Sector Snap: Health insurers fall on budget view

Health insurers skid as Street fears budget office estimate improves health care reform odds

• On 2:57 pm EDT, Thursday October 8, 2009

NEW YORK (AP) -- Investors traded shares of health insurers lower Thursday after the Congressional Budget Office said a health care reform bill may cost less than President Obama had estimated, which could improve the bill's chances.

Analysts were uncertain about the effects of Wednesday's Congressional Budget Office estimate of the bill's costs, and they said a number of hurdles remain in the reform process. But shares of most health insurers were down around 5 percent, while the rest of the market was trading slightly higher.

A bill before the Senate Finance Committee would cost about $829 billion over 10 years, the CBO said. That is less than President Obama's target of $900 billion, and the agency said the bill could cut federal deficits by $81 billion over the next decade while extending coverage to 94 percent of eligible people by 2015.

In afternoon trading, shares of Aetna Inc. lost $1.16, or 4.3 percent, to $25.90, and UnitedHealth Group Inc. declined $1.02, or 4.1 percent, to $24.03. Cigna Corp. gave up $1.11, or 3.8 percent, to $28.45, and WellPoint Inc. shares dropped $2.95, or 6.2 percent, to $44.70.

Deutsche Bank analyst Scott Fidel said the results will "sustain overall reform momentum." But the CBO is assuming some unlikely savings, Fidel said, including an estimate that Medicare physician fees will fall 25 percent in 2011, Fidel wrote.

"That will likely never happen," he said. "We continue to view the Senate Finance Committee bill as quite onerous for managed care."

Jefferies analyst Arthur Henderson said the bill will likely be approved by the Finance Committee Friday. Then it must be combined with a bill before the Senate Committee of Health, Education, Labor and Pensions. BMO Capital Markets analyst Dave Shove said he does not think the full Senate will vote on the bill this year.

"There is still much work to be done, with several provisions of the legislation likely to remain under fire from Republicans," Shove said. Henderson added that the cost of the combined bill will be closer to $1 trillion, which could attract criticism from Democrats as well.

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