The U.S. midterm election, which saw the Democrats gain control of the House of Representatives, bought much cheer to the health insurance sector, as the elections saw the passage of ballot initiatives to expand Medicaid under the Affordable Care Act (ACA).
The repeal of the ACA or more popularly called the Obamacare enacted in 2010 was largely aimed by the Trump administration.
However, government’s many attempts to repeal the ACA (over the past two years) met no success, and now that Democrats have the control of the House, the repeal of the ACA should not to be in sight in the near term. It also means that reduction in Medicaid and Medicare spending, should be off the table.
Retention of ACA means bigger business for insurers as this legislation has expanded health insurance for millions of Americans. This also means that the insurance industry will be more stable.
Medicaid Expansion Should Get a Boost
With change in control in the House, major alterations to the ACA like Medicaid Expansion would be difficult. This indirectly means that Medicaid expansion will likely remain intact.
Medicaid expansion under the ACA resulted in nearly 15 million people gaining coverage. At the same time, over the last decade, states have increasingly turned to insurers to manage their Medicaid programs, with the help of private insurance companies. Players like Centene Corp. and Wellcare Health Plans that are primarily engaged in Medicaid business have seen their membership surge substantially since the Medicaid Expansion came into effect in 2014.
Medicaid was one of the most debated issue going into the midterm elections.
Kaiser Health News reported that following the election, 37 states including the District of Columbia have adopted the ACA’s Medicaid expansion. It stated that many studies on the effects of ACA Medicaid expansion point to positive effects on coverage, access to care, service utilization, and state budgets and economies.
The midterm election also saw voters in three conservative states, Nebraska, Idaho and Utah approve Medicaid expansion. Medicaid expansion in these states will cover around 300,000 low-income people, according to estimates.
The ACA has been a net gainer for health insurers, having led to an increase in enrollment, increase in business efficiency by mandated investments in technology, shift to payment for value from payment for fee for service and many other positives in the industry. These positive have overridden the headwinds from regulations bought in by the ACA.
The Medical-HMO industry has therefore been one of the best-performing industries, having gained a whopping 235.33% compared with the Zacks S&P 500 Composite index’s growth of 59%.
Shares of Health Insurers & Hospitals Gain
Shares of hospital companies like HCA Healthcare, and Tenet Healthcare gained 4.7% and 8.12%, respectively, as Medicaid expansion will drive patient admission volumes for these companies.
Shares of the health insurers– UnitedHealth Group Inc. (UNH - Free Report) , Anthem Inc. (ANTM - Free Report) Humana Inc. (HUM - Free Report) , Molina Healthcare Inc. (MOH - Free Report) rallied 4.2%, 6.6%, 6.7% 10.5%, respectively. All these companies have witnessed a substantial increase in Medicaid business for the past many years. The industry has also witnessed a slew of mergers and acquisitions, wherein players are buying other companies engaged in Medicaid and Medicare business, in order to gain market share. Given the recent changes in the House, we expect to see further consolidation in the health insurance sector.
Among the companies mentioned above, Humana, Anthem and UnitedHealth carry a Zacks Rank #2 (Buy) and Molina Healthcare carries a Zacks Rank #1 (Strong Buy).
You can see the complete list of today’s Zacks #1 Rank stocks here .
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