Health Insurer Windfall

Lost inside
Adorable illusion and I cannot hide
I'm the one you're using, please don't push me aside
--Blondie

It has been proposed, and many people seem to believe, that the Affordable Care Act (ACA) somehow reigns in health insurers. Markets have certainly been betting otherwise since the ACA came under construction in 2009, as the below chart in United Healthcare (UNH) reflects.

In fact, health insurance stocks initially sold off last Thurs on premature headlines that the Individual Mandate had been struck down, only to recover once the full ruling was understood.

The ACA can be viewed as a government sponsored windfall for the health insurance sector. After all, the industry will be welcoming 30 million new customers who are being sent the industry's way at the point of a gun.

Moreover, insurers will reprice pools of policies higher to compensate for increased risk of having to take on people with actuarially costly conditions. Clearly, the younger and the less risky will pay more for insurance under this cost shifting arrangement. Many insurers have already been raising premiums on their 'better' customer policies.

Finally, layers of regulation that accompany the ACA raise large barriers in front of entrepreneurs thinking about climbing into the health insurance industry. New firms will be less likely to enter the sector, in turn reducing the likelihood of competition that improves quality and efficiency.

As it has done for at least a century, the federal government is once again acting in a manner that protects the franchises of 'big business.'

position in SPX