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Obama’s squeeze on health sector sends investors fleeing

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Healthcare stocks were hammered today after President Obama‘s budget proposals confirmed some investors’ worst fears about the administration’s plans to squeeze the industry.

The sell-off is knocking out what had been one of the few pillars of support for Wall Street this year.

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Managed-care companies took the biggest hit today: The HMO index of 11 major healthcare providers plunged 10.4%, bringing its decline so far this week to 20.4%.

UnitedHealth Group slumped $2.96, or nearly 13%, to $20.07. It’s down 28% this week. Humana Inc. plunged 19.5% today, to $23.64, and is off 42% this week. Woodland Hills-based Health Net Inc. slid 9.4% to $13.44 for the day and is down 20% for the week.

Obama wants to force healthcare providers to make competitive bids to provide so-called Medicare Advantage plans, which offer bundled benefits and subsidized care for nearly 11 million elderly.

As Bloomberg News notes: ‘The insurance companies are paid on average 14% more than it costs Medicare to provide benefits directly, according to government estimates, and Obama said in the proposal ‘it’s time to stop this waste.’ ‘

As for the drug companies, Obama’s budget ‘would raise rebates drugmakers must provide to supply medicines for patients on Medicaid, the U.S. plan for the poor, to 22% of the manufacturer’s price, from 15%,’ Bloomberg notes.

Can you feel the vise grips closing?

Among drug makers, Eli Lilly & Co. lost 4.7% to $31.04 today. Pfizer fell 2.9% to $12.70 and Thousand Oaks-based Amgen Inc. sank 9.4% to $51.23. Obama wants to open the door for generic-drug firms to make their own versions of biotech drugs, which could hurt Amgen in the long run.

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Of 54 healthcare issues in the Standard & Poor’s 500 index, 52 declined today.

Until this week, the healthcare sector had been helping to cushion the broader market’s losses this year. Through last Friday the S&P 500 healthcare index was off just 2.9% year to date, while the S&P 500 index overall was down 14.7%.

With this week’s losses, the healthcare sector is off 10.2% for the year.

-- Tom Petruno

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