Healthcare shares rose on Monday as a bill to reform healthcare passed the first critical test in the Senate, without many of the provisions, such as a government-run health insurance option, that investors most feared would hurt profits.
The S&P Healthcare Index <.GSPA> rose 1.4 percent, while the Morgan Stanley Healthcare Payor stock index <.HMO> rose 3.6 percent. The S&P Managed Health Care index <.GSPHMO> rose 4.6 percent.
All in all, relative to the last version of health reform issued by the Senate, things have turned out pretty well for the health insurance industry, said Carl McDonald, an analyst at Oppenheimer. In particular, all versions of a government-run health plan have largely been eliminated.
The original Senate bill taxed the health insurance industry a fixed $6.7 billion a year. Under the new proposal, the industry would face a $2 billion tax in 2011, with increases over time to $10 billion in 2017.
Analysts said the new proposal would allow insurers time to factor the tax into pricing.
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The bill would require most Americans to have insurance, expanding the membership rolls for health insurers. At the same time, it replaces a proposed government-run public insurance option with less onerous exchanges to cover those who are not covered through their employment.
Matthew Borsch, an analyst at Goldman Sachs & Co., said Cigna Corp
Aside from reform, the important backdrop to our sector view is fundamentals, which are decidedly mixed but with the key being that downside risk to commercial margins is mitigated by firming of industry pricing, he said in a research note.
Shares of Cigna rose 5.3 percent to $37.69. Shares of Aetna Inc
Shares of pharmacy benefit managers Medco Health Solutions Inc
Based on discussions with our political consultant in Washington, we believe that a PBM tax is now not part of the final Senate bill, said Steven Valiquette, an analyst at UBS Securities.
Shares of Allergan Inc
The bill's revisions delayed a tax on medical device manufacturers until 2011. The total tax on the industry would be unchanged at nearly $20 billion.
Shares of St. Jude Medical Inc
(Reporting by Toni Clarke, editing by Dave Zimmerman)