In less than two hours, liquor will be declared illegal by decree of the distinguished gentlemen of our nation’s Congress. To those beautiful, ignorant bastards!”
– Steve Buscemi as Enoch “Nucky” Thompson, Boardwalk Empire
This HBO show has really taken off after a lackluster first season. The story lines have gotten more intriguing, the personalities involved are growing and changing, and the stakes have been amped up considerably. If I didn’t know better, I’d say I was watching the Obamacare saga play out on pay cable.
However, in the tradition of Nucky Thompson, I couldn’t care less about the politics of Obamacare. I’m in it for the profit, and those beautiful, ignorant bastards in Congress are handing us the opportunity for exactly that. Even better, we get to do it without having to worry about being shot in the head, getting blown up, being double-crossed or hanging around psychopaths like Bobby Canavale’s terrifying Gip Rosetti.
Obamacare is going to institute de facto price controls as a result of (probably intentional) aspects of the legislation nobody read. The biggest opportunity is likely to come from some states (if not all) refusing to set up the health insurance exchanges. That will force citizens who don’t get insurance through their employer (which won’t want to pay for the benefit) to purchase insurance from the “exchange” that will consist only of the federal government’s plan.
And even in states where commercial insurance carriers are in an exchange, the federal government will be able to undercut them on pricing because it doesn’t need to make a profit. Plus, insurers will get hit with fees and restrictions.
The end result is a form of price control: Washington will be the one that determines the top price for insurance. Nobody else will be able to compete, and the government will get all the business. It’s like Nucky taking control of all the liquor in Atlantic City, except the government is much more ruthless and perhaps even uglier than Nucky after a weeklong bender. That’s because there’ll be no black market for health insurance, so even Nucky wouldn’t have a business.
This means eventually health insurance companies, which think they’re getting a great deal now, will suddenly find themselves forced to dig their own graves, jump in and beat each other senseless until nobody is left alive.
So I say, wait for the health insurance stocks to have their big run, which they will. Then send out your minions to take them all out. In other words, wait … then short. This list includes Cigna (NYSE:CI), Humana (NYSE:HUM), Aetna (NYSE:AET), UnitedHealth (NYSE:UNH) and Wellpoint (NYSE:WLP).
It doesn’t end there. Oh no. You think Al Capone stopped when he got his territories? The government will also have leverage over pharmaceutical reimbursement. It will be an effective monopoly in drug distribution, so it’ll twist Big Pharma’s arm to bring down the cost of those drugs. And Big Pharma will have no other way to distribute at that point.
Just like Gip Rosetti taking over Tabor Heights, the federal government will own the road to the consumer. So then, you’ll want to be short pharmas like Merck (NYSE:MRK), AstraZeneca (NYSE:AZN), Bristol-Myers Squibbb (NYSE:BMY), and Novartis (NYSE:NVS).
However, you can go long generic-drug companies, which make their money by developing the off-patent versions of many big drugs and whose prices are already low enough to compete. Here, you want to be long Teva Pharmaceutical (NASDAQ:TEVA).
So just sit back, relax in your suite at the Ritz-Carlton and count your cash. You can’t beat those legislators in Congress, but you sure can join them.
Lawrence Meyers has no position in any securities mentioned and occasionally works as muscle for unsavory types.