Attached below is the morning note from our Healthcare team, Tom Tobin and Christian Drake. In it are some data points that we thought would be interesting:
I look through a lot of news items every morning and because of some of the work I was doing yesterday, it stuck out. It was an item about how Liz Fowler, former insurance insider and current Baucus aid, had written the Baucus proposal circulated earlier this week. I was on the phone with a health insurance actuary trying to figure out what some of the language meant in the Baucus release for underwriting a health policy and what additional proposals could mean for Managed Care under Health Reform (that is assuming it gets done). The conclusion is that Liz Fowler’s background shows; the Baucus proposal looks favorable to Managed Care. The key point is the flexibility in how the price of a premium is built out of the cost of services and the risk factors listed, such as age and smoker, the inclusion of a mandate, and some other provisions.
There were other points we touched on regarding the current state of the market both positive (premiums are accelerating) and negative (adverse selection) which we will be discussing in a note later today. If the Research Edge Macro call on Inflation is right, we’ll see pressure on consumption, including healthcare consumption, and higher investment income returns. If Mr. Geithner is right, we’ll see job growth next year and enrollment growth. If Health Reform passes, the least likely outcome, a whole new leg of enrollment growth becomes available.
The beta side of healthcare dominated as healthcare outperformed the market for a 3rd consecutive day on continued higher volume. Inflation backed off & Cost of Capital led negative correlation factors as 10 yr. Treasury yields got smoked. Mirroring the markets ongoing inflation-deflation debate, Balance sheet & inflation related factors have been inconsistent as price drivers. This inconsistency, when married to our macro call for inflation & cost of capital to accelerate as we move through the back half of the year, represents opportunity as analyst/economist prognostications have yet to be backed by the conviction of capital commitments. We’re hosting a Healthcare-Macro Call on Monday where we’ll expound on the healthcare investment implications of our 4Q & 2010 Macro Theses. (contact if you’d like to join the call).
Daryl G. Jones
Managing Director
