Stocks of several big health insurers outpaced gains on the broader market Tuesday, as enrollment began for a key provision of the health care overhaul. Analysts warn, however, that investors in the sector could be in for a bumpy ride over the next few months.
State-based health insurance exchanges debuted as part of the overhaul's push to eventually provide health insurance coverage to millions of uninsured people. Insurance customers will be able to use these online exchanges to buy coverage with help from income-based tax subsidies over the next few months.
That coverage will start next year, and the exchanges could bring new business to the insurers that participate in them.
But Citi analyst Carl McDonald said initial enrollment may be disappointing.
A lack of understanding about the law among consumers, technology problems with the exchanges and questions of value are among the factors that might slow enrollment, McDonald wrote in a research note.
Regarding value, he noted that someone with an income level close to the poverty level will be able to get low-cost insurance coverage for free thanks to the subsidy help. But that coverage would make the customer pay thousands of dollars toward a big medical bill before the insurance coverage started, and that's something a poor patient would have a hard time affording.
All told, he said he expects exchange enrollment to have little impact on managed-care stocks this year. He noted that many companies are participating in a small number of the exchanges, and they don't draw a large portion of their enrollment from the individual and small-group markets, which is what the exchanges target.
BMO Capital Markets analyst Jennifer Lynch said in a note that she expects the rollout of the exchanges to be "imperfect," and the federal government's shutdown — which forces the Department of Health and Human Services to furlough employees — will exacerbate any complications that arise.
Lynch said she expects some volatility from managed care stocks this month due to news out of Washington, D.C., regarding the shutdown, debt ceiling debate or the overhaul.
In late trading, shares of Blue Cross-Blue Shield coverage provider WellPoint Inc. climbed 2.8 percent, or $2.35, to $85.96; Humana Inc. rose 2 percent, or $1.90, to $95.23; UnitedHealth Group Inc. was up 86 cents, or 1.2 percent, to $72.49; Aetna Inc. climbed 76 cents to $64.78. Meanwhile, the Standard & Poor's 500 index was up less than 1 percent.