Health Care Reform and Your Health Stocks

Now that the U.S. election season is over and Barack Obama is set to move into the White House in January, health care analysts are gearing up for policy changes that could affect stocks throughout the sector.

Sen. Max Baucus (D., Mont.) has already presented his Call for Action Health Reform 2009, which would require every American to have health insurance coverage -- once affordable health care is made available. Such a mandate, he argues, would take the burden of the uninsured off of the insured.

With such reform plans surfacing even before the president-elect has taken the oath of office, it seems clear that health care reform will be a top priority for the new administration. But with tightening budgets and growing pressure to make effective changes, the question could be how to do more with less. And for investors, the question is which companies are likely to feel the effects, good and bad.

Les Funtleyder, an analyst at Miller Tabak and the author of an upcoming book titled Healthcare Investing: Profiting from the New World of Pharma, Biotech, and Health Care Services, believes that the companies most directly affected by health care reform will be pharmaceutical and managed-care companies because of their exposure to pricing-control efforts.

Pricing and Accountability

Starting on a smaller scale than universal health care coverage, one lower-cost change may come from the removal of the "non-interference clause," which is part of current Medicare law. Currently, the government cannot interfere with negotiations between managed care companies -- like UnitedHealth Group (UNH), WellPoint (WLP) or Coventry Health (CVH) -- and drug companies for pricing for drugs covered under Medicare Part D.

Theoretically, the more people an HMO covers, the more negotiating power it has. However, there has been growing pressure to remove the noninterference clause because it prevents the government from wielding any power to ensure fair drug prices under the Medicare benefit.