January 20, 2010 / 2:56 PM / in 9 years

HMOs rally as prospects dim for health overhaul

NEW YORK (Reuters) - Health insurer shares rose on Wednesday after a Republican upset victory in the Massachusetts Senate election led some analysts to say broad U.S. healthcare reform was dead.

Republican Scott Brown’s win in the heavily Democratic state appeared to leave Democrats one vote short of the amount needed to pass the healthcare legislation, President Barack Obama’s top domestic priority.

“We think it’s dead,” John Sullivan, Leerink Swann’s healthcare strategist, said in a research note. “Voters use elections to send messages, and this one’s loud and clear — they don’t like Democrats’ healthcare reform bills and plans.”

The health overhaul designed to extend coverage to 30 million uninsured Americans has been poised to create new rules and taxes for healthcare companies, health insurers in particular.

“We think the Democratic push for the government takeover of healthcare is dead or effectively dead,” David Maris, an analyst with Calyon Securities, said in a research note.

“While the rhetoric will be full-steam ahead for healthcare legislation, we expect some Senate and congressional Democrats to use the Massachusetts results as cover to not support it.”

Tuesday’s special election in Massachusetts filled the seat of the late Edward Kennedy, a political giant and staunch proponent of health reform who died of brain cancer in August after holding office for 46 years.

After rallying on Tuesday in anticipation of a Brown win, health insurer stocks were gaining in early trading. UnitedHealth Group (UNH.N) rose 1.3 percent, WellPoint WLP.N increased 2.4 percent, Aetna AET.N gained 1 percent, while Humana (HUM.N) was little changed at $51.93.

Health insurers had already run up substantially in recent months as the Senate’s bill employed more moderate reforms than initially feared.

“There’s still upside to the group, but with multiples already at (11 times earnings estimates), most of this positive outcome has already been factored into valuations,” Oppenheimer & Co analyst Carl McDonald said in a research note.

Shares of hospital companies Community Health Systems (CYH.N) and Tenet Healthcare (THC.N) fell more than 3 percent. Hospitals stood to benefit from the legislation because of a boost to the number of insured customers.

The shares of health insurers that specialize in Medicaid also dropped as reform measures were set to expand the government insurance plan for low-income Americans. Amerigroup AGP.N, Centene (CNC.N) and Molina Healthcare (MOH.N) all lost more than 2 percent.

Reporting by Lewis Krauskopf, editing by Maureen Bavdek

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