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Neutralize Higher Health Insurance Premiums In 2022

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It’s no secret – health insurance premiums have only gone one way over time. Over the last decade, family premiums for employer-sponsored coverage have jumped 47% according to the 2021 Kaiser Family Foundation Employer Health Benefits Survey. Roughly 155 million people in the U.S. rely on employer-sponsored coverage.

The rate of growth in premiums has outpaced both inflation (19%) as well as wages (31%) over the same time frame. Receiving family health insurance from work now costs employers and employees an average of $22,221 a year according to the Kaiser report. Workers contributed an average of about $6,000 this year with employers covering the rest.

The outlook becomes much worse when we factor in non-employer health insurance premiums. Since the Affordable Care Act (keyword “affordable”) was signed into law back in 2010, the average family health insurance premium in the U.S. has more than tripled. While most of the non-employer premiums are now subsidized by taxpayers, the rate of increase is quite alarming.

As an investor, sometimes it pays to think of yourself as a handyman or contractor. You have a set of tools to accomplish different jobs, and you must adapt to the needs of each specific project. In our current investing environment, health insurance premiums have skyrocketed – and we must decipher which tools to utilize to best counteract these higher costs.

The biggest beneficiaries of rising premiums have undoubtedly been health insurers. These insurers’ stocks are the tools we can use to accomplish our investing goal of neutralizing increasing healthcare costs.

The iShares U.S. Healthcare Providers ETF (IHF - Free Report) seeks to track the investment results of an index composed of domestic equities in the healthcare providers sector. IHF has climbed nearly 25% this year and is currently hitting all-time highs. New highs are a sign of strength and investors would be wise to take note of three companies within this ETF that are also making new highs. These firms are three of the top ten holdings within IHF and account for roughly 35% of the total IHF holdings.

Zacks Investment ResearchImage Source: Zacks Investment Research

The iShares U.S. Healthcare Providers ETF offers investors exposure to companies that provide health insurance, diagnostics, and specialized treatment. Below we will delve into three top health insurers that are outperforming the market.

Anthem, Inc.

Anthem operates as a domestic health benefits company, offering an array of network-based managed care benefit plans to large and small groups, individuals, as well as Medicaid and Medicare markets. ANTM also offers pharmacy, dental, vision, life and disability insurance benefits. Founded in 1944 and headquartered in Indianapolis, IN, Anthem serves over 44 million medical members through its affiliated health plans.

Anthem has substantially improved its top-line in recent years, witnessing a CAGR of 9% from 2015-2020 on the heels of higher membership numbers and premium rate increases. The company has boosted revenues 15% year-over-year through the first nine months of 2021 to $35.8 billion. Given ANTM’s strong Medicaid and Medicare businesses, we expect the revenue growth trend to continue into 2022.

Zacks Investment ResearchImage Source: Zacks Investment Research

Anthem’s strong cash position has driven consistent dividend payouts and stock repurchases. In Q3 of this year, ANTM repurchased shares worth $480 million. In total, the company expects to repurchase shares worth $1.6 billion in 2021, which should further support its stock price.

ANTM accounts for over 9% of the total IHF ETF holdings mentioned earlier. The company has delivered an average earnings surprise of +4.71% over the previous four quarters. ANTM most recently reported EPS in October of $6.79, a 6.93% positive surprise over consensus. The firms’ shares have outperformed the market this year with a 46% return.

Anthem, Inc. Price, Consensus and EPS Surprise

Anthem, Inc. Price, Consensus and EPS Surprise

The Zacks Consensus Estimate for 2021 EPS stands at $25.96, which represents a 15.48% increase relative to 2020. ANTM is scheduled to report earnings on January 26th.

UnitedHealth Group, Inc. (UNH - Free Report)

UnitedHealth Group operates as a diversified healthcare company in the United States. The company provides a wide range of healthcare products and services including health maintenance organizations (HMOs), preferred provider organizations (PPOs), as well as managed fee-for-service programs. Founded in 1977 and headquartered in Minnetonka, MN, UNH offers the full spectrum of health benefit programs for individuals, employers, military service members, retirees, as well as Medicare and Medicaid beneficiaries.

UNH boasts the largest and most diverse membership base within the managed-care market which gives the company a significant competitive advantage. The company has acquired a number of competing healthcare providers over the years and also built its prescription drug business through OptumRx via the acquisition of Catamaran in 2015.

UNH revenues have grown consistently as the firm has witnessed a CAGR of 5.1% in the five-year period ending in 2020. Through the first nine months of 2021, the company’s strong market position helped to increase revenues by 11.6%. We expect this trend to continue in the years ahead.

Zacks Investment ResearchImage Source: Zacks Investment Research

UNH accounts for nearly 23% of the aforementioned IHF ETF holdings and has delivered an earnings beat in each quarter for the past eight years running. The company has posted a trailing four-quarter average surprise of +8.66%, supporting the stock’s 45.1% ascent this year.

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise

UnitedHealth Group Incorporated Price, Consensus and EPS Surprise

What the Zacks Model Unveils

The Zacks Earnings ESP (Expected Surprise Prediction) seeks to identify companies that have recently seen positive earnings estimate revision activity. This proprietary model has proven to be very useful for locating positive earnings surprises in advance. In fact, when combining a Zacks Rank #3 or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time according to our 10-year backtest.

UnitedHealth Group is a Zacks #3 (Hold) stock and has an Earnings ESP of +0.33%. The positive earnings surprise trend is set to continue. The Zacks Consensus Estimate for 2021 EPS is currently $18.85, translating to growth of 11.67% compared to last year. UNH is slated to report on January 19th.

Molina Healthcare, Inc. (MOH - Free Report)

Molina Healthcare provides managed healthcare services to low-income families and individuals through the Medicare and Medicaid programs and via state insurance marketplaces. Founded in 1980 and headquartered in Long Beach, CA, MOH is a multi-state health care organization with approximately 4 million members.

Through the first nine months of 2021, Molina Healthcare has managed to increase revenues by 43.5% relative to last year. Total 2021 revenues are expected to be $27.5 billion on the heels of increased membership and higher premiums.

MOH has averaged a 4% positive earnings surprise over the past four quarters. The company most recently reported EPS in October of $2.83, a 2.54% surprise over estimates. MOH stock has followed suit, climbing 51.28% on the year.


Molina Healthcare, Inc Price, Consensus and EPS Surprise

Molina Healthcare, Inc Price, Consensus and EPS Surprise

The current Zacks Consensus Estimate for 2021 earnings sits at $13.37, a 25.3% increase relative to 2020. Looking out at next year, analysts are anticipating healthy EPS growth of 27.28% to $17.02. MOH is expected to report earnings on February 9th, 2022.

As health insurance premiums continue to rise, these three health insurers are poised to continue their outperformance.

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