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Employer Sponsored Health Insurance Premiums Jump: 4 Picks

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According to a recent survey by Kaiser Family Foundation, employer-sponsored annual family health insurance premiums have risen 5% this year, extending a seven-year run of moderate increases. Also, annual premiums for single coverage have increased 3%. Higher premiums mean more revenues for health insurance companies, which definitely is good news for the industry.   

The increase in premiums this year is comparable to the rise in workers’ wages of 2.6% and inflation of 2.5% during the same period. Moreover, the health insurance industry has had a great first half this year, with most players reporting an improving top and bottom line.

An increasing number of memberships, with unemployment rate hitting a record low, have been one of the prime factors behind the top-line growth of the health insurance sector. Given this scenario, investing in health insurance stocks looks like a prudent option at this point.   

 

Employer-Provided Insurance Premium Increases    

Per the Kaiser Family Foundation Employer Health Benefits Survey released on Oct 3, employer-provided annual family health insurance premiums have risen 5% to $19,616 this year. This extends a seven-year run of moderate increases. Moreover, on average, employees this year are contributing $5,547 toward family coverage, while the rest is being paid by employers.

The survey also finds that annual premiums for single coverage have jumped 3% to $6,896 in 2018, with employees contributing $1,186 on average. The premium increases are comparable to the rise in employees’ wages of 2.6% and inflation of 2.5% over the same time period.

Interestingly, employers in order to blunt the cost of premiums, continue to pass the burden on to employees by boosting the deductibles that workers must pay out of their pockets. This has seen the average deductibles for workers in employer health plans increasing by 4.5% in 2018 to $1,573. However, if looked at another way, higher premiums mean more income for health insurance companies. Per the survey, since 2008, average family premiums have jumped 55%.

Health Insurance Industry on Solid Ground

The health insurance industry so far has had a good year. The industry delivered a robust performance in the first half of the year with most players reporting improving top and bottom lines. An increase in memberships and premiums, with unemployment rate hitting a record low, has been aiding the health insurance industry.

Medical cost management, better claims handling, cost-saving initiatives and a decrease in tax rate thanks to the tax reform have contributed to the lead players’ margins. In 2017, the individual exchange market suffered due to high claims and low premium. However, the situation has reversed this year, the same businesses generating profits for insurance companies.

Moreover, the Fed recently increased the interest rate for the third time in 2018 and provided an optimistic unemployment view.  Fed officials expect the unemployment rate to be 3.7% for 2018 (up from 3.6% predicted earlier). A spurt in employment shows an average of 0.2 million increase in jobs over the past three months. Per U.S. Bureau of Labor Statistics, unemployment rate was 3.9% in August and touched the 18-year low level, while yearly wage growth was 2.9%, hitting a nine-year high. Higher employment means more workers will get covered under health insurance, which will result in more premiums, thus helping health insurance companies. 

Our Choices

Increase in employer-provided annual family health insurance premiums is a clear indication that the health insurance industry on steady growth track. Increasing premiums means more income for health insurance companies. Moreover, unemployment level hitting record lows mean more memberships and premiums. Given this scenario, it makes sense to invest in health insurance stocks.

However, picking winning stocks may be difficult. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.

Cigna Corporation (CI - Free Report)  is a global health service company dedicated to helping people improve their health, well-being and sense of security.

The company has expected earnings growth of 32.6% for the current year. The Zacks Consensus Estimate for the current year has improved by 1% over the last 60 days. The stock sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Aetna Inc. is one of the nation's leading diversified health care benefits companies, serving people with information and resources to help them make better-informed decisions about their health care. 

Aetna has a Zacks Rank #2 (Buy). The company has expected earnings growth of 14.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.9% over the last 60 days.

Humana Inc. (HUM - Free Report) is committed to helping their millions of medical and specialty members be in their best health. 

Humana has a Zacks Rank #2. The company has expected earnings growth of 21.1% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.3% over the last 60 days.

Molina Healthcare, Inc. (MOH - Free Report) a multi-state health care organization, arranges for the delivery of health care services and offers health information management solutions to individuals and families receiving their care through Medicaid, Medicare and other government-funded programs. 

Molina Healthcare has a Zacks Rank #2. The company has expected earnings growth of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved by 0.1% over the last 60 days.

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