Contrasting Future Prospects for Health Insurers and Hospitals

Today’s Managing Health Care Costs Indicator is 23,000

Click image to enlarge.   Source below

This diagram shows that health insurers’ stock prices have outperformed the overall stock market over the last three years.  As Sarah Kliff of Wonkbook notes, it’s ironic that the health plans opposed health care reform, but are likely to profit significantly from the Affordable Care Act with its increased government funding of privately-procured health plans.

On the other hand, Citigroup just released a sharply negative earnings outlooks for hospitals. (Registration required).  As a result, stock prices of HCA, Tenet, and the other major for-profit hospital companies lost ground – and they are already much lower than they were a year ago.

What does it mean that hospital stocks and health plan stocks are moving in different directions?

The stock market is betting that there will be lower hospital utilization going forward, and hospitals are stuck with expensive capital improvements and will be paying back bondholders for decades to come.  Health plans are increasingly developing the infrastructure to sell services to providers seeking to become Accountable Care Organizations. This is a new revenue source, and also makes providers less likely to effectively compete in the health insurance market on their own. 

In the meantime, the excellent jobs report this morning (200,000 new jobs) included 23,000 new jobs in health care.Since health care represents 1/6 of the economy, this at least means that other sectors are adding jobs faster than health care.  Perhaps the reshuffling has already started.