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Will Walmart's (WMT) Foray in Health Insurance be a Bane?

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Retail behemoth Walmart Inc. WMT is planning to sell health insurance policies to expand into the healthcare space via its newly-formed subsidiary Walmart Insurance Services LLC.

Although at present, the company offers access to insurance information in its Walmart Health locations, it is in the process of recruiting agents to sell Medicare Advantage (MA) Insurance policies.

The new job postings pertaining to the enrollment of health insurance agents for its health insurance business are meant for Texas, a state where the managed care organization market share is dominated by UnitedHealthcare Inc. UNH the largest MA carrier and Humana Inc HUM, the second in line. Other players in the MA market are Anthem Inc. ANTM, CVS Health Corp. CVS and Centene Corp. CNC.

The retail giant already has a presence in healthcare space via its 18 Care Clinics that are present across Texas, Georgia and South Carolina, providing treatment for chronic and acute illnesses. The retailer has been making efforts to dive deeper into the healthcare space. In this regard, last month, Walmart acquired the technology platform CareZone for $200 million. It is a venture-backed startup that develops apps to help people manage medications and chronic diseases. The company also partnered with Humana and Quest Diagnostics to offer its members a drive-through coronavirus testing facility at Walmart Neighborhood Market drive-through pharmacy locations across the country.

Retailers Eye a Slice of Healthcare Space

Walmart is not the first retailer showing a keen interest in the healthcare sphere. Recently, Amazon entered into a joint venture with JP Morgan and Berkshire Hathaway to manage insurance for their employees. The company also expressed eagerness in pharmacy business.

Retailers upped their game for the nearly $3-trillion worth healthcare sector, which accounts for approximately 18% of U.S. GDP.

Per Centers for Medicare and Medicaid Services, the total healthcare spending in the United States climbed to $3.4 trillion in 2016 and is expected to reach $5.5 trillion by 2020. The sheer size of this ever-growing market, which is much in need of innovation, attracted retailers that are always sniffing out business opportunities. And retailers are right in doing so as there is little doubt that spending on medical care will continue to rise.

Medicare Advantage, a private version of the Governemnt-sponsored Medicare policies is set to grow, given its exciting benefits and the growing baby boomer cohort, the main customers of these plans.

Also, the continued decrease in member premiums, new incentives and less attractive medigap options are all contributing to Medicare Advantage growth. With 10,000 boomers aging into the program every day, and beneficiaries being offered a larger selection of plans each new season, Medicare Advantage admission growth projections will only move north and continue to take on a larger role in the Medicare program over the next decade.

Medicare Advantage enrollment forecast by The Congressional Budget Office (CBO) sees continued growth over the next decade with Medicare Advantage enrollment expected to cover about 47% of beneficiaries by 2029.

Walmart is therefore eyeing the lucrative medicare business. Its shoppers' mix has an average age of more than 50 years. A better way to generate revenues from this customer base would be to sell them their desired healthcare product/services.

Disruption in the Cards?

Considering the health insurance industry, which was concentrated in a handful of bigwigs who commanded product pricing and service offerings and had an upper hand in dealing with customers, will find themselves in a radically changed scenario. Players in this space already had to make fundamental changes in their business operations and attitude since the enactment of Obamacare in 2010 that put a check on malpractices to protect customers’ interest. Now, the entry of participants who are already well-established in their own fields and enjoy customer loyalty, will give the traditional healthcare players a jolt.

The need of the hour for healthcare entities is a razor-sharp focus on innovation and service to protect their market share that they have held for ages. This will help them save their space from retail invasion.

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

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Click to get this free report UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report Walmart Inc. (WMT) : Free Stock Analysis Report Humana Inc. (HUM) : Free Stock Analysis Report CVS Health Corporation (CVS) : Free Stock Analysis Report Centene Corporation (CNC) : Free Stock Analysis Report Anthem, Inc. (ANTM) : Free Stock Analysis Report To read this article on Zacks.com click here. Zacks Investment Research