Health care stocks gain after House passes reform bill

By Hibah Yousuf, staff reporter


NEW YORK (CNNMoney.com) -- Health care stocks ended sharply higher Monday as the long-debated health care reform legislation headed to President Obama's desk.

Late Sunday night the House passed the bill, which extends coverage to 32 million uninsured Americans and will cost an estimated $940 billion over the next decade.

Hospital operators, including Health Management Associations (HMA), led the advance, surging about 11%. Tenet Health Care (THC, Fortune 500) ended 9% higher;Community Health Systems (CYH, Fortune 500) and Lifepoint Hospitals (LPNT) each added about 6%.

"I think a lot of the pickup in hospital companies is the fact that a lot more bodies will be going through them," said Cameron Scrivens, portfolio manager at RBC Asset Management in Toronto. (Health Management Association accounts for 3.4% of RBC's Global Health Sciences Fund assets, while Tenet accounts for 2.9%.)

Scrivens added that the health care debate had been weighing on health care stocks for more than a year, so much of Monday's spike is because investors are feeling relief from the uncertainty.

Health insurers' stocks, which climbed as high as 8% last week in anticipation of the vote, were mixed.

On Monday, Aetna (AET, Fortune 500) and Cigna (CI, Fortune 500) edged up 0.5%, while UnitedHealth (UNH, Fortune 500), Humana (HUM, Fortune 500) and WellPoint (WLP, Fortune 500) all turned lower. UnitedHealth lost 3% and Humana dropped more than 1.3%, while WellPoint shed more than 1%.

With the government extending coverage to more Americans, insurance companies are likely to benefit from higher enrollment, said BMO Capital Markets analyst Dave Shove.

"More customers will come through because of the government's program, and though they may not be as profitable, there will still be more of them," Shove said. "But the government will also be more involved in how insurance companies price their business, so the long term profitability may go down a little bit."

Drugmaker Pfizer (PFE, Fortune 500) added 1.5% and Bristol Myers Squibb (BMY, Fortune 500) hiked almost 1.8%, while Merck (MRK, Fortune 500) gained 0.6%. Medical device manufacturer Medtronic (MDT, Fortune 500) spiked more than 2.2%.

While approving the overhaul of the health care system, the House also voted to remove bank middlemen that collect subsidies to make federal education loans. These loans offer the lowest interest rates since the government assumes default risks.

With the new measure, the government would offer $500 billion in direct loans over the next 10 years, beginning in July. If the proposal passes the Senate, private companies will no longer be able to make federally backed loans.

Shares of Sallie Mae (SLM, Fortune 500), which provides private and federal student loans, ended about 0.8% higher Monday. To top of page

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