A short lesson in finance

By Carl

Stocks are priced based on a gamble that future earnings will rise. The more likely that is to occur, the higher a stock price generally goes.

The actual price itself is an estimate of the value now of those future income flows.

OK, so with that said, explain how this new insurance "plan" from Max Baucus makes sense for the average American?

In an important victory for the insurance industry, Senator Max Baucus’s legislative proposal does not call for a government-run health plan that would directly compete with private insurers. Insurance stocks rose on that news Wednesday.

Although that exclusion had been expected, its confirmation Wednesday meant that the insurance companies “ducked a bullet,” said Erik Gordon, a business professor and industry analyst at the University of Michigan.

The Baucus proposal is “a lower dose of poison than the other proposals,” he said in an e-mail message. Other bills circulating in Congress call for a government-run public insurance option.

Ironically, this is the bill closest to the vision of one Barack Obama, President of these here Yoonited States, even without a public option.

Many have written, far more eloquently and knowledgably than I, reminding Obama and Congress about the need for a public option to compete with private plans, thus reining in healthcare costs, or at least mitigating their startling inflation.

So when a key senator, one of the Group of Six bipartisan panel trying to write a bill that everyone can be happy with, presents this, without any Republican support whatsoever, one has to question the commitment of the Democratic party to truly reforming healthcare.

Not health insurance: health care. Yes, I have in the past advocated baby steps, and this bill is a small step towards the ultimate goal of universal coverage under a single payer plan, like every other intelligent, civilized nation on this planet has.

But there are baby steps and there are baby steps, and this is less a step than a crawl. And all the evidence you need for this is the fact that the stock prices of insurance companies, the gauge of how much profit they will earn in the future, spiked higher on this announcement.

If Wall Street, which does many things badly but does price stocks on earnings with remarkable efficiency, buys into the notion that Baucus' bill is good for the insurance industry, already burning holes in its pockets with all the money it's earning, then how goddamned good can it be for you and me, huh?

(Cross-posted to Simply Left Behind.)