Zacks Industry Outlook Highlights: UnitedHealth Group, WellPoint, CIGNA and Humana

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Feb 09, 2011, 09:30 ET

CHICAGO, Feb. 9, 2011 /PRNewswire/ -- Today, Zacks Equity Research discusses the Health Insurance Industry, including: UnitedHealth Group Inc. (NYSE: UNH), WellPoint Inc. (WLP), CIGNA Corp. (NYSE: CI) and Humana Inc. (NYSE: HUM).

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A synopsis of today's Industry Outlook is presented below. The full article can be read at http://www.zacks.com/stock/news/47278/Health+Insurance+Industry+Outlook+-+Feb.+2011

The year 2011 will be a makeover year for carriers in the health insurance industry, as they react to and prepare themselves for new rules. Continuing cost pressures and new customer demands require a fresh look at existing roles of industry players. Industry revenue will, however, decline from 2011 to 2014 due to tighter government regulations, particularly when health care reform takes full effect in 2014.

As the economy recovers, unemployment will decrease and discretionary spending will rise. With employment expected to grow, the demand for employer-sponsored plans will improve. This factor is important because the majority of industry premiums are related to group health insurance plans. Additionally, the rise in discretionary spending will likely support industry growth, since individuals, families and self-employed business owners will be able to afford healthcare coverage again.

Also, the U.S. population is aging, which is an important indicator of demand for health insurance coverage in the long run. Older individuals are more likely to use medical coverage than their younger, healthier counterparts. Consequently, the aging population is expected to support industry growth.

Consolidation

Many of the major players, such as UnitedHealth Group Inc. (NYSE: UNH) and WellPoint Inc. (WLP), made a number of acquisitions during the past five years and are expected to continue such activity over the next five years to 2015. The industry is expected to continue to consolidate, as insurers try to cut costs and improve profitability. At the same time, larger firms benefit from greater bargaining power in determining healthcare rates with medical providers such as doctors, hospitals and pharmacies.

OPPORTUNITIES

Though there remains a cloud of uncertainty over the companies in the sector, there are two names in particular –- CIGNA Corp. (NYSE: CI) and UnitedHealth Group − that we would recommend to investors.

CIGNA is relatively safe as it has minimum exposure to medical loss ratio (MLR) regulations, unreasonable rate reviews and health insurance exchanges. The recently completed Vanbreda acquisition should accelerate 2012 international earnings growth. The company has also shown operating momentum and has gained commercial risk membership for four quarters in a row.

We also see a positive risk-reward scenario for UnitedHealth Group. Its diversified product offering will allow it to respond better to the new regulatory changes. Driven by improved customer focus with better systems, completed acquisition network integrations and more regional management, UnitedHealth's performance should continue to improve. Its strong balance sheet will allow it to annex weaker firms that cannot adapt as well as itself to the reformed health insurance system.

Other names which carry a Zacks #3 Rank are WellPoint and Humana Inc. (NYSE: HUM).

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