The market was less than kind to health insurers today after a Congressional Budget Office analysis painted a rosy picture of the pending health-care legislation.

Health-insurance investors should not lose heart, however, because the CBO study has a significant flaw: It assumes that Medicare will cut doctors’ fees -25% next year.

This sort of cut has never happened.

Doctors and other health-care providers already lose, in aggregate, between -6% and -7% treating Medicare patients. Cutting doctors’ fees another -25% would have one effect and one effect only: Fewer doctors accepting Medicare.

Remember: Doctors are in business. These highly skilled professionals can choose to accept your insurance — or not. If they don’t accept your coverage, be it Blue Cross or Medicare or UnitedHealth or whatever. then you either have to pay them yourself, or you have to go somewhere else.

My prediction is that seniors and seniors groups will have something to say about this. This is a group, after all, that is extremely effective at communicating its desires to Congress. Making seniors pay for health-care reform strikes as a bad idea, one that neither side of the aisle is likely to have much success selling to the folks back home.

I think WellPoint (NYSE: WLP) and UnitedHealth (NYSE: UNH), the nation’s leading health insurers, which saw their shares take a hit today, remain an outstanding buy.

Many Happy Returns –

Andy Obermueller
Government-Driven Investing