Insurance Companies and Healthcare Reform

| Tue Dec. 22, 2009 3:39 PM EST

AP ran a story today noting that after Democrats proved Sunday night that they had 60 votes to pass healthcare reform, stocks in health insurance companies rose. This suggests that investors think the Senate healthcare bill is a huge boon for insurers, and Nate Silver quantifies that boon here.

Fair enough. Healthcare reform does guarantee a considerable amount of new business for the insurance industry. But be careful.  Here's a chart showing a basket of insurance company stocks over the past six months, and as you can see they've been rising pretty steadily the entire time.1 What's more, the most recent surge began on December 3rd, well before passage of healthcare reform was assured.  And Monday's spike in the first hour of trading, though impressive, was probably pretty speculative and has lost some of its steam already. Generally speaking, you should always be wary of people attributing broad-based market rises to specific events, and this seems like a pretty good example. I'm not sure I'd read all that much into a very short-term market reaction here.

1This chart includes both accident and health insurers, but if you take a look at individual health insurance companies you see pretty much the same trend.