Nov 7, 2012 4:18 PM ET - HCA Holdings Inc. and other hospitals will get more paying customers while insurers like UnitedHealth Group Inc. will see profits squeezed as President Barack Obama moves to preserve the health care overhaul he championed.

Obama’s re-election rallied shares of HCA Holdings Inc., the largest for-profit hospital company, by 9.4% Wednesday, while Community Health Systems Inc. and Tenet Healthcare Corp. also gained on prospects for millions of newly insured patients being added to their admission rolls. UnitedHealth, the largest U.S. medical insurer, fell 3.8%, and WellPoint Inc.  and Humana Inc. declined as the industry faces profit limits and new taxes to help pay for the coverage expansion.

“Volumes of business will improve for hospital companies and bad debt will go down with the reduction in the uninsured” as the law moves forward, said Frank Morgan, an analyst with RBC Capital Markets in Brentwood, Tenn. While a Mitt Romney win might have benefited insurers, the Republican would have brought “a cloud of uncertainty” for hospitals, he said.

Obama’s signature achievement during his first term expanded health care coverage to as many as 30 million uninsured people starting in 2014 through a sweeping law that Romney had pledged to overturn. That made this election as significant as the 1964 race, where Lyndon Johnson’s win over Barry Goldwater led to the enactment of Medicare and Medicaid, said David Blumenthal, a professor at Harvard Medical School.

Encouraging results

“The next president will have his hand on the health care lever,” Blumenthal, who was Obama’s first national coordinator for health information technology, said in an interview before voting ended.

The Bloomberg Industries hospitals stock index increased 6.1%. HCA climbed to $33.85, while Community Health jumped 6% and Tenet rose 9.6%.

The health overhaul will be a positive driver for earnings over the next few years, Trevor Fetter, president and CEO of Dallas-based Tenet, told analysts on an earnings conference call Wednesday.

“[The] election results are encouraging for the full implementation of the Affordable Care Act,” Fetter said. “Based on our model of expanded coverage under the act, all of our hospitals are in markets that will see an increase in covered lives, and in virtually all our markets, that growth exceeds the rate for the country as a whole.”


‘Modest negative’

The Affordable Care Act is the biggest change to the U.S. health care system since Medicare and Medicaid began providing taxpayer-funded services for the poor, elderly and disabled in 1965. Traders bought hospital stocks and sold off commercial insurers after Obama’s overhaul passed Congress in 2010, a scene repeated when the law survived a challenge at the Supreme Court.

Romney said in June that he disagreed with the Supreme Court’s decision to uphold the constitutionality of the plan and that what the justices failed to do he would “do on my first day if elected president.”

The law’s survival “represents the status quo and means that the industry will undergo significant change and new regulations beginning in 2014,” said John Sullivan, a health  care strategist at Boston-based investment bank Leerink Swann & Co., in an Oct. 23 note to clients. It’s a “modest negative” for managed-care companies, he said.

The health law bans insurance plans from keeping more than 85% of the premiums they collect for profit or administrative expenses. It also imposes about $84 billion in taxes and fees, according to a September analysis by Bloomberg Industries. Plans will have to compete for the new customers on state-by-state exchanges where consumers can comparison-shop.


Insurers’ margins

On the exchanges, “product standardization and transparency will pressure margins, which we believe will more than offset the upside from an increase in the number of people with health insurance,” Sullivan said.

While the largest insurers declined, shares rose for companies that focus largely on Medicaid, the joint state- federal program for the poor. The health law includes a expansion of the system, accounting for half of the new people to be covered, and cost-conscious states are expected to turn to private contractors to handle much of the growth.

To contact the reporters on this story: Stephanie Armour in Washington at sarmour@bloomberg.net; Alex Nussbaum in New York at anussbaum1@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net

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