As we approach the vote on healthcare reform, a major question needs to be asked: Why are health insurance stocks trading at close to 52 week highs? Why are pharmaceutical companies doing the same? If the health insurance and pharmaceutical companies are set to lose massive amounts of money if healthcare reform is passed−which is appearing more and more likely−why are these companies doing so well? (1)

Here is how the top five insurance companies have fared over the past year:

On average, these companies saw their stocks rise 79.2% from March 20^th, 2009 to March 19^th, 2010! Cigna alone went up 115.07%. They have done over 60% better than the Dow Jones Industrial Average, which rose only 48.7% over that same time.

Red Line = Dow Jones Industrial Average

The pharmaceutical companies haven’t done as well, but the top five U.S. based pharmaceutical companies’ stocks still rose an average of 24.7% over the past year:

While that’s only about half of what the Dow Jones did, why are the prices going up at all? Stock prices are derived from an estimation of discounted future cash flows. Or, when translated from financial gobbledygook to English, companies are not valued by how much their assets are worth. Instead, they are valued by how much a company is expected to make in the future and how much those future cash flows are worth today (money is worth more now than it is worth in the future, which is why we demand interest on loans). If the 2400 page healthcare bill is expected to reduce these companies’ future profits, investors would expect the present value of these companies’ future cash flows to fall and act accordingly. In other words, their stock values should be going down.

What is going on is actually rather simple. Big corporations have done what they love to do with big government; get in bed together. Unfortunately, it’s us, as the common taxpayers, who will have to foot the bill for this love affair.

This was visible from the beginning. As I’ve discussed before, our current system−built upon almost five decades of heightening government intervention−is littered with corporate handouts. But it was amazing how honest the pharmaceutical industry was about this. In March of 2009, Billy Tauzin, head of PhARMA, the main lobbying group for the pharmaceutical industry, was asked on CNBC whether investors should be worried about healthcare reform. He responded as follows:

“Think about what this plan does: This plan talks about providing comprehensive health insurance to people who don’t have it. That means to patients who can’t take our medicines because they can’t afford it: $650 billion spent to better insure Americans for the products we make. That ought to be a very optimistic and positive message for everyone [who] is interested in our sector of the economy.” (2)

They continued:

Mike Huckman: “…if there is some kind of universal healthcare plan where prescription drugs are more broadly available and they’re available at a cheaper price, [is it possible] that your sector may make up in a higher prescription volume and sales what it might lose on price?”

Billy Tauzin: “Absolutely, think about this: almost half of the prescriptions that get written today go unfilled… primarily because people don’t have adequate insurance.” (3)

And this was back in March of 2009; the deal just got sweeter from there. In August of 2009, The LA Times reported that “Tauzin has morphed into the president’s partner. He has been invited to the White House half a dozen times in recent months.” (4)

It probably surprises no one that the pharmaceutical industry spends more on lobbying than any other industry. In 2009, they spent a whopping $263 million. The insurance industry came in 4^th at $164 million (securities and investments was only at $96 million). (5) And no, this didn’t just go to Republicans, as Democrats received 52% of health sector donations and 49% of the pharmaceutical donations in the 2008 election cycle. (6)

And now it is appears quite obvious that Big Pharma and Big Insurance are solidly behind healthcare reform. According to The New York Times, the drug industry has authorized $150 million on television commercials supporting the healthcare overhaul! (7) Below is one example, sponsored by Americans for Stable Quality Care, a group primarily funded by the Pharmaceutical Researchers and Manufacturers of America:

So what is in this bill that has the pharmaceutical and insurance industry so excited? Tim Carney, expert on government-corporate corruption and author of Obamanomics, lists out the main reasons:

1. Complex drugs known as biologics will receive a 12 year monopoly patent instead of the standard 5 years
2. The individual mandate will require everyone to buy prescription drug insurance
3. $196 billion in annual subsidies will be given to poor and middle class Americans to buy health insurance
4. It preserves the 2003 Medicare Part D stipulation that prohibits Medicare from negotiating down prices for drugs it subsidizes
5. It continues to prevent re-importation of drugs from Canada (8)

Insurance companies have to weigh the added costs of insuring high-risk people, but they will get more customers and the government will spot much of the bill through subsidies, so this is certainly a win for them, too. And none of this even addresses the political payoffs, such as the “Cornhusker kickback” and the “Louisiana Purchase” that were originally part of the bill. (9)

All of this corruption is likely a major reason that healthcare reform has become so unpopular. It’s so unpopular that, according to Bloomberg, three states have passed bills and 30 to 35 others have bills pending that would overturn the federal mandates if they are passed. (10) All this pressure has put congressmen in a difficult bind on which way to vote, since their political lives may be at stake. So Nancy Pelosi came up with a way out for them. She even proposed using the Slaughter Rule to pass the bill.  (11) Under the Slaughter Rule, the Senate would vote on a bill, then let House members tinker with the bill and vote on the changes, but not on the bill itself. If they pass the changes, the bill would be ‘deemed’ to have passed the House. It would, more or less, allow a law to be passed while never being voted on in the House of Representatives. For her part, Nancy Pelosi defended the process by saying, “…I like it because people don’t have to vote on the Senate bill.” (12) And then of course, she gave us this gem:

Wow. Just wow. And while most dictators would probably be fond of this, it would seem to be in direct violation of our Constitution which states that “Every Bill which shall have passed the House of Representatives and the Senate, shall, before it become a Law, be presented to the President of the United States.” (13) I think, even under the loosest of interpretations, that would demand both the House and Senate to pass the bill. But who cares about the Constitution anymore, right?

Regardless of the politics behind this bill, it’s important to know that there are options for healthcare reform worth debating on both sides of the aisle. On the left, there’s the single-payer option, which I oppose, but at least the argument for it makes sense. There are other options, too, such as eliminating the employer-mandate, repealing laws that prevent people from shopping across state lines for insurance, allowing for drug re-importation, eliminating HMO’s and the whole system of 3^rd party payments that dis-incentivize price shopping, increasing the number of health savings accounts, reducing the power of the FDA, repealing CON Laws, loosening patent laws, etc. But what’s important is that none of that is on the table. What’s on the table is a startling mess of pork-filled, corporate handouts and political kickbacks. And that’s something that liberals, conservatives, socialists and libertarians can all join hands in opposing.
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More reasons to oppose the healthcare bill here.
Tim Carney’s Speech on corporate-government corruption here.
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(1) Numbers derived from Google Finance, March 19, 2010, http://www.google.com/finance
(2) See Jeffrey Young, “Big pharma’s top lobbyist said what?,” The Atlantic, March 6, 2009, http://www.theatlantic.com/business/archive/2009/03/big-pharmas-top-lobbyist-said-what/1284/
(3) Ibid
(4) Tom Hamburger, “Obama gives powerful drug lobby a seat at healthcare table,” LA Times, August 4, 2009, http://articles.latimes.com/2009/aug/04/nation/na-healthcare-pharma4
(5) See “Who’s Up, Who’s Down?,” The Center For Responsive Politics, http://www.opensecrets.org/lobby/incdec.php
(6) Patrick Hollsetin, “More pharma donations for Obama,” Pharma Adhoc, November 10, 2008, http://www.pharma-adhoc.com/index.php?m=1&id=139
(7)  David Kirkpatrick, “Drug Industry to Run Ads Favoring White House Plan,” New York Times, August 8, 2009, http://www.nytimes.com/2009/08/09/health/policy/09lobby.html?_r=3
(8) Timothy P. Carney, “Christmas comes early for the big drug companies,” Washington Examiner, December 23, 2009, http://www.washingtonexaminer.com/politics/Christmas-comes-early-for-the-big-drug-companies-8674150-79934522.html
(9) For a rundown on those scandals and the reluctant removal of them from the bill, see Jordan Fabian, “Obama healthcare plan nixes Ben Nelson’s ‘Cornhusker Kickback’ deal,” The Hill, February 22, 2010, http://thehill.com/blogs/blog-briefing-room/news/82621-obama-healthcare-plan-nixes-ben-nelsons-cornhusker-kickback-deal
(10) Ann Woolner, “States Say We Don’t Need No Stinkin’ Health Reform,” Bloomberg, March 19, 2010, http://www.bloomberg.com/apps/news?pid=20601039&sid=aOaPsHEnNAuY
(11)  “Slaughter House Rules,” Wall Street Journal, March 16, 2010, http://online.wsj.com/article/SB10001424052748703909804575123512773070080.html?utm_source=Newsletter&utm_medium=Email&utm_campaign=Heritage%2BHotsheet
(12) Lori Montgomery and Paul Kane, “House may try to pass Senate health-care bill without voting on it,” Washington Post, March 16, 2010, http://www.washingtonpost.com/wp-dyn/content/article/2010/03/15/AR2010031503742.html
(13) The United States Constitution, Article 1, Section 7, http://www.usconstitution.net/const.html#A1Sec7