There Ain't No Bear In There

Don't enter the cage with waving chairs
'Cause I'll tell you something for nothin'
--Who

You'd think that all of the rancor directed toward health insurers over the past few weeks would be reflected in the stock prices of publicly traded insurers. Perhaps it is, but the result has not been plummeting share prices.

The biggest of them all, United Health (UNH), has been on the move higher with the rest of the market since the lows last March. Charts for others in the sector such as Wellpoint (WLP) show similar patterns.

That market participants have been sanguine in the face of what seemingly is a devastating situation for health insurance operators suggests a few plausible scenarios for the months ahead:

1) The market is discounting that the health care bill will not be enacted as it currently stands. Thus economic models of the insurers will be steady as she goes.

2) The market has yet to fully discount the bad news for whatever reason. Perhaps there's been a short squeeze from bears leaning too hard against these stocks. When the market fully figures it out, prices will crater.

3) The market believes that the bill will pass but doesn't think the impact on the insurers will be bad. Rationale behind such a situation is that regulation tends to protect the franchises of existing players and deters new entry. This creates a context for monopoly profits (plus inefficiency and lack of innovation).

The last one is most interesting to me. Since the 1890s, antitrust regs and other government interventions have done more to raise barriers to entry than anything managers have done themselves. A classic irony, considering that a popular rationale for government intervention is to 'protect' folks from big predatory operators.

Free markets dismantle big operators over time via competition and entry. Intervention perpetuates incumbant operators and their inefficiencies.

Because stock markets are places where people bet real money on various outcomes such as those above, it will be interesting to monitor prices of these issues in months ahead.

no positions