Tuesday, March 2, 2010

Reform Expect Obama Reform Update Wed

•Obama to Push Ahead with Reform — Our D.C. contacts noted today that
President Obama is likely to make an announcement, potentially on Wednesday,
regarding the next steps for reform. It is believed that the President will lay out
the details for a more scaled back bill, which first surfaced last Thursday prior to
the health reform summit and is expected to include coverage expansion through
Medicaid and SCHIP and cost 1/4th of the ~$950bn/10-year bills currently
proposed. Funding would likely include Medicare Advantage cuts that we expect
anyway, with or without "reform." This back-up plan is not a surprise and
consistent with our long-standing expectations for something called "reform" that
is scaled back from the 2,000+ page bills passed in the House and Senate. The
President will also likely come out in support of using reconciliation to pass health
reform, a legislative procedure we view as a political liability for Dems going into
the November mid-term elections.

•Our Expectations — We continue to believe something called "reform" will pass
that is scaled back from the bills passed in the House and Senate.
Our logic:
Federal subsidies for state Medicaid programs are necessary with or without
coverage expansion, considering the dire fiscal outlook for states, and such funds
will be more politically advantageous when branded as "Reform" instead of as
"Stimulus II." We also expect reform talks will very quickly pick up at the state
level, starting with California, when/if federal efforts are exhausted this year.

• The Stocks — We maintain our view that money will rotate into healthcare stocks
after federal healthcare reform efforts conclude (possibly by mid-April).
maintain a positive rating on all 9 covered Managed Care stocks that we expect
will continue to rebound in 2010 from historically low valuations in 2009. Our top
picks in Managed Care remain AET, WLP, and UNH.

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