Less Dumb Investing

This post is not a political statement on the function of healthcare in America. There’s no underlying thesis to my argument that goes against a pure capitalist function.

When Brian Thompson died a few days ago, there was a nationwide protest. It was an interesting scenario, one that doesn’t really seem to make sense on initial review. You see, most people don’t support killing people. They generally think murder is wrong, especially when it is not really linked to a direct affront. But when Luigi Mangioni killed Brian Thompson, he unleashed an outrage across the whole nation. That’s what makes everything interesting.

Initially, the stock was down on the news, as is expected. But the stock has more or less reclaimed its losses from the murder of its standard-bearer, and we’re left with clues as to what happened in addition to what is typical event-driven trading. The stock drops, and then it rebounds when traders and investors decide that there’s no systemic risk to UHNs’ earnings.

The problem with the thesis that there’s no threat to UHN’s earnings is that new information was unveiled upon Thompson’s death. United Healthcare denied about one-third of its claims. That’s a massive percentage, and Americans are now (1) angry and (2) aware of it. Something that was previously a fringe piece of information has become somewhat mainstream. UNH is being dragged through the mud.

I spoke to dozens of doctors at an international wedding this weekend, and that’s an accurate statement. Over dinner, the topics invariably led to the murder. What was incredible about the reaction to the murder was that every single doctor’s attitude was, “I don’t condone the murder, but I am okay with it.” The sample size was over 20, and there were no dissents.

In fact, the doctors were secretly glad. Dealing with insurance is a nightmare, but more importantly, they care about their patients. They don’t care about the finances of the insurance giants, but they get the blame when care gets denied. More than a handful of doctors have been killed in retribution for problems well outside of their control. There was a Reddit thread in /r/medicine that was deleted because it went against the Hippocratic Oath they all took. But being honest shouldn’t be censured.

So why short?

There are two kinds of event shocks: short-term and everything else. If you believe the event shock from this murder is short-term, then there is no long-term risk to the stock price. But if you believe that this new widespread information will lead to lower denial rates, then UnitedHealthcare will pay more for care. That will bring down profits, reducing multiples.

I fall into camp 2. I don’t see how they will be able to maintain the same level of denial rates moving forward.