Chemical Guide

WASHINGTON Despite vehement health care industry opposition to President Barack Obama’s sweeping reforms, experts say it could be a boon for the sector, which makes up a sixth of the US economy.

That the US health care trade is big business is obvious to anyone in the United States who clicks on a television, or walks down the street.

Pharmacies are ubiquitous and the airwaves are replete with adverts for unlikely drug concoctions that simultaneously treat arthritis and diabetes, or erectile dysfunction and high cholesterol.

According to the government’s own figures, health care spending accounts for around 16 percent of gross domestic product.

After Sunday’s vote, the drug makers and insurers who kicked and screamed against “ObamaCare” - warning it would destroy one of the economy’s few robust sectors - will discover if their predictions were accurate.

There is little disagreement about the scale of the changes, particularly for insurers, who will now face strict limits on the premiums they charge and on which customers they can refuse to cover.

But despite the shrillness of the opposition, experts say Obama’s reforms could benefit the industry’s biggest hitters, who are best placed to net the 30-plus million people who are now expected to get insurance.

A rosy outlook for insurers will be unwelcome news to many Americans, particularly those on the left, who blame poor health coverage on insurers’ price gouging and rule fixing.

Companies have been publicly upbraided by Obama for charging sky-high premiums and refusing to treat patients with pre-existing medical conditions, both issues that are addressed by reforms.

In response, major-league firms spent millions of dollars to rally public opposition to the bill, coalescing around alliances like the America’s Health Insurance Plans.

Ahead of Sunday’s vote, the alliance insisted rules banning firms from rejecting patients with pre-existing conditions were unfair and would wreck profitability.

Its chief executive Karen Ignagni said the “legislation will drive up health care costs by adding billions in new health care taxes and encouraging people to wait until they are sick before getting insurance.”

But some on Wall Street are more upbeat about the future profitability of insurers, known in investor jargon as managed care companies.

“Overall, for managed care companies the reforms are mostly positive,” said Phillip Seligman, an equities analyst with Standard & Poor’s.

He said new, stiff fines on Americans who fail to get insurance and much steeper costs for companies who refuse to cover employees, should dramatically increase the number of insured.

“There are 30-plus million additional people who will get insurance,” he said, “that is a lot more customers.”

According to Seligman, more customers will not only mean more revenues from premiums, but greater clout with hospitals and drug companies and economies of scale for administrative costs.

And firms are already working to minimize the impact of less favorable rule changes.

At least one insurance firm has told investors it can minimize the impact of new rules that demand at least 80-85 percent of premiums be spent on care, by changing the accounting definition of care to include things like telephone consultations.

Paul Keckley, the head of Deloitte’s Center for Health Solutions, agreed the reforms would be mostly positive for insurers, but said some could be hit by a time lag between new costs taking effect and new customers coming online.

Americans will not face those steep fines for not having care until 2014, while most other measures in the bill come into effect immediately he said.

“It will be four years before they see a dramatic increase in customers, but the costs are coming now,” said Keckley, pointing to likely mergers and takeovers as smaller firms struggle.

“It is going to be tough for smaller companies, so there will be consolidation in the market.”

While Obama’s reforms seem unlikely to herald an economic apocalypse for the health care industry, change does appear to be on its way.

By Andrew Beatty

Source: business.asiaone.com