S&P Equity Research believes the health insurance industry will face the brunt of any scaled back bill as insurance companies remain vulnerable to government intervention and are an easy target of any populist revolt. One of the most likely and popular proposed reforms among both parties is the elimination of preexisting condition clauses in health insurance plans. In response, we would expect the managed care organizations (MCOs) to move clients with preexisting conditions into medical management programs whereby the MCOs require certain regimens of care lest patients face financial penalties. S&P Equity Research would not be surprised to see the government incent the MCOs with tax breaks or subsidies for such programs, so that insuring people with preexisting conditions does not become a money-losing proposition for the MCOs. Even with these incentives, assuming Medicaid and/or Medicare Advantage enrollment grows faster than commercial enrollment; the MCOs are likely to see increasing margin pressure in the form of rising medical loss ratios. Moreover, any expansion of Medicaid eligibility and continued Medicare Advantage reimbursement rate pressures should exacerbate this margin pressure. In this environment, S&P Equity Research believes the pure-play Medicare Advantage providers and pure-play Medicaid players could benefit as they have experience controlling costs by transitioning members into more restrictive provider networks and through more active management of care. Over time, S&P Equity Research expects all MCOs to increasingly adopt similar tactics.
The loss of the Democratic supermajority in the Senate may lead to upward earnings revisions for companies that could have been hurt by some of the health care reform proposals floated on Capital Hill. We think many companies' 2010 earnings estimates incorporated potential c
|SOURCE Standard & Poor's|
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