Article: Some Rational Perspective on the Charts of the Health Care Stocks

Alot of emphasis has been placed on the performance of the health insurance stocks lately and many are using short-term swings in the stock prices as proof that this version of the health reform bill or that amendment is good or bad for health insurance stocks. Others are suggesting that because the health insurance stocks have risen by x% in the past few months that Obama and the Democrats must have sold out to the health insurance companies. Anyone who follows the stock market knows that stocks swing wildly all the time and many times for no rational reason. We have all heard the term "irrational exuberance" coined by Alan Greenspan a few years back and in a lot of ways it was one of the more beneficial things he ever said. It is in a nutshell, trading based on emotion rather than facts and fundamentals. The bigger problem with irrational exuberance is that the retail investor, you and me, are almost always the last to enjoy the stock gains caused by irrational exuberance" and almost always the ones left holding the bag when the party is over and the stocks come crashing back to earth. The insiders who know the game make wild sums of money from us undisciplined and easily manipulated retail investors.

The point of mentioning this is that the day-to-day and week-to-week swings are generally driven by emotion and manipulation by the insiders. Trying to make a case that a particular version of the health insurance reform bill is bad or good based on the stock prices is not going to be immediately clear from short-term swings. And you can be sure if it is bad the insiders won't let us the retail investors know until they have all cashed out first. Don't get me wrong, I am not trying to imply that the current health insurance reform bill is not a water-down piece of sellout legislation but there are portions of it that are not favorable to the future profit potential of the health insurance companies. One of them is the provision that health insurance companies must spend 85% of all the money they take in from premiums on health care related expenses. That is an improvement over the current national average of 75% and will eventually affect their bottom line. On the flip side the health insurance companies will be getting new enrollees because of the mandates. That may be a wash to them but in theory we should all get more health care for our dollar.

If instead of looking at the short term trend in the health insurance stocks one takes a more extended look, you will see that really health insurance stocks are still down 50% from their highs under the Bush administration. In addition, over the past 18 months the health insurance stocks have shown very little overall appreciation (see the charts for Wellpoint: WLP and UnitedHealth Group: UNH below).

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If one compares these longer term stock charts to science and technology stocks one sees a much different picture. This particular science and technology fund has recovered almost all of the losses that occurred in the stock market crash at the end of the Bush term.

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To say that the Obama administration has been very favorable to the health insurance industry is a little disingenuous. Yes he hasn't tanked the "for-profit" health insurance industry like many of us want but to say he has been good for their business is also not entirely accurate either.

The health insurance stocks have certainly not had the run, so far, like they did under the Bush administration where they had triple digit appreciations in stock prices. They still are down about 50% from where they peaked, whereas many other stocks have nearly recovered all their losses after the Bush administration's mishandling of the economy at the end of his term. Time will tell whether this current legislation is a baby step in the right direction.