Obama Budget Hits HMO Sector, Says Dr. Joe Duarte
Duarte added: This situation was puzzling until Monday morning, 2-23-09, given the fact that the U.S. government is about to take a big chunk out of the Medicare HMO funds that were put in place by the Bush administration. According to multiple reports, a centerpiece of the Obama plan for cutting the budget deficit by the end of his term is the rescinding of the Medicare Advantage program, a subsidy that enhances the profit margin for insurance companies that provide health care coverage for Medicare recipients.
Cuts in Medicare Advantage could slice 10% of the money that HMOs get from the government for covering Medicare patients. And in 2008, without those cuts, most large health insurers saw decreased profits. Another potential problem is the fact that job losses cut the number of lives covered by insurers, which is likely to drain earnings further.
The silver lining could be that those who lose jobs and end up on Medicaid would return to the HMOs as customers, as more states bundle their Medicaid patients into HMO plans. The perverse nature of reality could also help the HMOs make more money, as fewer doctors accept Medicaid. That could mean that the HMO gets paid, but because the patient doesn't actually keep the money, the HMO spends less.
Still, there seem to be too many ifs and buts involved, which makes the whole situation difficult to sort through on a fundamental basis.
Technically, it's hard to argue with the break in UNH on Monday, which made a pretty good sized dent in the relative strength in UNH, which was steadily holding up even as the rest of the stock market crashed, burned, and churned wildly. The stock had been in a trading range between 26 and 30 for weeks, but broke below its 20 and 50 day moving average on Monday. This technical break took away an opportunity to build small positions with an 8-10% stop loss. Long term investors may have to wait for another day.
Duarte's conclusion: In this market, relative strength is a rare commodity and the HMO sector may have just given up one of the few spots that had some.
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Duarte's IntelligentForecasts.com (http://www.intelligentforecasts.com) provides free news coverage and analysis, and his daily articles and news summaries offer recommendations and analysis for ETFs, and individual stocks in the technology, health and biotechnology, and energy sectors. Duarte has combined expertise in health care, energy, and the effects of politics and global intelligence on the financial markets offer a unique blend of insight and information to thousands of active investors and political and intelligence aficionados around the world on a daily basis.
He is the author of: Futures And Options For Dummies, Successful Energy Sector Investing, Successful Biotech Investing and co-author of After-Hours Trading Made Easy. In early 2001, in Successful Energy Sector Investing, he correctly predicted that Venezuela's political problems could lead to an energy crisis in the United States. He has also appeared as a weekly guest on Market Mavens Radio and has logged appearances on KNX radio in Los Angeles, Financial Sense.com radio, and Wall Street Radio.
One of CNBC's original Market Mavens, Dr. Duarte has been writing about the financial markets since 1990. His articles and commentary have been featured on CBS Marketwatch, Barron's, Smart Money, Medical Economics, and in Technical Analysis of Stocks and Commodities magazines. In 2003, Doctor Duarte received second place, in the professional section, of the Medical Economics Investment Challenge with a 12-month return of 42%.
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