Dylan Rattigan on MSNBC recently gave Rep. Wassersman-Schulz (D-Fl) a hard time about the health care package. He disputed her contention the bill was a big win for consumers. He wanted to know why the stock prices for Big Insurers (e.g., Aetna, Cigna, Wellpoint, United Health) shot up if this was such a big loss for them. Unfortunately, he was so exercised on the point, he didn't give her a chance to address the question. It's an important question. Asked another way, the question is "Why are stocks in this sector at a 52-week high if this legislation is such a blow to their profits?" That's worth investigating. Follow the money and things get real clear real fast.



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The validity of Rattigan's point is clear even with this thumbnail of a stock chart. A lot of stocks are up over the last 52 weeks. This chart covers the last three months. It compares the S&P 500 to stock prices for some large health insurance companies. Each one is represented by a different color as follows:

S&P 500 (brown), Cigna (red), Aetna (blue), Wellpoint (gold), and United Health (green).

TheS&P 500, a broad indicator of the market, fluctuates but is largely unchanged. However, all the health insurers fell towards the end of September, for an average loss of about 12%. They stayed down throughout October. However, they started rising in November to reverse their losses. Last week they all moved again.This time to gain over the S&P. In sum, over the last three months, these stocks have posted an average 10% gain, after making up their losses. That's about a 20% swing in value. That's a big move compared to the overall market.

It's true these stocks are more volatile than the overall index. That's the point of the index, to smooth out volatility. The fact these stocks all move in concert shows they are being affected by the same forces. That's not surprising. Stocks in the same sector should be responding in roughly similar ways to the same news. The interesting point is when they made their moves. That reflects the conversation of the time.

Where were we in mid-September?

On September 9, Obama had made a clear pitch for the public option in his speech on health care. This resonated with the public. A CBS poll from that time showed growing public suport for a public option. The reason people argue for a public option is to provide a competitive break on run away prices. That would not be good for profits. The stocks fell.

Where were we in early November?

Lieberman had become the center of attention. He made it clear he wasn't supporting a public option. Of course, it was not just Joe blowing smoke that moved the stocks. Even if he did support it, the public option was so diluted it wouldn't matter. As Ezra Klien noted, the public option at that point wouldn't be available to 90% of the people in states that allowed it. Nor would it have any pricing leverage over private competitors. Basically it was going to be hollow. Safe in the knowledge their profits weren't going to get hammered, the stocks started to rise.

What happened in early December?

On December 10th, Pelosi caved on the public option. That followed the death of expanded Medicare. That killed any hope the House would force this back on track. In other words, the profits of these companies are going to be just fine. Once again, stock values jumped.

The bottom line: During those different time points a lot of ink got spilled, pixels got burned, and bytes bit it. But for all the noise, one thing is clear. If you want to know how the insurance companies are viewing the legislation, just follow their stock prices. The second image is a comparison for the same stocks over the last year. See the cliff they all fell off towards the end of February? That was their response to Obama's February 24 speech in front of a joint session of congress where he announced health care reform was a central pillar of his recovery strategy. It didn't take the folks at Cigna long to figure out that was just noise. You don't need to believe in conspiracy theories to see that people who buy stocks in this sector are responding to the political kabuki by betting insurers will do just fine.