Which stocks will emerge as winners, and which ones as losers, from the massive new health-care package?
The complex new law which will be phased in over several years and faces court challenges will increase the pool of insured Americans. An estimated 32 million people who now aren't insured will be covered, giving them increased buying power to purchase everything from drugs to surgical procedures.
The big beneficiaries, in my view, will be hospitals, which will be paid for more patient visits; pharmaceutical companies, which will sell more drugs; and medical-device makers, which will sell more hearing aids, pacemakers and other products.
Their gains will be partly offset by higher taxes and more regulation, but on balance I still think that the legislation is good for these groups.
Insurers and managed-care companies will be hurt, in my view. At first glance, you might think that health insurers would find the new law a boon. After all, here is Uncle Sam telling people that they must buy the industry's product.
However, insurers' costs will rise substantially as they comply with the new requirement that pre-existing conditions be covered.
Currently, insurers deny coverage to some people due to pre-existing conditions, and surcharge others. On occasion, they also rescind previously issued coverage.
Policies terminated
A June 2009 memo issued by the House Committee on Energy and Commerce estimated that insurance companies save about $60 million (Dh220.32 million) a year by terminating health-insurance policies on the grounds that pre-existing conditions weren't disclosed by customers. The memo said that about 4,000 policies a year are rescinded.
I've been unable to obtain good estimates on what it will cost insurers and managed-care organisations to cover pre-existing conditions. But it will clearly involve a huge cost increase. As I see it, this won't bankrupt the companies but it will make it very hard for them to show earnings progress.
Profit margins for health insurers and managed-care companies aren't great to begin with. Aetna Incorporated, for example, had a pre-tax margin of less than 6 per cent in 2009. Cigna Corporation's pre-tax margin was about 10 per cent.
Premiums
These companies will try to protect their profits by raising premiums, but they will run into fierce opposition from employers, consumers, and politicians eager to make insurance companies into whipping boys.
Property and casualty insurance companies don't have to provide coverage for a burning house, but health insurers will have to cover someone who already has cancer or Aids. That may be good public policy, but it's bad for insurers' profits.
Pharmaceutical companies aren't harmed by the pre-existing-conditions rule. Indeed, they are helped. People who need medication but can't afford it under the status quo will be receiving prescriptions.
