On October 1 2013, Obama Care opened to Americans for the first time…
More than 32 million formerly uninsured citizens finally had coverage. No one could be denied or dropped. Another 12 million signed up in 2015.
Healthcare spending slowed to record lows.
Healthcare giants became the darlings of Wall Street along the way.
United Health, Aetna, Cigna, Humana, and Anthem all outperformed the broader markets with explosive company profits, wild windfalls, and mega-mergers to boot.
Humana ran more than 330% since 2011. United Health was up 290%...
Cigna ran more than 375%... Anthem rocketed more than 230%...
All as the S&P 500 gained 73%.
Companies, investors couldn’t lose… Or, so we thought.
Over the last several months, those same insurers are down an average of 20%...
“The Affordable Care Act (ACA) will fail for business reasons.”
That’s what Dan Karr, CEO and Founder of insurance group, ValChoice just noted, as the stress of higher premiums and costs to insurers wreaks industry havoc.
United Healthcare – for instance -- just announced that it has “pulled back on its marketing efforts for individual exchange products in 2016,” expecting to post a $425 million reduction in Q4 2015 earnings on exchange issues.
“We cannot sustain these losses,” says CEO, Stephen Hensley. “We can’t really subsidize a marketplace that doesn’t appear at the moment to be sustaining itself.”
That news comes just a month after the company expected better 2016 results because of tweaks to its offerings and stronger double-digit rate increases.
When – and if -- United Healthcare pulls the plug, more than 550,000 Americans – just over 5% of the 10 million covered -- could be left scrambling for coverage… leaving us with fewer competitors, and rising costs for all.
It’s simple economics…
While other insurers aren’t seeing similar losses, Aetna has also announced plans to withdraw from several state exchanges in 2016. In fact, the company CFO has said ObamaCare was not profitable for it in 2015.
Anthem and Cigna are also having a tough time making the numbers work, too. “Prices in some areas probably will have to climb in 2017 and even 2018 to reach levels that make sense,” according to Anthem’s Chief Financial Officer Wayne Deveydt, as quoted by Bloomberg.
Then, of course, we’re left with enrollment issues, too…
While those in poor health are quick to enroll, healthier people are not, quicker to avoid higher premiums. That alone poses a problem for insurers who need healthy clients to subsidize the cost of those needing a greater deal of medical care.
Health and Human Services (HHS) also just cut its estimate again for how many people would enroll in 2016. Originally, HHS estimated that 20 million would enroll in the New Year.
Now, they say enrollment could be as low as nine million – a more than 50% miss – as three out of every four Americans remain uninsured. More than 80% say they just can’t afford it.
Should premiums continue to rise to meet profitability targets, we’ll see fewer enrollments, too.
And as the problem persists, insurers fall well outside profitability.
Eventually, though, as we’ve seen with most markets, stocks are resilient.
Once the fear is priced in, opportunities are quick to appear, opening the door to many profitable opportunities.