Finance and Economic

Shares of large health insurers slumped on Thursday as a budget report issued on a key U.S. Senate healthcare reform bill fueled investor worries that a health overhaul would gain approval.

Nonpartisan budget analysts said late on Wednesday that a Senate Finance Committee health plan would cost $829 billion and cut the budget deficit by $81 billion over 10 years. The bill would meet President Barack Obama’s desire for a healthcare plan that does not increase the deficit, according to the Congressional Budget Office.

Shares of WellPoint Inc fell more than 7 percent, while UnitedHealth Group Inc, Aetna Inc and Humana dropped more than 4.5 percent, bucking a positive overall market.

The determination of the finance committee bill’s impact on the deficit was seen as a “big stumbling block” for drawing support for the legislation, said Avik Roy, healthcare analyst with Monness, Crespi, Hardt & Co.

With the favorable CBO analysis, Roy said, “the fear is that the bill will actually get through, and that increases the risk to the insurers.”

The Senate Finance Committee will vote on the bill next week following the CBO report.

“The successful CBO score increases the likelihood that a reform bill will pass and it also strengthens the (Senate Finance Committee) bill’s position as the bill that will drive the debate,” Wells Fargo analyst Matt Perry said in a research note.

Pressure on the stocks also may have been coming from news that U.S. Democrats were looking at a possible tax on insurers’ windfall profits as part of reform no fax pay day loans.

The share moves continued the declines since mid-September for health insurance stocks, which have proved extremely sensitive to reform developments in Washington.

“We continue to think managed care stocks will remain in flux until the ‘devils in the detail’ are resolved in final legislation,” Goldman Sachs analyst Matthew Borsch said in a research note.

As the reform legislation has evolved, analysts have raised concerns about the status of “individual mandate” that would require people to buy health insurance. Amendments added to the Senate Finance bill have lowered the financial penalties for people if they choose not to buy health insurance.

With insurers being required to enroll people with pre-existing health conditions, the fear is that healthy Americans will choose to pay any penalties instead of insurance premiums. By losing out on that revenue while paying for coverage of the sick, insurers potentially would be hurt by higher medical costs.

“From the perspective of the insurance companies, if you require that everybody has health insurance, then you are able to counteract that tendency of people to only take coverage when they’re sick,” Roy said.

In the finance committee bill, he said, “the provisions around the individual mandate have been weakened.”

(Reporting by Lewis Krauskopf, editing by Dave Zimmerman and Gunna Dickson)

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