Investors Think GOP Governors Are Bluffing On Opting Out Of Medicaid Expansion

As of Monday, six Republican governors have stated they will not participate in the Affordable Care Act’s expansion of Medicaid, a decision thrown to them by the Supreme Court’s recent ruling upholding health care reform as constitutional. But Wall Street and the markets think the governors are bluffing, if the latest financial activity in the health insurance and hospital industries is any indication.

Politico reports the insurance firm WellPoint announced on Monday it will fork over $4.9 billion to purchase Amerigroup, a smaller health insurance firm which specializes in Medicaid administration. Capital is flowing into other Medicaid-focused firms as well:

Stocks for Amerigroup, Molina and Centene shot up following the Supreme Court ruling and again Monday — posting gains of 20 percent to 30 percent — following the proposed Amerigroup purchase.

Stocks for the largest chains of private, for-profit hospitals also shot up following the Supreme Court decision. And the Republican governors’ threats to withdraw from Medicaid have done little to drive them back down, said Jason Gurda, an equity analyst at health care-focused banking firm Leerink Swann & Co.

Current law prevents hospitals from turning away anyone in need of medical attention, so when those seeking medical care are uninsured, the hospitals must pick up the bill. If Medicaid expands to cover those uninsured, it would be a major boon to the hospitals bottom line. Uncompensated care cost them $39.3 billion in 2010 alone — 5.8 percent of their total expenses.

Taken together, these investments look like a bet by markets that Medicaid rolls will expand as originally anticipated. Which suggests investors view opposition to the Medicaid expansion as mere political noise — and assume the GOP governors will ultimately bow to pressure from both the public and their home state industries to participate in the expansion. When WellPoint announced its purchase of Amerigroup, WellPoint CEO James Carlson told a conference call he doesn’t see much risk of states opting out.

It’s worth noting this anticipated financial boost to hospitals and the insurance industry is a happy offshoot of Obamacare providing health coverage to as many as 16 million currently uninsured Americans. That’s 16 million Americans who will have better access to and more use of health care, will be less likely to suffer unpaid medical bills, and will be more likely to report both good physical and mental health, according to a study of those on Medicaid versus those who are insured. On top of that, the Urban Institute estimated that 21 to 45 states would actually save money by taking the Medicaid expansion because of the inflow of added federal dollars.