Eyes On Senate Finance Committee Vote And Prelim Discussion

Today, Washington will be focused on healthcare reform legislation. I have Aetna (AET) as a new Buy Alert @ $26.42. I will be watching the Senate Finance Committee vote and prelim discussion.

Credit Suisse analyst G. Nersessian had the following thoughts on reform and the individual mandate:

• In the last few days, our conversations with clients regarding healthcare reform have repeatedly revolved around the weakened penalty for opting out of insurance coverage.

• While it’s bad policy, in our opinion, the weakened penalty is not the threat to the managed care industry that many have perceived. Specifically, there are a number of factors which we believe will mitigate the threat of adverse selection in the exchange pool including the breadth and generosity of the subsidies, risk-adjusted payments and, most importantly, the ability to underwrite the policies to the anticipated cost of coverage.
• In this regard, we would characterize the soft penalty in and of itself as a lower ranking concern with respect to healthcare reform. Much more important in our opinion are the timing and magnitude of the proposed taxes/assessments, the structure of Medicare Advantage payment cuts and any changes to the legislation that would limit the managed care organizations’ ability to set rates in the exchange.

This is a very complex issue, meaning that politics is playing at its best. I am watching to see how the market will react.

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