Goldman To Private Insurers: No Health Care Reform At All Is Best

A Goldman Sachs analysis of health care legislation has concluded that, as far as the bottom line for insurance companies is concerned, the best thing to do is nothing. A close second would be passing a watered-down version of the Senate Finance Committee's bill.

A study put together by Goldman in mid-October looks at the estimated stock performance of the private insurance industry under four variations of reform legislation. The study focused on the five biggest insurers whose shares are traded on Wall Street: Aetna, UnitedHealth, WellPoint, CIGNA and Humana.

The Senate Finance Committee bill, which Goldman's analysts conclude is the version most likely to survive the legislative process, is described as the "base" scenario. Under that legislation (which did not include a public plan) the earnings per share for the top five insurers would grow an estimated five percent from 2010 through 2019. And yet, the "variance with current valuation" -- essentially, what the value of the stock is on the market -- is projected to drop four percent.

Things are much worse, Goldman estimates, for legislation that resembles what was considered and (to a certain extent) passed by the House of Representatives. This is, the firm deems, the "bear case" scenario -- in which earnings per share for the top five insurers would decline an estimated one percent from 2010 through 2019 and the variance with current valuation is projected to be negative 36 percent.

What the firm sees as the best path forward for the private insurance industry's bottom line is, to be blunt, inaction.

The study's authors advise that if no reform is passed, earnings per share would grow an estimated ten percent from 2010 through 2019, and the value of the stock would rise an estimated 59 percent during that time period.

The next best thing for the insurance industry would be if the legislation passed by the Senate Finance Committee is watered down significantly. Described as a "bull case" scenario -- in which there is "moderation of provisions in the current SFC plan" or "changes prior to the major implementation in 2013" -- earnings per share for the five biggest insurers would grow an estimated ten percent and the variance with current valuation would rise an estimated 47 percent.

The report, a Goldman official stressed, was analytic not advocacy-based. Their job was to provide a sober assessment of the market realities facing private insurers under various versions of health care reform

"If no reform at all happens you would see the largest rise in EPS," a Goldman official acknowledged. "But what we are doing is just analyzing what the stocks would do under different scenarios."

The study does note on the front page that the firm "does and seeks to do business with companies covered in its research reports." Those companies include Aetna, Wells Point and United Health.

In the context of the current health care debate, the findings provide a small window into the concerns that have driven the private insurance industry's opposition to reform legislation. Simply put: health care reform