Theoretically, an investment in a health insurance company’s stock should be a big risk. The last thing an investor wants is to place a bet in a company whose future could be roiled by politics.
This line of logic seems sensible. On the surface, the health insurance industry has been more affected by politics in recent years than any other industry in the U.S. First, lawmakers debated whether the U.S. should help provide insurance to millions of people. Then, after “Obamacare” passed in 2010, there was one national policy change after another spread out over a few years. People were required to buy insurance, employers had to provide it, insurance companies had to change longstanding practices, Medicaid was expanded, insurance markets were overhauled, and on and on and on.
“The health insurance industry has been embroiled in a regulatory web since the Affordable Care Act (ACA, or Obamacare) was passed in 2010,” is how Zacks Equity Research summarized the situation in its June, 2017 Health Insurance Industry Outlook.
The industry adapted to the changes, but the stability and predictability that investors often crave remained elusive as lawmakers continued to debate eliminating Obamacare. Throughout 2017, the Republicans’ effort to replace Obamacare with “Trumpcare” has again seemingly made investing in a health insurance company a big risk because the industry’s future seems so dependent on politics. Will Obamacare remain? Will it be changed? What is Trumpcare? On Sept. 26, Republicans withdrew their latest plan to end Obamacare, but the questions remain.
Despite the hype, the health insurance industry may actually be the perfect place for your investments. Believe it or not, the industry is doing better than most others, and many stock market experts expect it to continue to flourish in the coming years.
“The health insurance industry’s strong performance this year reflects the (stock) market’s understanding that these healthcare operators remain well placed, irrespective of the (repeal Obamacare) legislation’s fate,” Zacks’ June Outlook says. “Many other operators in the healthcare space, like hospital operators and drug companies, are not in that category. The Zacks HMO industry is currently up +14% in the year-to-date period, outperforming the S&P (Standard & Poor’s) 500 index’s +8.1% gain.”
In fact, the health insurance industry’s performance this year is not a blip. Since the Affordable Care Act, or Obamacare, became law, the stock prices of companies in the industry have increased 340.3 percent as compared to a 117.8 percent increase among companies in the S&P 500, reports Zacks’ Sept. 2017 Health Insurance Industry Stock Outlook.
The health insurance industry has performed so well that it ranked 14th out of 265 industries in the Zacks’ assessment of how industries are faring on the stock market as of the company’s September report. The industry has fared well in recent years for many reasons, including the following:
* The nation’s population is aging. Currently, about 156 million Americans have employer-based health insurance and another 21.8 million have non-group insurance, according to a graphic in a Business Insider news website article entitled “How Americans get their health insurance.” These numbers are expected to increase in the next few years, partly because Americans are living longer.
* The industry has spent wisely on technology that has improved how companies handle claims, keep records, and pay bills. Zacks reports that improved technology has reduced duplication of services.
* Care delivery has improved, according to a McKinsey & Company report entitled “The growth opportunity for private health-insurance companies.” Among other things, health-care providers have improved how they share and communicate information. This reduces hospital stays and costs.
* The industry has become more flexible and innovative, reacting to trends more expeditiously than it has in the past. This Forbes magazine article details how insurance companies have recently begun offering small businesses self-funded insurance plans.
Many Recommended Stocks
Private health-insurance revenues are projected to double worldwide between now and 2025 and double worldwide in North America from 2015 to 2025, according to the McKinsey report.
The industry’s strong growth gives people many opportunities for strong returns on their investments. Recommended stocks include in alphabetical order:
AETNA: The Motley Fool recommends Aetna although its earnings dropped in 2016 because of its strong past and projected strong future. “Since 2000, Aetna has returned a staggering 2,370%, which translates to a 20% annualized return over the past 17.5 years,” reports The Motley Fool article “3 Top Dividend Stocks in Insurance” and it has a thriving Medicare business that is projected to grow, reports The Motley Fool article “3 Top Health Insurance Stocks to Buy in 2017.”
AFLAC: The Motley Fool “Dividend Stocks” article projects that Aflac will continue to raise its dividend payout as it has done for more than 30 years. The article also praises Aflac for covering situations that competitors don’t.
ANTHEM: Zacks projects that Anthem’s long-term growth rate will be 10.3 percent. It’s also one of the 10 health insurance stocks recommended by TheStreet.com in an article entitled “10 Best Managed-Healthcare Stocks for This Year.”
CENTENE: TheStreet.com gives Centene an A rating. The Motley Fool “3 Top” article reports that Centene’s plans have had more success on the Obamacare exchanges than many of its competitors so this is one company that might be affected by politics.
HUMANA: Humana increased its profits after reducing its participation in the Obamacare exchanges, reports The Motley Fool article “These Health Insurance Stocks Just Hit All-Time Highs: Buy, Sell, or Hold?” It also gets an A rating from TheStreet.com.
MAGELLAN: Zacks rates Magellan a “Rank #1, according to the article “3 Value Stocks in Health Insurance to Bet On.” This means it has a “Strong Buy” recommendation. “Since 1988, the Zacks #1 Rank stocks have generated an average annual return of 25% per year,” reports Zacks.
NOBILIS: Zacks also rates this company a Rank #1 and projects it will have a long-term growth rate of 20 percent, according to Zacks June Outlook.
TRIPLE-S: This company “beat estimates in the last quarter by 317%” according to Zacks, which rates Triple-S as a Rank #1 Strong Buy in its September Outlook.
UNITEDHEALTH: It’s the only health insurance company that TheStreet.com gives an A+ rating. It’s also rated highly by Zacks and The Motley Fool. “If you only want to buy one health insurance stock, UnitedHealth Group is your best pick,” says The Motley Fool “3 Top” article.
Regards,
Ethan Warrick
Editor
Wealth Authority
