be a four letter word
The eternal health-care debate causes problems for investors, because the stock market doesn't like uncertainty. The betas -- a measure of volatility -- on most health insurers are higher than they have been historically.

Company	Average Beta Over Last 5 Years	Average Beta Over Last 2 Years	Average Beta Over Last Year
WellPoint (NYSE: WLP  )	1.038	1.059	1.135
UnitedHealth Group (NYSE: UNH  )	1.026	1.316	1.376
Aetna (NYSE: AET  )	1.270	1.173	1.436
Humana	1.215	1.134	1.579
Cigna	1.826	1.539	1.666
Average	1.275	1.243	1.438

Source: Capital IQ, a division of Standard & Poor's.

Many pharmaceutical companies haven't seen their betas increase, but they also haven’t participated in the recent rally, either:

Company	1-Year Increase
Eli Lilly (NYSE: LLY  )	10.3%
Abbott Labs (NYSE: ABT  )	7.0%
Johnson & Johnson (NYSE: JNJ  )	20.7%
Pfizer (NYSE: PFE  )	39.3%
S&P500	46.4%

Source: Capital IQ, a division of Standard & Poor's.

Pfizer looks like it came along for most of the ride, but I'd say its increase has more to do with investors' increased confidence in its Wyeth purchase than some fundamental rise in the prospects for the company's growth. In fact, the stock sits about where it was at the beginning of 2009, before the acquisition announcement, while the S&P 500 is up 18%.

Reaching a conclusion on health-care reform, whether a bill gets passed or not, should help calm things down. Then stocks can once again trade on the potential of their future profits, rather than relying on investors' guesses about the outcome of reform.

Does that mean there's a buying opportunity? Only if you think this marathon will end. The President gave a deadline of a month to six weeks to work out a bipartisan proposal before Democrats proceed on their own. But the option for getting such a bill through the Senate, a process called reconciliation that only requires a simple majority, might be more politically risky than some Democrats are willing to partake in.

Stay tuned, Fools. Unfortunately, this political theater is far from over.