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Fire up the Thunder dome. The Democrats are in the house and the Max Baucus Plan is in motion – conference call just ended; here are our head of healthcare, Tom Tobin’s, immediate takeaways:

The scariest part of the plan is the Health Exchange, but that won’t happen for 3 years.

The idea is to push everyone into a market to purchase insurance. The question is the margin for those products. 50M additional lives is a significant boost even at 10% gross margins.

In the meantime, Medicare expands to cover younger Americans and SCHIP expands. Medicare Advantage cuts are a sure thing. This wont kill the companies and has been quantified.

No change to employer system until Exchange is created. So no near term risk of further disenrollment or margin pressure from employers anticipating a government plan. This is positive for UNH and AET.

Baucus expects to enact legislation 1H09, but I got the distinct impression he is acting on his own. This may be a problem that delays things.

CBO analysis is likely more favorable this time around as opposed to 1992.

“Devil is in the details” was the key quote.

Baucus expects the plan to lose money initially, but save later. This is the key to the CBO score and pay-go.
If there is any conclusion, device manufacturers are most at risk.

Baucus wants to create a comparative institute to score effectiveness of therapies and allow hospitals to partner with physicians to participate in cost savings initiatives. He also want to ban collaboration with docs and industry. This seems like a recipe for unit pricing declines.

This is perversely positive for R&D, the only engine to generate new products.

Thomas Tobin
Managing Director