No Healthcare Bill -- What Now?

Healthcare stocks rallied Tuesday morning when it was all but confirmed that Massachusetts Republican Scott Brown would be Ted Kennedy’s replacement in the Senate, likely dooming Obama’s healthcare initiative. Reports from Wall Street indicated a sense of relief among healthcare investors, in large part because we would not have to deal with the uncertainty of a restructured health insurance system. Famed stock trader Jesse Livermore said that “all through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope.” Aside from investors’ aversion to change of any kind, the situation surrounding the healthcare bill can be attributed to two of these emotions – fear and ignorance.

How many people can say they understand the intricacies of Obama’s healthcare plan? Not very many – and even for those who do, there are too many factors to take into account to predict its long-term effect on the healthcare industry or the overall economy. Nonetheless, due to the uncertainty of the proposed plan, stocks of managed care companies and pharmaceutical firms performed poorly in 2009 relative to the market. But as it became less probable that we would see a dramatic restructuring of the healthcare system, these firms’ stocks started to rally strongly.

This is a clear example of how fear and ignorance drive investment decisions. We fear the proposed change, and we are too ignorant to embrace the possibility of the change producing a good outcome. Obviously there are political and selfish motivations for opposition to the plan, but for all we know Obamacare could be a good thing for the healthcare industry. (Medicare was fought bitterly in the 1960’s, yet it drove tremendous growth and innovation in healthcare.) For example, millions of uninsured Americans would become policyholders, potentially increasing the revenues of health insurers, along with doctors, hospitals and pharmaceutical companies. Or it could cause a nightmare for healthcare companies and their investors, as many believe. Nobody can know for certain, but one thing we do know is that we’re scared to death to find out.

In any case, the battle over Obamacare has certainly confirmed Jesse Livermore’s assertion – at least the part about fear and ignorance.