Health insurers have not been in any mood to party since Donald Trump won the election. After getting used to Obamacare, these players are again running of risk of being shaken out of their comfort zone.

Donald Trump is keen on repealing and replacing parts of the act. The very thought of adopting to new changes now after having made huge adjustments to their operations since the passage of the Affordable Care Act (ACA) in March 2010 is sending jitters across the industry.

Was Obamacare Care Panic Overdone

Despite significant uncertainty pertaining to the new regulation, health insurance stocks have been among the big winners of the stock market's postelection rally.

One positive change that Obamacare brought was that it lowered the uninsured rate and bought under it millions who were earlier uninsured, leading to an overall increase in insurers’ membership. However, most of the health insurers stubbed their toe with Obamacare Exchanges or the public exchanges and suffered massive losses on the policies sold on it.

What was initially perceived to be a minor pain turned to be a nagging headache for the players. Though the exchanges increased membership for the players and drove up the top line, it also lugged along risks in the form of a greater number of  sick and old population signing up for coverage rather than healthy individuals, which were highly needed to offset the huge claims of the former. Naturally, the business lost its luster and saw exit by the insurers from online exchanges.

So, a repeal of this part of the ACA may not make insurers too sad as they themselves are running away from it.  

Also, while the President-elect has plans to pull back Medicaid expansion, it might lead to a shift to Medicaid managed care, the private version of Medicaid. The expansion of Medicaid managed care would lead to higher premium for insurers. In the same vein, the Republican Party has always preferred Medicare Advantage to traditional fee-for-service Medicare.

So Medicare Advantage might also turn out to be a sweet spot for the health insurers. Thus, one of the changes to Obamacare can be shift of a bigger chunk of government health care to insurers, which will be a welcome change.

Furthermore, the players would see an upside from Trump’s potential push to lower corporate taxes.

A number of industries such as oil drillers, gas pipelines, coal, banks, pharmaceuticals, construction and industrial equipment are likely to benefit from the new governance. For the Medical HMO industry, the tradeoff remains less clear. It all depends on the kind of changes that Trump brings in. In the meantime, let’s take a look at the industry ranking.

The Zacks categorized Medical HMO industry remains among the top 32% with a Rank of 85 out of 265. Despite the regulatory uncertainty enveloping the sector, the industry gained 11.4% since the election of Donald Trump, significantly outperforming the return of 4.1% logged by the S&P 500 index.

Health Insurers Gaining on Trump Win

This sector provides some very compelling investment options with companies having a strong Zacks Rank # 1 (Strong Buy) or 2 (Buy) along with an upward estimate revision and the shares having gained since the election. You can see the complete list of today’s Zacks #1 Rank stocks here.

WellCare Health Plans Inc. with a Zacks Rank #1 recently announced that it will buy Universal American Corp. (UAM). The deal would help WellCare Health to expand in the Medicare Advantage market, a favorite with the GOP. Since the election of Donald Trump, the stock has gained 19.9%, outperforming the gain of 11.4% clocked by the Zacks categorized Medical HMO industry. The stock also witnessed an increase in the Zacks Consensus Estimate for 2016 over the past 60 days by 8.3% to earnings of $5.45 per share.

Magellan Health, Inc. with a Zacks Rank # 1, is strongly poised to grow in the post Obamacare world given its successfully diversified business with the Healthcare and Pharmacy segments that contributed roughly 50:50 of revenues. Magellan has seen a meaningful increase in the opportunities in the government, commercial and employer segments in the Healthcare and Pharmacy businesses driven by the challenges of ACA and the rise in specialty pharmaceutical costs.

Since the election, the stock has gained 23.1% significantly, outperforming the gain of 11.4% logged by  the Zacks categorized Medical HMO industry. The stock also witnessed an increase in the Zacks Consensus Estimate for 2016 over the past 30 days by 1.9% to $3.15 per share.

UnitedHealth Group Inc. (UNH Quick QuoteUNH - Free Report) , with a Zacks Rank # 2, is aggressively expanding its health services business Optum (which is outside the purview of the ACA). Earnings from the segment have been on an uptrend since the past several quarters and are taking up an increasing portion of the consolidated revenue. The company will therefore be relatively better off than the other players in the industry from the changes that would take place in the ACA.

Since the election result, the stock has gained 12.4%, outperforming the gain of 11.4% seen by the Zacks categorized Medical HMO industry. The stock also witnessed an increase in the Zacks Consensus Estimate for 2016 over the past 60 days by 1.3% to $8.01 per share.

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