Job Losses and Health-Care Reform

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Both would create a "health-insurance exchange," where people could compare and purchase insurance policies, and a pooling mechanism that allows consumers to buy health-care coverage at affordable rates. Both expect the vast majority of employers to continue to provide coverage and, except for small firms, employers choosing otherwise must contribute to a fund covering the uninsured. Whereas the President-elect's plan requires only that all children be covered by health insurance, however, Baucus' plan mandates that all people obtain coverage either via employers or the insurance exchange.

There won't be a quick resolution to the health-care issue. We think significant focus on health-care reform will likely be delayed while the new President and Congress address the recession and the war in Iraq. Given the time and money likely required to fix these issues, we expect health-care reform to be handled down the road, in a piecemeal fashion, and over a multi-month time period. However, we believe the first health-care issue the new Congress will tackle in January will be the expansion of SCHIP. The issue of additional Medicaid funding is likely to be addressed concurrently or shortly thereafter.

Regarding the uninsured, we would expect MCOs to run the health plan, should one be developed, for people under 65 who do not qualify for Medicaid or SCHIP—much as they run managed-care health plans for Medicare and Medicaid. We believe that modeling such a plan after the Federal Employees Health Benefits Plan, one of President-elect Obama's campaign positions, would be pricey. But how it will evolve and whether it would be run as an adjunct to the MCOs' commercial, Medicare, or Medicaid health-plan businesses are unknowns. Still, we would view such a plan as a potential positive for MCOs, assuming it helps to revive enrollment.

Nonetheless, given the expanding federal budget deficit, premium rates for this plan will likely be restricted, severely limiting profit after medical costs, in our view. Consequently, we believe MCOs will increasingly have to rely on expanding enrollment in such a program (to achieve economies of scale), limiting utilization and improving quality of care (to help control medical costs), and improving administrative efficiencies (to help reduce selling, general, and administrative costs as a percentage of premium revenues) to increase profits.

Seligman is an equity analyst following managed health care and other health-care companies for Standard & Poor's Equity Research Services .