State Unemployment & Health Care In The U.S.

There are now 14 states (well including DC) that have double-digit unemployment rates, and only three that have rates below 6%. See the graph below (from calculatedriskblog.com) for the unemployment rate broken down by state (red mark).

It’s worth noting that among that 10 states with the lowest unemployment rates, 5 are represented by only a single statewide congressman. Furthermore, only 1 state has a House delegation bigger than 10 (Virginia). Conversely, all 50 states have equal representation in the Senate.

Why is this important? It could add to the reasons why health care reform is having so much more trouble in the Senate than in the House. Since health care is provided by so many Americans’ jobs, if you are employed, you are more likely to have access to affordable health care. And the constituents for Kent Conrad (North Dakota) and Max Baccus (Montana) are enjoying lower unemployment rates.

That would certainly be a more charitable explanation than just the fact that both get a very big part of their campaign funds from health care interests, which would do extremely well under the proposed bill from the Senate Finance Committee. Under it, there would be no real new competition for the likes of United Health Care (UNH) or Aetna (AET), but the government would force individuals to buy their product, one for which insurance companies could charge whatever they liked.

If it becomes clear that the Finance committee bill is going to be the basis for health care, or if it becomes clear that the whole effort is going to fail, then the health insurance stocks will do very well. Relative to the market, health care stocks are extremely cheap, mostly due to fears (hopes?) that we will get serious health care reform, one that includes a public option.

The bill does contain one sensible step - eliminating the Medicare Advantage program, which wildly subsidizes the health insurance industry for taking Medicare patients relative to the cost of regular direct Medicare. Humana (HUM) is the firm that is most dependent on the Medicare Advantage subsidy.

If either the Finance Committee bill passes, or nothing passes, those firms will probably go from trading at a steep discount to the market to a substantial premium to it. On the other hand, the prospect of ever-increasing health insurance premiums will put a serious crimp into the future profitability of just about every other publicly traded firm. Remember the value of a stock is the discounted value of all its economic earnings from here to eternity, discounted back by long-term interest rates.

Therefore, if companies are going to have to pay ever-increasing shares of their cash flows to pay for health care, their value will be much lower. Thus, that erasure of the discount and move to a premium could come about from a decline in the overall market rather than a rally in the health insurance stocks.

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