Zacks Industry Outlook Highlights: UnitedHealth Group, Aetna, Cigna, Molina Healthcare and Centene

For Immediate Release

Chicago, IL – February 17, 2016 – Today, Zacks Equity Research discusses the Health Insurance, (Part 1), including UnitedHealth Group Inc. (UNH), Aetna Inc. (AET), Cigna Corp. (CI), Molina Healthcare, Inc. (MOH) and Centene Corp. (CNC).

Industry: Health Insurance, Part 1

Link: https://www.zacks.com/commentary/72284/health-insurance-stock-outlook---feb-2016

At the tail end of the fourth-quarter earnings season, the earnings performance of health insurers has largely come in better than expected. Most of the industry players like UnitedHealth Group Inc. (UNH), Aetna Inc. (AET), Cigna Corp. (CI), Molina Healthcare, Inc. (MOH), Centene Corp. ( CNC) and others came out with better than expected earnings results. Performance has been positive in terms of revenue and membership growth as well.

Total revenues of the top eight players increased to $437 billion in 2015 from $383 billion in 2014 and medical enrollment grew to 150 million members from 145 million in 2014. These statistics bring home the fact that industry players exited 2015 in a strong fashion, which was the second year of full implementation of most of the major provisions of the Affordable Care Act (ACA). Along with strong operating numbers, most of the players guided towards strong earnings for 2016, which pointed towards opportunities in the industry despite many hurdles in its growth path.

In 2015, the group thrived on favorable trends in the Government business which includes Medicare and Medicaid. Moreover, stable cost trends and ‘not so high’ medical utilization also boosted the bottom lines.

What to Look Forward to in 2016?

The major catalysts that might shake up the industry in 2016 are the presidential elections, Public Exchange Business, and the merger and acquisition environment.

The industry has caught the attention of presidential candidates who are vowing to make major changes to the legislation that gave the industry a complete makeover. The insurers who strived hard to adapt to the numerous changes brought about by the reform might have to readjust their business if the new president brings in his/her desired changes.

Also, most big players in the industry have been vocal about the troubles faced by their individual exchange business on the public exchanges. The setting up of the public exchanges was one of the main features of the act, aimed at providing subsidized insurance. UnitedHealth, Aetna, Humana and others have reported a loss in their exchange business. These players will watch the viability of this business in 2016 and will decide on their course of action. In case the business remains unprofitable and the players decide to fold it, it will be a major blow to the reform effort.

Another major event to watch will be M&A activities in the space. The industry is due to witness two major mega mergers – that of Anthem with Cigna and Humana with Aetna. Apart from these two, another merger that is due is the acquisition of Health Net by Centene Corp. These mergers, which are expected to close in the second half of 2016, will reduce the number of players thereby making the already concentrated industry even more concentrated, eventually leading to a reshuffling of the ranks of the players.

The health insurance industry, an integral part of the U.S. economy, has been much talked about since 2010 when President Obama’s healthcare reform was passed.

The Affordable Care Act of 2010 (aka Obamacare) has been at the left, right and center of the industry since its inception, making any discussion on the industry almost impossible without an analysis of it. It brought such a marked change that now the health insurance industry can be divided into two periods: pre-Obamacare and post-Obamacare. So what necessitated this sweeping regulation?

Pre-Obamacare Era

Industry operators enjoyed a level of autonomy during this period. Health insurers were free to choose their customers, entertain claims and determine their premiums. Yet while huge sums of money were spent on health care, a big portion of the population remained uninsured. The rising cost of care not only made the system unaffordable to many it also gave signals of bigger problems down the road.

The stated objective of the ACA was to make healthcare affordable. The law brought along with it a number of provisions which put a lid on the indulgences of insurers.

Post-Obamacare

The ACA law has been in place for almost six years now and has mostly been absorbed by the industry. Most of the provisions of the law, which were implemented in tranches, have been well received by the players, with its effects turning out a net positive, since the reform increased sales thanks to the mandate that every individual should carry insurance (the so-called “individual mandate”).

The players have also started to refocus on long-term growth opportunities since they are now faced with price- and service-consciousness among consumers, fierce competition and a shift in customer mix.

Amid this transition, health insurance plans faced both challenges and opportunities, many of which caused a shift in business mix. Medicaid expansion, formation of alternative forms of care such as Accountable Care Organizations (ACOs), expansion to international markets and increased investments in IT are gaining prominence.

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UNITEDHEALTH GP (UNH): Free Stock Analysis Report
 
AETNA INC-NEW (AET): Free Stock Analysis Report
 
CIGNA CORP (CI): Free Stock Analysis Report
 
MOLINA HLTHCR (MOH): Free Stock Analysis Report
 
CENTENE CORP (CNC): Free Stock Analysis Report
 
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