Why Obamacare Won't Hurt Insurance Companies

Obama's regulatory overhaul may hurt taxpayers, but it's a boon for the biggest insurance companies.

What got President Obama's contraceptive compromise into the headlines was the religious angle. What deserves to keep it there is the economic angle.

After Catholic organizations complained that the federal government wanted to force them to include free contraceptive coverage in their health insurance plans, the White House announced a compromise. As the White House described it, "if a woman's employer is a charity, hospital or other religious organization that has a religious objection to providing contraceptive services as part of its health plan, her insurance company – and not the hospital or charity – will be required to reach out and offer her contraceptive care free of charge."

The Wall Street Journal nailed it in an editorial published Saturday: "There is simply no precedent for the government ordering private companies to offer a product for free." America's Health Insurance Plans, a trade association for the insurance companies, issued a statement that said, in part, "We are concerned about the precedent this proposed rule would set."

One wit emailed me the quip: "If Reagan was the Great Communicator, Obama is the Great Confiscator." How else to describe a president who tells a company it has to give away things for free?

But before shedding any tears for the insurance companies, check their stock prices. One of the most remarkable moments of the administration came on June 24, 2009, when, during a nationally televised ABC News "town hall" meeting on health care from the White House, Mr. Obama told Aetna's CEO, "Aetna is a well-managed company and I am confident that your shareholders are going to do well."

If you took that stock tip from President Obama, you would have done pretty well — shares in Aetna, one of the country's largest publicly traded health insurance companies, are up 89% since then, assuming reinvestment of dividends, far outpacing the 49% return of the Standard & Poor's 500 Index over the same period. Other large, publicly traded health insurance companies have also prospered during since that June 24, 2009 moment when passage of ObamaCare was far from assured. UnitedHealth Group is up an astonishing 120% since then. Humana is up 184%.

If you look at other inflection points, it's a similar story. Since Obama signed the health care bill into law on March 23, 2010, Aetna is up 33%, UnitedHealth is up 65%, and Humana is up 76%, all outpacing the 14% rise in the S&P 500 Index over the same period.

Since Obama's January 20, 2009, inauguration, Aetna is up 80%, UnitedHealth is up 127%, Humana is up 170%, and WellPoint, another large health insurer, is up 79%, all exceeding the 67% increase in the S&P 500 Index over the same period. For all the alarms that were raised during the ObamaCare debate that the regulation of profit and mandates of benefits, such as free birth control pills, would savage the insurance companies, the market seems to have a different opinion. That opinion seems to be that being one of just a few vendors of a product that the government is going to force every American to buy isn't such a bad business to be in. That's especially so given the high barriers to entry, both regulatory and capital, facing anyone trying to start a new health insurance company. If anything, the share prices are an affirmation not of the Republican criticism that ObamaCare would kill the insurance companies, but of the left-wing Democratic criticism that the bill was a government giveaway that would enrich the insurance companies.

The stock market may be underestimating the chance that the Supreme Court will strike down the individual mandate to buy health insurance that is an important feature of ObamaCare, or the chance that a Republican president or Congress will repeal the law. Once the individual mandate kicks in and the subsidies for coverage start increasingly flowing through the federal budget — both conveniently scheduled for after the presidential election — maybe the government will go back to the insurers and try to negotiate a better deal for taxpayers that goes beyond a few free birth control pills for employees of religious charities.

In the meantime, though, the next time Mr. Obama names a public company in an industry that he's about to launch a vast regulatory overhaul of, and declares that he's "confident" that "shareholders are going to do well," believe him, for once. He's in a position to make it happen. If only we could all be confident that American taxpayers, insurance purchasers, and medical patients would do as well, too.

Ira Stoll is editor of FutureOfCapitalism.com and author of Samuel Adams: A Life.