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Health Insurers Hope to Gain From Executive Order on Medicare

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President Donald Trump has signed an executive order with focus on Medicare Advantage (MA) — the privately-managed Medicare plans — which further seems to strengthen the participation of health insurers in the social benefit program.

The order included improving the privately-run Medicare Advantage plans and providing seniors with more benefit choices. Nearly 60 million seniors depend on Medicare and of these roughly 20 million rely on Medicare Advantage.

The expansion of the MA plan includes greater access to Medicare Medical Savings Accounts, improving access through network adequacy, lowering Medicare Advantage’s premiums, allowing providers to spend more time with patients and checking Medicare fraud among others.

Per the latest Federal data, 22.4 million people are enrolled in Medicare Advantage for 2019 coverage. The scheme is gaining momentum each year. The Congressional Budget Office projects that nearly half of all Medicare beneficiaries (60 million) will be covered by Advantage in the next 10 years.

Significantly, the rising baby boomer population has possibly jacked up demand for Medicare Advantage enrollment. Those seniors are accustomed to employer-sponsored managed-care plans and are  choosing Advantage over traditional Medicare more frequently than their previous generations.

Senior section  also often get more benefits including dental care, eyeglasses and gym memberships with an Advantage plan. Companies in the health insurance industry have thus been seen delving deeper into the MA market via a growth-by-acquisition policy and further penetrating their already operating territories.

An expansion of Medicare Advantage will supposedly be a positive for private insurers who receive reimbursement for these plans from the government. This is because those private insurers aim to spend less than the reimbursement received and earn more profits in order to stay in business.

According to  a report by Henry J Kaiser Family Foundation, average gross margins for this line of business have been more attractive than the other two main businesses for insurers, namely individual and employer health insurance. From 2016 to 2018, gross margins for Medicare Advantage plans were double the average annual gross margins for plans in the individual and group markets. In fact annually from 2006 to 2018, average gross margins for Medicare Advantage plans have exceeded those in the individual and group markets.

This executive order would likely benefit insurers with a big exposure to MA. UnitedHealth Group Inc. UNH holds the number one spot with more than 25% of the MA market share. While Humana remains at the second position, CVS Health Corp. CVS (which gained exposure to the MA market with its last-year acquisition of Aetna) occupies the third spot. Anthem Inc. ANTM and Centene Corp.  CNC follow at lower ranks.

The health insurance industry has declined 11.9% year to date against the Zacks S&P 500 composite’s increase of 17.3%.

Among the stocks mentioned above, Anthem carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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