A Great healthcare industry depression?

Stock prices in health insurance companies are swooning. Is that why the industry is suddenly on the warpath?

By Andrew Leonard

Published October 13, 2009 9:11PM (EDT)

At FiveThirtyEight.com, Nate Silver offers a provocative explanation for why the health insurance industry is suddenly pushing back hard against reform: Since Labor Day, observes Silver, stocks of the six largest publicly traded health insurance companies have fallen by 11 percent -- and underperformed the overall market by 20 percent.

Silver argues that Labor Day marked the point at which Democrats "regained their footing" on healthcare after a summer of tea parties and town-hall expostulation. Reflecting this change in atmosphere, the market is now betting that there will be significant healthcare reform, which will depress future healthcare profits. Thus the market slump.

To accept this explanation, however, one has to accept two points: First, there's the questionable assumption that the market trends of the past month and a half should be taken seriously by anyone. Media coverage, and market swings, tend to react overly strongly to day-to-day news that may or may not tell us anything about what's going to happen in the long run. For example, Tuesday's news cycle has been all about treating the Senate Finance Committee vote on the Baucus healthcare plan as one of the epochal events in the history of healthcare in the United States. We'll see about that.

But second, and perhaps more important, the proposition that the health insurance industry is suddenly running scared requires that we believe that the health insurance industry was sanguine about the way things were going previously -- or, even more radically, was actually willing to support meaningful reform, until share prices started to fall.

This strikes me as naive. At the recommendation of the New Republic earlier today, I went back and read a long profile of Karen Ignani, the president of America's Health Insurance Plans (AHIP), published early this summer. AHIP has been much in the news this week because on Sunday it released a much-derided attack of the Baucus healthcare reform bill. But if you read Jonathan Cohn's profile, Ignani sounds like she's on board with much of what ended up in the proposed bill.

Reread in the light of current events, it sounds now like Ignani was just playing cagey, and saving fire for when it might be truly necessary. Now that real reform seems possible, the industry is merely showing its true colors. My bet is that they'd be doing that no matter what share prices are doing now.

The one line in Cohn's piece that doesn't need any reevaluation a couple of months later?

Earlier this month, New York Times columnist Paul Krugman offered some advice to Democrats: "Don't trust the insurance industry."

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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