The opinions expressed in this commentary are solely those of Paul R. La Monica. Other than Time Warner, the parent of CNNMoney, Abbott Laboratories and AbbVie, La Monica does not own positions in any individual stocks.
The president is not going to like reading this. But I've got some more troubling news to share about Obamacare.
It's bad enough that the HealthCare.gov site makes Ticketmaster.com look like an exemplar of reliability. But it is also becoming increasingly obvious that the giant health insurance companies are the biggest winners of the Affordable Care Act ... and not the consumers who need insurance.
Humana (HUM) and Cigna (CI) both hit all-time highs Thursday. WellPoint (WLP) is trading just shy of the record price it reached Wednesday. Aetna (AET) and UnitedHealth (UNH) are only about 2% below their peaks.
The iShares US Healthcare Providers exchange-traded fund (IHF), which owns these Big Five insurers as well as shares of hospital operators and nursing homes, is up nearly 35% this year -- better than the broader market. And most of the big insurers have outperformed the IHF.
Now to be fair, one of the main reasons why the insurers are doing so well is that their earnings growth has been strong this year.
Wall Street expects that to continue because Obamacare should lead to more individuals getting coverage from the Big Five. And making health insurance available to a wider swath of the population is the president's main goal after all. So that's a win for Obama.
But here's the thing. When the president was trying to drum up support for the ACA in 2010, he and other Democrats basically followed a strategy of demonizing the insurance industry. They made it seem as if profits were a bad thing and that the system had to change so that consumers benefited more than shareholders.
Obama said this in an appearance at Arcadia University in Pennsylvania on March 8, 2010.
"Because there's so little competition in the insurance industry, they're okay with people being priced out of the insurance market because, first of all, a lot of folks are going to be stuck, and even if some people drop out, they'll still make more money by raising premiums on customers that they keep. And they will keep on doing this for as long as they can get away with it. This is no secret. They're telling their investors this: We are in the money; we are going to keep on making big profits even though a lot of folks are going to be put under hardship."
Nancy Pelosi, who was the Speaker of The House at the time, went a step further.
In a post on Pelosi's "The Gavel" blog a day after Obama's Arcadia speech, she took issue with the fact that Goldman Sachs (GS) -- another favorite whipping post of the Obama administration ... and often with good reason I'll admit -- liked some of the major insurance stocks because they were (gasp!) making a lot of money.
"In fact, Goldman Sachs is recommending that investors buy shares in two big insurance companies — the UnitedHealth Group and Cigna — because the potential for profit is high."
And that followed a speech Pelosi gave in July 2009 where she referred to the insurance industry's "immoral profits."
Now before you accuse me of being a right-wing apologist, I'll have you know that I'm registered as an Independent. I actually believe that the ACA is, in theory, a good law that will eventually help many Americans who need health insurance and were previously unable to buy it at a reasonable price.
But let's be honest here. Many of the plans on the Obamacare exchanges are not going to be cheap. My colleague Tami Luhby has covered this extensively for CNNMoney. So even with the passage of ACA, insurers are still going to rake in big profits.
Just look at what some of the Big Five earned in 2009 and what Wall Street expects from them next year.
Cigna's 2009 profit was $1.3 billion. Next year, analysts are predicting net income of $2 billion. Aetna posted a profit of $1.3 billion in 2009 and Wall Street is expecting earnings of $2.3 billion next year. UnitedHealth earned $3.8 billion in 2009. The consensus forecast for its 2014 profit? $5.7 billion.
And that's a PR nightmare for the president since the launch of Obamacare has been, to put it mildly, a disaster. Okay. That wasn't mild.
Besides the technical snafus, there has been growing discontent about the fact that many insurers canceled existing health care plans for consumers because those plans did not meet the ACA requirements.
Obama was forced to announce a fix for this problem a week ago that may allow some consumers to extend their current plans for a year. But this is a stopgap measure as opposed to a permanent solution.
So while it may be unfair to label the ACA as an abject failure because of its rocky start, it does seem like there are way too many glitches and unintended consequences that have sprung up as a result of the law.
Consumers may not benefit from Obamacare as much as the president and other Democrats promised three years ago. But the insurance companies are in better shape now than they were in 2010.
That's not "immoral." It's capitalism at work. And that should be applauded. It's just unfortunate that the ACA was billed as something that would reshape the greedy insurance industry and force them to act more on the behalf of customers than investors. That hasn't happened. It probably never will.
Right now, the Big Five insurers have gained more from Obamacare than the average American. And that's something the president probably wasn't counting on when he was trying to score political points in 2010 by attacking the health insurance industry for its profits.
Reader Comments of the Week! I love sports and music. One Twitter follower hooked me with a reference to my favorite football team. Another appealed to my interest in heavy metal. (Hey. I was a teen growing up on Strong Island in the 80s so what do you expect?) So they both win this week!
The football joke followed a tweet I wrote about the amazing run in Bitcoin prices. It compared the stunning comeback in the virtual currency to a certain NY/NJ team that has won its last four games.
Ha! Well-played, Adam. Now go Big Blue. Let's beat the Cowboys and move one step closer to first place in the NFC Least!
The other winner earned this honor by trumping my lack of enthusiasm about Fed minutes with a reference (and YouTube link!) to an apocalyptic song by Bruce Dickinson & Co. (Is there any other kind?)
Rock on! Although once the Fed tapers, many investors may run to the hills.
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