March 6, 2019 4:46 p.m. ET
Health insurance
stocks have been tumbling since late February, and it’s not entirely clear why.
Some analysts think the slide was caused by the growing support for more
aggressive health reform proposals, including a Medicare for All bill and
potential changes to how people pay for prescription drugs. But some analysts
expect the slump could be short-lived, with several possible catalysts offering
a spark.
The back story. Insurers had been solid investments for
much of this year, until late February. In the 10 trading days between Feb. 22
and March 4, managed care companies fell about 10% on average, noted Morgan
Stanley analyst Zack Sopcak, with UnitedHealth (UNH)
and WellCare Health
Plans(WCG) dropping 12%. After a slight rebound on Tuesday, many of
the stocks were down again on Wednesday.
In late February, more
news began to come out about legislation or policy changes that could impact
health companies. On Feb. 26, Democrats introduced a Medicare for
All bill with more than 100 co-sponsors that would open
enrollment to the government-run health insurance program. While it’s unlikely
to pass because the Senate and presidency are controlled by Republicans, the
bill could drive debate in the next election. The role of private insurers
would likely be diminished if more people have access to Medicare. Increasing
scrutiny of pharmacy-benefit managers and their role in making drug prices go
up, could also hurt some insurers. UnitedHealth, for instance, owns a PBM named
OptumRx.
What’s new. Sopcak sees some events on the horizon
that could turn the tide for the industry, though. Anthem (ANTM) is set to
update Wall Street on its expectations at an investor day on Thursday, and
Sopcak expects the company to increase its long-term guidance. Humana’s (HUM)
investor day is scheduled for March 19, offering another opportunity for
investors to gain clarity on the market. Sopcak also expects that the
government will update the rates it’s planning to offer Medicare Advantage
plans. The final rates have been higher than the initial rates for four of the
past five years.
Another bill making
its way through Congress could also provide a catalyst for the stocks,
according to SVBLeerink analyst Ana Gupte. Under Obamacare, insurers were
expected to face a fee meant to help fund state and federal insurance
marketplaces. That fee has been delayed, but is set to take effect in 2020
unless Congress acts.
If the bipartisan bill
passes it could add “as much as high single digit EPS upside to current
consensus expectations in 2020 and 2021,” Gupte wrote.
“A delay in
implementation would be viewed very favorably by the Street,” she added.
Looking ahead. Insurers are among the companies facing
a backlash in Congress for their contribution to high health costs. If Congress
cuts them a break again, Wall Street is
likely to applaud.
Write to Avi Salzman at avi.salzman@barrons.com
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