Health insurers that easily outpaced the broader market in trading last year nosedived this week after UnitedHealth released shaky first-quarter earnings. That dip may be short-lived if the performance of other insurers continues to fuel momentum in the sector like it has for several quarters now.
UnitedHealth Group Inc. is the nation's largest health insurer and the first to report earnings every quarter, so investors have overreacted in the past.
That played out Thursday as shares of rival insurers tumbled even more than UnitedHealth which gave up more than 3 percent, the biggest percentage decline for the company this year.
Earnings at UnitedHealth slumped 8 percent in the most recent quarter as it juggled funding cuts to Medicare Advantage plans and new costs from the health care overhaul. And just one drug, the expensive new hepatitis C treatment Sovaldi, played a big part in an additional $100 million in medical costs to its balance sheet.
The insurer also may have spooked investors, who are always looking for clues to future performance, when it said tough competition in several markets may weigh on enrollment more than expected.
The new fees that are hitting insurers this year under the health care overhaul are not a surprise, but the pressure combination faced by UnitedHealth may have been unique during the last quarter. UnitedHealth, for instance, is the nation's largest provider of Medicare Advantage plans. Cuts to that program hit it and another insurer, Humana Inc., harder than others in the sector.
Price competition also may be less acute for the other insurers, and analysts expect that the sector will benefit from tough winter weather that kept people away from the doctor's offices where they would use their insurance.
The nation's third largest insurer, Aetna Inc., reports earnings next Thursday, and the Blue Cross Blue Shield insurer WellPoint Inc. follows the week after that. The trends UnitedHealth highlighted with its report may soften by then, since the business profiles of these companies vary.
By the end of earnings season, investors also may circle back to what made them buy insurance stocks at a rapid clip last year: The companies have weathered Medicare Advantage funding cuts and major changes from the overhaul, they're still growing, and there's less change on the horizon over the next few years.
Over the past 52 weeks Aetna shares are up 25 percent, UnitedHealth shares are up 27 percent, and WellPoint is up 37 percent.
The Standard & Poor's 500 index rose less than 21 percent over the same period.
Oh, and several insurers will be dolling out dividends soon, so there are plenty of plenty of incentives to stick around and see how everything plays out.