WASHINGTON (AP) -- With Barack Obama's election to the White House and Democrats expanding their majorities in Congress, the nation's health care companies face the biggest threat to their profits in over a decade.
Health insurers and pharmaceutical makers have not faced a Democrat-controlled White House and Congress since 1994, when President Clinton tried to overhaul the nation's health care system. That effort was largely torpedoed by the health insurance industry, which blasted the proposal in ads featuring a couple named Harry and Louise fretting over the new "billion-dollar bureaucracy."
Analysts don't expect another contentious fight anytime soon. First, they say the economic meltdown and $700 billion bailout will limit lawmakers' chances for major health care reform.
"The fiscal reality is so crushing, it will be virtually impossible to do major reform next year," said Dan Mendelson, president of Avalere Health.
Additionally, Obama's approach to reform is not drastically different from the one proposed by industry groups: using a two pronged public-private approach to cover virtually all Americans.
Nevertheless, there are plenty of aspects to Obama's plan that are unfriendly to corporate interests.
"The branded drug industry, along with managed care, likely faces the greatest combination risk coming from the election," wrote Barclays Capital analyst Tony Clapsis in a note to investors Wednesday. "President-elect Obama and Democrats in Congress are looking to go after the industry on virtually every aspect of their business."
Obama would set up a government-run clearinghouse of insurance options that would negotiate prices and benefits with private insurers. One option would be a government-run plan that is expected to compete directly with private plans. Additionally, no participating company could turn someone away because of pre-existing conditions like cancer, heart disease or diabetes.
Many companies pledged Wednesday to cooperate with Obama, while avoiding any direct comments on his proposals.
"The ability to call on the expertise of all stakeholders will be the key to positive change, and we stand ready to work with President-elect Obama to advance health care for all Americans," said a statement from WellPoint Inc., the nation's largest managed care company.
Before Democrats attempt any sweeping changes, though, they are expected to take aim at smaller programs that have flourished under the Bush administration.
At the top of that list is the Medicare Advantage program, through which companies like Humana Inc. and UnitedHealth Group Inc. offer health coverage to seniors. About one-fifth of the 43 million seniors in Medicare get their care through the program.
Democrats and some Republicans have complained that the government spends roughly 12 percent more on the privately run arm of the plan than on traditional government-run Medicare. Obama has called the spending a "government subsidy" to insurers and has pledged to curb it.
Industry lobbyists have quashed past attempts by arguing they would lower the quality of care available to seniors.
"Medicare Advantage provides additional benefits such as dental, vision and hearing care at lower out-of-pocket costs than traditional Medicare," said Robert Zirkelbach, spokesman for America's Health Insurance Plans. "Seniors continually express high satisfaction with plan."
But with Democrats controlling Washington, analysts say Republican-legacy programs like Medicare Advantage will be the first on the chopping block.
The most valuable program for drugmakers is the two-year-old Medicare drug benefit, which pays for medications taken by millions of seniors. The federal program provided a much-needed revenue boost to the drug industry last year. But the benefit's setup has been a point of contention from day one.
Under the current system, insurers separately negotiate drug prices with pharmaceutical makers on behalf of patients. Although the program has come in under budget, most Democrats believe greater savings could be had by allowing the government to negotiate prices.
Obama has pledged to take up the effort, which could lower pharmaceutical revenues by $10 to $30 billion, according to analysis by the Boston Consulting Group.
The drug industry's trade group acknowledges that the proposal and others are not favorable to members, which include Pfizer Inc. and GlaxoSmithKline PLC.
Shares of the world's largest drugmaker, Pfizer, fell 82 cents, or 4.5 percent, to $17.27 in afternoon trading. The world's No. 2 drugmaker Glaxo slid $2.75, or 6.9 percent to $37.42.
"We fully expect a number of challenging issues to come our way next year, but with new challenges come new opportunities," said Ken Johnson, senior vice president for the Pharmaceutical Research and Manufacturers Association.
The group recently promoted former Democratic congressional staffer Bryant Hall to replace its top lobbyist Alan Gilbert, who previously worked in the Bush White House. Johnson said Gilbert is retiring to start his own consulting group.
Not every part of the health care sector will be on the defensive in 2009.
One of the sectors with the most to gain is the generic pharmaceutical industry, which is expected to realize its long-sought goal of creating a market for low-cost biotech drugs.
Unlike traditional chemical drugs, biotech companies like Amgen Inc. and Genentech Inc. currently face no generic competition in the U.S. because the Food and Drug Administration lacks authority to approve copies of biotech medicines. Biotech drugs are more complicated than regular drugs because they are made from living cells or bacteria.
Generic firms like Teva Pharmaceutical Industries Ltd. and Mylan Inc. have lobbied for a pathway for generic biotech drugs for over a decade. Obama and congressional Democrats support the move as a way to lower health care costs.
