Insurance Stocks Rally as Health Reform Vote Nears

If you listen to the trade group that represents insurance companies, capitalism as we know it will cease to exist once a federal health reform bill is passed.

But insurance company stocks are rallying as Democratic lawmakers inch closer to passing President Obama's reform. Shares of UnitedHealth Group Inc., WellPoint Inc., Cigna Corp., and Aetna Inc. all rose more than 2 percent in early afternoon trading. Aetna's announcement that it's first-quarter profit was better than expected also contributed to the rise.

At the very least, the stocks are up because there's finally going to be resolution to a year-long debate over an upheaval of the health care system. But, more importantly, after months of committee meetings and debates in both chambers of Congress, the end result is not unfavorable to the managed-care companies, says Miller Tabak analyst Les Funtleyder.

"Most people believe this is not good for health care, but in our view that's too simplistic a narrative," Funtleyder says.

A proposed tax on the insurance companies wouldn't take effect for four years, Funtleyder notes. And the insurers have said they would pass those costs on to customers anyway. What's more, insurance companies will have a larger insured pool as the legislation requires individuals to buy health coverage. That alone may offset costs from added regulation, he says.

In afternoon trading, Aetna rose 3 percent, to $34.18; Cigna was up 3 percent, to $36.97; UnitedHealth jumped 2 percent, to $34.26; and WellPoint rose 2 percent, to $65.15.