Obamacare's Winners and Losers

For all the talk about getting tough on insurance companies, the $940 billion health reform bill passed by the House Sunday night gives the insurers something they've wanted all along: mandatory health insurance for almost all Americans.

And the insurers don't face competition from a new government-run plan, the so-called public option as was once feared. To help cover the uninsured, an insurance exchange will be created that private insurers can participate in.

There are tradeoffs. The insurers can't deny people coverage based on pre-existing conditions, they can't drop coverage and they can't cap payouts for individuals. Insurance companies will face billions of dollars in new taxes (beginning in 2014) to pay for President Obama's reform. The companies say they'll pass those costs on to their customers.

Health reform "entails significant risks for the (insurance) industry," Goldman Sachs analyst Matthew Borsch wrote last week. "In particular, commercial coverage expansion under the new insurance exchanges in 2014 will invite adverse selection risk as elimination of medical underwriting is coupled with a relatively weak coverage mandate. However, the implementation timing leaves three and one half years to work through."

The insurance companies stood the most to lose in a Democratic reform and the industry's trade group, America's Health Insurance Plans, has been one of the most vocal critics. On Sunday, night the group released a short statement criticizing the plan for not doing enough to control health care costs, which lead to higher insurance premiums: “The access expansions are a significant step forward, but this legislation will exacerbate the health care costs crisis facing many working families and small businesses.”

"If you have health insurance, this reform just gave you more control by reining in the worst excesses and abuses of the insurance industry with some of the toughest consumer protections this country has ever known - so that you are actually getting what you pay for," Obama said after the vote.

More specifically, the supplemental private insurance program known as Medicare Advantage faces billions in cuts. That affects insurers such as Humana Inc., which count on the supplemental plan as a huge part of their business.

Drug companies win

Drug companies will benefit by more insured patients. But the real benefit for pharmaceutical makers is what didn't happen in reform. There will be no competition from imported prescription drugs from other countries under the plan. And a proposal to curb negotiations that allow brand-name drug makers to pay generic manufacturers to hold off on competition didn't make it into the final version of the bill.

"Since the pharma industry is putting so much lobbying effort toward passing health reform we believe that they interpret reform as positive for them," Miller Tabak analyst Les Funtleyder says in a note last week.

The big drug companies, including Pfizer Inc., had a big hand in the reform plan, protecting their interests by getting a seat at the negotiating table earlier. They agreed to save the Medicare system billions of dollars a year and will pay billions more in fees to fund the initiative. In return, they were able to beat back a proposal to allow the import of cheaper prescriptions drugs from Canada. And they can enjoy longer patents on generic versions of biotech drugs.

In total, the drug makers will pay about $85 billion over 10 years in the form of taxes and promised Medicare cost savings.

“Our commitment to help pay for health care reform will require all of our companies to make some difficult choices moving forward – on top of already losing more than 150,000 jobs since 2007 because of the recession and other economic factors," the Pharmaceutical Research and Manufacturers of America said.

Unions had to make concessions as they see their generous health plans taxed. The Dems cushioned the blow by delaying that tax until 2018 and only taxes plans that cost more than $27,500 a year for family coverage. The thinking on the tax is that the plans encourage maximum use of health care services.

Tanning salons are clear losers. They face a 10 percent tax that some operators say will be overly burdensome. The tax was pushed by dermatologists who say the indoor tanning industry contributes to skin cancer.

Medical device companies, such as Medtronic Inc., also faces billions in new taxes. However, the more than 2 percent tax is lower than previously considered.

For doctors and hospitals, the individual insurance mandate and the insurance exchange to cover millions of additional Americans means more paying customers.

"This isn’t radical reform," Obama said. "But it is major reform. This legislation will not fix everything that ails our health care system. But it moves us decisively in the right direction. This is what change looks like."