Insurance Compaines: A good short play for Investors?

Health care, it is the buzz word of the day for politicians. Of course, health care reform has been tossed about for numerous years, the most memorable being the early days of the Clinton, a battle that altered the Clinton administration and turned them right.

Now it is Barrack Obama's turn at health care and the debate is already on. The Senate has started the process, but not surprisingly it has already come to a grinding halt. Despite all the objections, all the talk, look for a plan that creates a government funded system along with the private sector health care insurance.

In the long term, any savvy investor understands that government v. private will end up being only government. However, in the short term, my spider sense is telling me that major insurance supplies will drown in a grand windfall.

The following is pure speculation, but it is based on observations of the past and a logical conclusion of the future. With those two tools, I believe the following scenario is likely to play out.

In today's business world of stock prices and stock holders, business has become about the short term, lifting up profits and the stock quote on Wall Street. CEO's have taken note of this, because an unhappy major stockholder means an unemployed CEO. When the government opens this new segment of health care, one created not to compete, but to supplement the private sector it will create an opportunity the big boys will simply be unable to resist.

The opportunity for investors is this; an astronomic rise in profits. It will play out like this. Person A is a risk, they have a pre-exisiting condition, health care bills are high or could be high. This person will be delegated a high risk and pushed off to the government plan. How? By creating skyrocketing premiums that the company or individual is unable to pay and left with no choice. While person B, the healthy 30 year old, will continue paying the same premiums, but seldom if ever taking benefits. The end result will be the same amount coming in for companies, but far less going out.

When this begins to happen, and IMO it will, profits will soar, stock prices will follow and investors will reap the windfall.

Of course the common person, the one politicians are so concerned with helping will be getting hit twice. Their premiums will remain the same if they stay in the current policy, yet taxes somewhere must go up. Those that are forced out, will suffer through the bureaucratic nightmare that is Medicare or any government program, while paying higher taxes. Higher taxes will happen, ignore those saying otherwise.

In the end the government will eventually liquidate private insurance companies, but not before creating this initial windfall and then dropping billions of subsidies into the hands of private insurance companies to ease the crunch of high risk patients being pushed to the new government medical system.

So the purpose of this column? Pay close attention to the health care debate. Watch how the the insurance lobbying groups act (if they don't the above is even closer to happening), investigate the insurance giants (for the biggest, best and the ones closely connected to Obama) and consider jumping in on this potential windfall. But buyer be ware, the long term position of holding insurance companies is a bad play.