Health care companies play let's make a deal (CI, AET, HUM, UNH, WLP, CVH, THC, HLS)
Managed health care company stocks are rising Tuesday despite press reports that hospitals will contribute $155 billion over 10 years toward insuring the nearly 50 million Americans who do not have coverage.
The cuts would largely come from the amount the insurers receive as reimbursement from Medicare and Medicaid.
Shares of Cigna corp. (NYSE: CI), Aetna Inc. (NYSE: AET), Humana Inc (NYSE: HUM), and UnitedHealthGroup Inc (NYSE: UNH) each are up more than 4 percent in early trading, with shares of WellPoint Inc. (NYSE: WLP) and Coventry Health Care Inc. (CVH) also on the rise.
The agreement, which may be announced as early as tomorrow, may help solidify bipartisan health care reform that includes a large role for private insurers. At minimum, it may help the industry plan for a controlled transition away from Medicare and Medicaid, and toward a system that may vastly increases the number of privately insured individuals.
It’s a goal that may vastly expand the market for the managed care companies with government subsidies for those who cannot afford coverage, in exchange for the insurers agreeing not to exclude anyone due to pre-existing conditions.
While the health care group has remained beaten down for months, our group index which includes about three-dozen companies has risen 15 percent in the past 30 days, as the market begins to look at the group as a less risky endeavor, now that the managed care companies are at the negotiating table. The group has been led by Tenet Health Care (NYSE: THC), up more than 130 percnet, and socks including Healthsouth Corp (NYSE: HLS), up more than 50 percent.
The group is trading at a little more than 11 times forward 12-month earnings, vs. 13 times forward earnings for the S&P 500, even though earnings for health care companies may increase faster than earnings for the market at-large this year. — Mike Tarsala.
The real beneficiaries of lower Medicare drug costs (MRK)
Profit-margin leaders in the drug space Merck & Co. (NYSE: MRK) and Pfizer Inc. (NYSE: PFE) may draw investor’s attention today after big pharma agreed over the weekend to cut Medicare drug costs for seniors in the Medicare Part D program. It certainly may sound like a big expense for them.
But the small giveback that has drug companies picking up half the cost when seniors reach a gap under Medicaid’s prescription drug benefit isn’t likely to have a big impact on per-share earnings in the sector. The drug manufacturers anticipated the need for such a giveback, and they’ve been selectively raising prices this year.
The more meaningful news for health care investors is that today’s news is yet another potential setback for health care overhaul as proposed by the Obama Administration. The move by the drug companies bolsters the credibility of the existing Medicare program, and therefore weakens alternatives to Medicare — namely a bigger government-run health care plan that could crush the bottom lines of the hospitals.
So the drug makers’ givebacks are another potential benefit for the managed care stocks like Humana Inc (NYSE: HUM), Coventry Health Care Inc. (NYSE: CVH), Cigna corp. (NYSE: CI), United Health (NYSE: UNH), WellPoint Inc. (NYSE: WLP) and Aetna Inc (NYSE: AET).
As we saw last week, those names seem to benefit every time credible alternatives to the Administration’s health care plans are introduced.
- Mike Tarsala
United Health gains as insurance reform doubts creep (UNH)
United Healthcare (UNH) shares are up more than a point on stronger-than-usual volume for this time in the session, on speculation that President Obama will need to cede more ground to the private insurance system already in place in order to pass healthcare reform legislation.
In the options market, calls are outnumbering puts at a ratio of about 2.5-to-1, in what appears to be directional market bets by traders.
United Health is the opposite bet on an Obama healthcare plan. And on several fronts, the Obama plan is meeting new resistance.
For starters, the timing of any new federal insurance plan appears to have been pushed back. The Washington Post reports today that a bipartisan set of reforms proposed by the Senate Finance Committee could be delayed until after the July 4 Senate recess.
It also appears that Senate Democrats already are ceding some ground on key reform tenets. One idea that could gain bipartisan support is a proposal by Sen. Kent Conrad (D-N.D) to form insurance cooperatives that are fun by consumers, rather than the government.
Other healthcare stocks that might benefit from Obama plan alternatives include Humana, Wellpoint, Aetna, Cigna, Coventry Health and Healthnet.
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