For Immediate Release
Chicago, IL – March 12, 2014 – Today, Zacks Equity Research discusses the Health Insurance, including Cigna Corp. (CI-Free Report), Aetna Inc. (AET-Free Report), UnitedHealth Group Inc. (UNH-Free Report), Humana Inc. (HUM-Free Report) and WellPoint Inc. (WLP-Free Report).
Industry: Health Insurance
2014 stands as a year of transition for all the insurers. So far, the carriers have handled the impact of implementation (from 2010-2014) of some of the less onerous provisions of the reform (relating to MLR requirements, ban on denial of coverage due to pre-existing ailment, dependent coverage up to the age of 26, annual rate review) relatively well.
For the moment, however, the biggest question is how the most arduous provisions of the law (relating to insurance exchanges, individual mandate, ICD-10 requirements, pre-existing conditions, Medicaid expansion, an annual insurance industry assessment of $8 billion in 2014 with increasing annual amounts thereafter) will affect the industry. Some of these have already come into effect in 2014 and the rest will be realized in the course of the year. Investor sentiment toward the reform implementation in 2014 and beyond will be the driving factor for managed care stocks.
While the individual mandate provision will bring into loop approximately 32 million uninsured people, the gain in revenues due to increasing industry enrollment is expected to be offset to a large extent by the costs incurred by the insurers to realign their businesses to comply with the new rules (ICD-10 coding) and deal with other challenges.
Several provisions in the Health Reform -- excise tax on medical devices, annual fees on prescription drug manufacturers, enhanced coverage requirements and the prohibition of pre-existing condition exclusions -- will likely increase insurers’ medical costs.
Moreover, the annual insurance industry assessment ($8 billion to be levied on the insurance industry in 2014, increasing to $14.3 billion by 2018 with increasing annual amounts thereafter), which is not deductible for income tax purposes, and the temporary reinsurer fee ($25 billion to be levied on all commercial lines of business including insured and self-funded arrangements, over a three-year period starting in 2014), will increase insurer operating costs.
In the meantime, rules of the road remain uncertain. Insurers do not know what exactly will be expected of them, what changes they will be forced to implement, or what expenses they might have to incur to meet new data and regulatory demands. Carriers may see potentially game-changing developments threatening their ability to achieve top- and bottom-line growth.
However, insurers are being proactive, trying very hard not just to survive but to prosper amid such changing circumstances.
U.S. Insurers Aim for Global Markets
With organic growth remaining challenged at home, carriers in the health insurance sector are flocking the international markets, which specifically appear attractive on account of lesser regulations, higher margins and lower competition. Additionally, pressure on social healthcare systems along with increasing wealth and education in emerging markets are leading to higher demands for health insurance and financial security. This provides carriers with a vast market opportunity.
Companies like Cigna Corp. (CI-Free Report) and Aetna Inc. (AET-Free Report), which have active presence overseas, believe that their international business is a positive differentiator and a key driver of higher-than-peer growth rates. Both companies intend to penetrate deeper mainly in the emerging economies of Asia and the Middle East.
UnitedHealth Group Inc. (UNH-Free Report) is another instance. The company already has a presence in Australia, the Middle East and UK. In Oct 2012, it expanded its portfolio with the purchase of a controlling stake in AmilParticipacoes, Brazil’s biggest health insurer and hospital operator, for $4.9 billion. The deal will give it access to a fast-growing market bolstered by a rising middle class.
This acquisition attests the fact that insurers are desperately seeking to graze international pastures. The company already has a significant presence in Portugal, India and the Middle East through joint ventures.
Though the U.S. health insurance industry currently has little international presence, insurers are fast catching up. We expect to see more international deals going forward.
Insurers Diversifying to Provide Health Services
Leading U.S. health plans are now realizing that their core business is necessary but not sufficient. Players are increasingly feeling that their business models need to change significantly to position them suitably in the transforming health insurance industry. No longer seeing commercial medical membership as an option for substantial growth, they are thus diversifying into health services businesses such as technology, health-care delivery, physician management, workplace wellness and financial services that are “much less regulated” than insurance plans.
Sensing the tough industry environment, one of the largest health insurers in the country, UnitedHealth Group, espoused the strategy to grow its health services business, branded as Optum, in 2011. The company maintains that its future growth would come from offering services that are much less regulated than health insurance plans.
Major companies have been making acquisitions aimed at growing their health services businesses. Aetna acquired Medicity, a business that helps hospitals share patient information. Humana Inc. (HUM-Free Report) acquired Concentra, a Texas-based urgent- and occupational-care provider with clinics in 40 states. WellPoint Inc. (WLP-Free Report) also started diversifying more heavily into consumer-oriented and health IT businesses in 2011 and is continuing with the strategy. At Aetna, Chief Executive Mark Bertolini is implementing strategies that will see the insurer get more deeply into health-information technology and run the back-end operations of the new accountable-care organizations, or ACOs.
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978. The later formation of the Zacks Rank, a proprietary stock picking system; continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter; Profit from the Pros. In short, it's your steady flow of Profitable ideas GUARANTEED to be worth your time! Click here for your free subscription to Profit from the Pros.
Get the full Report on CI- FREE
Get the full Report on AET- FREE
Get the full Report on UNH- FREE
Get the full Report on HUM- FREE
Get the full Report on WLP- FREE
Follow us on Twitter: http://twitter.com/zacksresearch
Join us on Facebook: http://www.facebook.com/home.php#/pages/Zacks-Investment-Research/57553657748?ref=ts
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Zacks Investment Research
800-767-3771 ext. 9339
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss. This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit http://www.zacks.com/performance for information about the performance numbers displayed in this press release.