Wall Street sees few surprises in Obama speech
NEW YORK/WASHINGTON (Reuters) - Shares of U.S. health insurers climbed on Thursday after analysts saw no "game changers" from President Barack Obama's highly anticipated speech on health reform.
Following the speech, analysts predicted any changes to the system would be moderate, with Obama backing many initiatives put forth earlier this week by a leading Senate committee. The possibility a threatening public health plan would be enacted also now seemed doubtful, analysts said.
"There wasn't anything said that is drastically changing the outlook as to what might come out of Congress," said Steve Shubitz, an analyst with Edward Jones.
Democratic leaders promised swift action on healthcare reform after Obama called for quick action on a broad overhaul in his prime-time address on Wednesday night.
The prospect of dramatic changes to the healthcare system has pressured health insurer shares since Obama took office in January and made reforming the nation's healthcare system and expanding coverage to the uninsured a top goal.
Shares of UnitedHealth Group (UNH.N) and WellPoint Inc (WLP.N), the two largest health insurers, rose about 1 percent and 2 percent, respectively. Aetna Inc (AET.N) rose more than 2 percent and Cigna Corp (CI.N) jumped more than 4 percent.
Obama "demonized insurers several times but didn't add anything new to the debate," Wells Fargo analyst Matt Perry said in a research note. "Overall we view the speech as neutral to insurers."
Obama made his case that a public health plan would force more competition in the private market. The idea has prompted worries from investors that companies would be unable to compete and could eventually lead to a government takeover of healthcare.
But Obama said he had "no interest in putting insurance companies out of business" and was open to other ideas to ensure Americans have affordable insurance options.
Concern remains over the possibility of a public insurance option and how alternatives that could be less threatening, such as non-profit cooperatives, would operate. But there is a growing sense that the government's role may not be as big as once feared.
Investors "are probably most concerned about how strong a government-run option to compete with commercial health insurers might be in a final bill, and ... Obama signaled yet again that he recognizes there's going to have to be compromise," said Paul Heldman, a senior healthcare policy analyst at Potomac Research Group in Washington.
Ana Gupte, a Sanford Bernstein analyst, said in a research note she was "even more confident after the Obama speech that the legislative outcomes will be moderate with no threat of a Medicare-like public plan."
Overall, analysts said, Obama took a more moderate approach, with his plan resembling the framework proposed earlier this week by Senator Max Baucus, head of the powerful finance committee whose formal bill will be crucial for investors to watch when it is released.
"It's very clear that this is the route they're going to use to get something out there," Shubitz said.
Ipsita Smolinski, a healthcare analyst with Washington-based Capitol Street, said the focus on the Baucus bill helps give the market a sense of the road ahead.
"The worst is behind us. We're not going to see any brand new reimbursement policies or negative coverage decisions because the (final congressional) bill at this point is going to have to be whittled down from what we've already seen," she said.
Potomac Research's Heldman said Obama clearly endorsed two ideas included in the Baucus plan that threaten insurers and other companies: a tax on high-end, "Cadillac" insurance plans and a more powerful commission that could cut spending under the Medicare insurance program for the elderly and disabled.
Those and other provisions still left to be settled as the Senate and House of Representatives work out differences and pass final legislation for Obama to sign are likely to keep the entire health care sector on edge, he said.
"This is going to be a rollercoaster ride throughout the fourth quarter," he said.
(Reporting by Lewis Krauskopf in New York and Susan Heavey in Washington, editing by Gerald E. McCormick, Leslie Gevirtz)
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