CHICAGO, Oct. 30, 2014 /PRNewswire/ -- Today, Zacks Equity Research discusses the Health Insurance (part 2), including WellPoint Inc. (NYSE:WLP-Free Report), UnitedHealth Group Inc. (NYSE:UNH-Free Report), Humana Inc. (NYSE:HUM-Free Report), CIGNA Corp. (NYSE:CI-Free Report) and Aetna Inc. (NYSE:AET-Free Report).
Industry: Health Insurance (part 2)
Link: http://www.zacks.com/commentary/35075/right-time-to-invest-in-health-insurance-stocks
The insurance industry is on the threshold of stability and growth, despite clear signs of stress. Most players are reassessing their business model from product, pricing, risk management, distribution, claims and fraud management to a realistic pace of growth. The industry is also witnessing consolidation.
For decades, the industry has sought private sector engagement in meeting ever increasing national healthcare needs. These include the foundation of Medicare Advantage, the launch of Medicare Part D drug benefits, the formation of accountable care organizations (ACOs), steady migration of Medicaid to managed care, the expansion of benefit coverage to the uninsured under online exchanges, expanded Medicaid programs and the improvement in healthcare.gov and many state-based exchanges.
Let's discuss some of the opportunities offered by the changing industry landscape:
A bigger pool of people coming into the insurance system because of the ACA rule that every individual must have access to insurance. The Congressional Budget Office (CBO) has estimated that by 2020, approximately 24 million people will purchase coverage through the new federal and state health insurance exchanges established by the ACA -- a substantial addition to the market.
As per research by The Urban Institute's Health Reform Monitoring Survey (HRMS), 7.3 million adults gained coverage in the first open-enrollment period which ended on Mar 31, 2014.
WellPoint Inc. (NYSE:WLP-Free Report), a publicly traded insurer which recorded the maximum enrollment in the new health-care market, raised its 2014 earnings guidance after having benefited from the overhaul. Another insurer UnitedHealth Group Inc. (NYSE:UNH-Free Report) stated that it will expand its Obamacare exchanges to two dozen in 2015 from five this year.
A number of insurers have shown interest in increasing participation in exchanges and are submitting plans for approval for the second enrollment season, starting Nov 15.
The expansion of the Medicaid program in 2014 presents an opportunity for large insurers participating in it. The ACA expanded Medicaid eligibility in 2014 to nearly everyone under the age of 65 with income up to 138% of federal poverty levels. According to the Congressional Budget Office (CBO) the expansion of Medicaid will increase the insurance coverage by 8 million in 2014.
UnitedHealth Group Inc. and WellPoint Inc. are among the largest Medicaid providers. Other companies that traditionally focused on employer-based coverage may seek to enlarge their Medicaid plans.
The rising senior population presents growth in the Medicare segment. According to the U.S. Census data, the population of Medicare beneficiaries will grow by 36% by the end of this decade led by a vast, aging baby boomer population. In fact, in the next 25 years, the compounded annual growth rate of the Medicare population is expected to increase to 2.7% from 1.5% at present.
Revenues from managed-care plans of Medicare Advantage are expected to grow significantly as baby boomers retire. Medicare Advantage is a privately run version of the government's Medicare insurance program for the aged and disabled. Until now, only two public providers -- UnitedHealth and Humana (NYSE:HUM-Free Report) -- control more than 10% of the market. However, we expect sharp consolidation in this market. Carriers in the health insurance sector are in a race to win Medicare Advantage market share and the fastest way of achieving the target is to acquire a company in the same business.
Global Opportunities
A sluggish economic growth, uncertainties in the newly enacted health care legislation and pressure on profit margins in general have led American health insurers to look to foreign markets for continued high rates of growth and profitability. Asia and Europe represent the best near-term opportunities for U.S. health insurers.
Companies like Cigna Corp. (NYSE:CI-Free Report) and Aetna Inc. (NYSE:AET-Free Report), with a wide overseas presence, view their international business as a positive differentiator and key driver of higher-than-peer growth rates. Both companies intend to penetrate deeper into the emerging economies of Asia and the Middle East. In Apr 2014, Aetna bought U.K.-based InterGlobal, which offers private medical insurance to groups and individuals in the Middle East, Asia, Africa and Europe.
UnitedHealth is also following the same growth path. The company has expanded its reach from Australia, the Middle East and U.K. to Brazil with its buyout of AmilParticipacoes. We expect to see more international deals going forward.
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