Health Care Costs and WellPoint and Health Care Reform and Health Care & Life Sciences

Investors cheer Senate bill while WellPoint cries foul

December 23, 2009

A last-minute change that would saddle it with more taxes had Indianapolis-based WellPoint Inc. crying foul as the U.S. Senate effectively approved the health care reform bill early Monday morning.

But investors on Wall Street didn’t care. They bid up the shares of WellPoint and its health insurance peers in exultation that those companies will most likely not face competition from a government-run insurance plan.

Shares of WellPoint shot up 3 percent on Monday. Its competitors Aetna, Cigna, Humana and UnitedHealth saw their shares rise between 2 percent and 5 percent.

“This bill is clearly not bad for industry and, depending on implementation, could actually be a positive,” wrote Les Funtleyder, a health care stock analyst at New York-based Miller Tabak & Co., to his clients.

Indeed, WellPoint would share in $34 billion in annual subsidies called for by the Senate bill to help low-income Americans buy health insurance. The bill is projected to bring 30 million customers to health insurers in exchange for placing significant restrictions on the industry.

But the subsidies will be funded by a bevy of new taxes, included $6.7 billion a year paid by health insurers. Insurers would pay based on their share of total industry revenue.

That burden would be extra heavy on for-profit insurers such as WellPoint, after a last-minute exchange excluded not-for-profit health plans. If the Senate’s not-for-profit exception prevails, the new taxes could total nearly $2 billion a year for WellPoint. The taxes would not take effect until 2011.

The company has annual revenue of $61 billion and annual profit topping $2.5 billion.

The exception could also fall harder on some states than others, WellPoint representatives were quick to point out. In Indiana, for example, 81 percent of health plans are for-profit. That’s much higher than the national average of 55 percent and several times higher than the 23 percent of health plans that are for-profit in neighboring Michigan.

“Indiana taxpayers will subsidize states like Michigan, which has a very low enrollment in for-profit health insurers,” said a statement distributed by WellPoint. It added, “Over time, unequal taxation will lead to the erosion and potential insolvency of for-profit plans.”

Health insurers are by no means the only industry group to complain about the new taxes in the Senate bill. Medical device manufacturers are still lobbying to reduce the $2 billion per year they will be assessed if the bill becomes law. The House version of health reform relies less on industry taxes and more on taxes on high-income individuals.

Indiana Gov. Mitch Daniels, who has consistently blasted both the House and Senate versions of health reform, raised his rhetoric to new heights after Monday's Senate vote. He called the Senate legislation "a backwards, anti-taxpayer disaster of a bill" and said he was "severely disappointed that any of our delegation would vote for such an anti-Indiana measure."

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