Weekly international investment round up to 28 July 2009
• Obama’s radical health care reform stalls
• Health sector stocks set to shine
Health sector stocks increased as President Obama looks set to miss his original August deadline to implement his wide-ranging and controversial American health care reforms.
Share prices within the sector have been discounted ever since it became clear Barack Obama was on his way to the White House as comprehensive and sweeping changes to the American health system formed the cornerstone of his election campaign as he reached out to the estimated 46 million Americans, some 15 per cent of the population, who currently do not have any medical cover at all.
However, as President Obama contends with the worst economic crisis in living memory together with the complexities of completing the exit strategy from Iraq, hints of a more conciliatory tone from his administration concerning health care reform have emerged lifting health care stocks in early trading.
Examples of such socks on the move within the sector this week included Health Management Associates Inc. the operator of acute care hospitals as it increased its profit forecast to 45 cents a share while Amgen, the world’s largest biotechnology company, boosted its full-year earnings forecast after second quarter profits topped analysts’ estimates. While the wider S&P Health Care index is still 13 per cent lower than its position 12 months ago, now hovering around the 322 points level, year-to-date it is in positive territory with opportunities now presenting themselves as industry wide fears of tough drug price controls and a government-run health plan for the people now seem less likely.
Presently, health insurance is a tax-free benefit in America if provided by an employer. This contrasts with any individuals purchasing such cover who has to do so out of their own tax-paid, net earnings.
This anomaly is estimated to cost nearly $250 billion in lost tax revenue which critics claim would go a long way to help introduce universal coverage for all. But without the tax breaks many fear employers will simply stop their health insurance schemes leaving many workers to find cover themselves and for those with existing health conditions this may not only prove difficult but very expensive as well. Speak with any American and ‘lose your job, lose your health care’ seems ingrained in their psyche and changing their way of thinking about ‘scocialised medicine’ is likely to prove among Obama’s toughest future battles.
Learning lessons from the failed ‘Hillarycare’ proposals under the previous Democratic Clinton administration and armed with a filibuster-proof contingent in the Senate, President Obama’s remains better placed than any before him to introduce meaningful reforms but whether these will be as radical as first thought is however unlikely especially now the powerful drug manufactures and insurance lobby can now galvanise support throughout the summer recess.
President Obama knows this issue goes deeper than health. Tying insurance directly with employment increases job insecurity, stagnates wages and hides its real ever-rising cost. Left unchecked, US health expenditure is forecast to swallow up one-fifth of gross domestic product by 2013. For the wider health of the nation reform must and will happen only now for those within the sector the future looks a little brighter.