The Healthcare sector has been in the limelight since the election of President Donald Trump, a vehement opponent of the Affordable Care Act (ACA). His proposed changes (some of which go against the interest of the insurers), via the proposal to repeal and replace, raised concerns across the space.
Repeal and replace, however, has been left hanging in midair due to lack of sufficient government support. Therefore, continued regulatory uncertainty persists in the sector.
The health insurance industry, meanwhile, continues to grow profitably as evident from the rise in its top line, as by most companies in the recently reported quarter. Many companies like Cigna Corp. (CI - Free Report) , UnitedHealth Group Inc.(UNH - Free Report) , Aetna Inc. (AET - Free Report) , Anthem Inc. (ANTM - Free Report) , Humana Inc. (HUM - Free Report) raised their outlook for 2017. This is indicative of significant growth opportunities in the industry.
Players in the industry are well positioned for long-term growth on the back of continuously increasing demand for government plans that primarily include Medicare and Medicaid. Revenues of the companies dealing with these plans like UnitedHealth Group, Anthem and Humana have been witnessing consistent upticks on the back of government business.
Thanks to the ACA, the industry has been benefiting from a reduction in the uninsured population that aided in medical enrollment as well as helped companies lower bad debts.
Rapidly increasing business diversification, focus on ancillary services and products contributing significantly to the insurers’ revenues help the companies combat the effects of stringent regulations.
Also, as the median age of the U.S. population grows, overall demand for medical coverage continues to rise.
Nevertheless, health insurers continue to suffer from underperforming public exchanges as these businesses have resulted in significant losses for most of the players.
Increasing operating cost related to regulations, investments in information technology, levy of fees and taxes also weigh on health insurers’ margins.
Although the U.S Senate has rejected the appeal of President Trump to repeal and replace the ACA as part of regulatory reform, an uncertainty has risen regarding the future of the deal. This is expected to result in higher uninsured rates and weak patient volume in the United States.
The Congressional Budget Office’s estimation also states that reduction in government spending will lead to a loss of insurance for 23 million people over the next 10 years.
Industry Rank & Price Performance
Despite the challenges, the health insurance industry is currently ranked #20, which represents the top 8% of the Zacks Industry Rank.
It has also been able to perform well as evident from its rally of 47.8% in the last one year compared with 16.4% gain registered by the S&P 500.
Stocks Worth Considering
We bring to you three health insurance stocks that have a solid Value Score, a favorable Zacks Rank and has delivered average positive earnings surprise in the last four quarters.
Aetnais a provider of healthcare, dental, pharmacy, group life, disability, and long-term care benefits. The stock has a Zacks Rank #2 (Buy) and a Value Score B. The company delivered positive earnings surprises in each of of the last four quarters with an average beat of 19%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
WellCare Health Plans, Inc (WCG - Free Report) provides managed care services for government-sponsored health care programs. It also has a Zacks Rank #2 and Value Score B. The company delivered positive earnings surprises in each of the last four quarters with an average beat of 47.4%.
Magellan Health, Inc. (MGLN - Free Report) is a healthcare management business in the United States. It sports a Zacks Rank #1 and has a Value Score A. It delivered positive surprises in three of the last four quarters with an average beat of 23.9%.
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