Peter Crabb: Why Obama's health-insurance plan keeps health-care ...

The financial markets don’t know what the doctor will order, but they know it is probably going to hurt.

President Obama asked Congress this week to move on a health-care bill. He is calling for an "up or down" vote in the next few weeks. The financial markets responded promptly.

Health-care companies, including Coventry Health Care, which owns the Altius Health Plans sold in Idaho, saw their stock prices decline dramatically Wednesday after the president’s announcement. These stocks are, of course, very sensitive to the outcome of this debate because the new plan could cut into profits.

Prospects for the health care industry, however, have been looking good while the reform legislation is being debated. The Dow Jones U.S. Health Care Index is up nearly 5 percent, while the overall stock market is unchanged since the start of the year. Meanwhile, the Dow Jones U.S. Insurance Index, which includes health care insurance companies, is up nearly 6 percent.

The plan so far does little to hurt this positive outlook for health care companies.

During an interview with CNBC, Warren Buffett, one of the most widely followed investors, called the current bill in Congress 2000 pages of “nonsense”. He pointed out that the new actions do nothing to control costs because incentives are unchanged.

In economics we know that people respond to incentives. An incentive is anything that induces a person to act. In the economy, that “thing” is price.

When the price of some good or service rises, consumers buy less of it. But at the same time the higher price gives producers an incentive to move more resources to the production of the good or service because the benefits have risen.

Do consumers of health care see the price of health care? No.

In the health-care industry, prices have long been hidden from consumers. Since the 1940s, employer-provided health insurance has been excluded from taxable income.

There may be deductibles, but any consumer who gets health insurance from an employer is unlikely to know what he or she is paying in total for health services. Medicare and Medicaid patients rarely see any part of the price for their services.

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