Insurance Stocks Party Like It's Obamacare

The stock price of UnitedHealth Group Inc., America’s largest health care company, is up +263% since Obamacare was signed into law just over four years ago on March 23, 2010. Over the ten year period prior to Obamacare, UnitedHealth stock was down by 10%. 

UnitedHealth, ticker symbol UNH, is the 17th largest company in Fortune magazine’s top 500 U.S. companies. Through subsidiaries in 50 states and Puerto Rico, UnitedHealth provided 70 million Americans health insurance, equal to 22% of the nation. The message shareholders are learning is that a decade of competitively providing healthcare is grim, but four year of partnership with Obamacare is party time. 

When President Obama on November 14, 2013 told Americans angry about the cancellation of their insurance they could renew individual or small group policies that did not meet the requirements of Obamacare, it was a huge net positive for UnitedHealth. While competitors such as Blue Cross and Kaiser Health waged expensive marketing campaigns for new subscribers on healthcareexchange.gov, UnitedHealth did not participate and still got to keep most of its former subscribers.

Morgan Stanley's Andrew Schenker estimates health insurers will get $90 billion in revenue growth from the healthcare and Medicaid expansion this year. As the dominant provider, UnitedHealth should get 30% of this revenue since Obamacare’s regulatory requirements and benefit features squeezed out small insurance providers.

With the price of insurance now spiked by elimination of competition, all the major health insurance stocks were Dow Jones’ top performers in 2013. UnitedHealth stock was up +33%; WellPoint rose by +50%; Aetna ticked up by +46% and Cigna jumped by +60%. This year performance accelerated and all the companies’ stock prices hit new highs in the last month. 

Obamacare is transforming one-sixth of the nation's economy, with insurance companies the winners and consumers the losers.  As I pointed out in “Pay 41% More and Get Less from Obamacare,"  the Manhattan Institute published an analysis demonstrating the average cost for an Obamacare individual rose an average of 1% this year. The results were similar to PriceWaterhouseCoopers’ 2009 analysis predicting insurance rates would rise by 47% in Obamacare’s first year. I forecast insurance premium rates will be up another 20% in 2015.

The biggest price hikes hit millennials, as rates for this 18-29-year-old group soared by an average of 98% for men and 58% for women. Insurance rates increased for everyone who is healthy and males in all age groups. Obamacare’s ballyhooed taxpayer-funded subsidies primarily benefit those approaching retirement, despite substantially higher average net worth and greater use of expensive specialty providers compared to the mostly broke and healthy millennials. 

The Obama Administration’s sales job to get the Patient Protection and Affordable Care Act passed painted insurers as villains who were using their evil monopolistic size to spike up profits and price out many Americans from obtaining coverage. In an appearance at Arcadia University on March 8, 2010, President Obama said:

Because there's so little competition in the insurance industry, they're okay with people being priced out of the insurance market because, first of all, a lot of folks are going to be stuck, and even if some people drop out, they'll still make more money by raising premiums on customers that they keep.  And they will keep on doing this for as long as they can get away with it.  This is no secret.  They're telling their investors this: We are in the money; we are going to keep on making big profits even though a lot of folks are going to be put under hardship.

Although the advertised goal of Obamacare was supposed to be covering the uninsured, the Administration has dropped that line since the even higher costs of Obamacare are now expected “price out” millions of formerly insured Americans as insurance costs rise annually by double digits in each of the next five years.  Obamacare is really all about which giant insurance company gets billions of dollars more in taxpayer funded subsidies.  Cheryl Swanson describes Obamacare as acrony capitalism con with, “insurance companies acting as middlemen. The health insurance industry is going to have their fingers so deep in the cookie jar they're virtually looting it.” 

Swanson expects UnitedHealth’s earnings to reach $5.7 billion in 2014, up from only $3.8 billion in 2009 before Obamacare. She points out that less competition helped the company grow membership by 24% last year, including picking up the lucrative government TRICARE contract to provide healthcare to 2.9 million members of the military and their dependents. She highlights that cash has been rolling in so fast that UnitedHealth boosted its dividends by an average of 62% in each of the last five years. 

The only risk to this party is that the Affordable Care Act is repealed. Senator Mary Landrieu of Louisiana and the other eight incumbent Democrat Senators at risk of being defeated in the 2014 mid-term elections claim to want to make a “fix” to Obamacare. There have also been over 40 House bills passed that seek to repeal Obamacare. 

But now that the health insurance companies have such a wonderful entitlement, they have a vested interest in using all their connections and political money to try to keep it. According to Open Secrets:

Anthony Welters, executive vice president of UnitedHealth Group, and his family has gone all out for Obama. During the 2008 election cycle, his wife Beatrice bundled donations totaling between $200,000 and $500,000 for Obama's campaign. In 2009, the two were among the president's top inaugural donors, contributing a total of $100,000, as well as bundling an additional $300,000 for the festivities.  Soon thereafter, the Obama administration nominated Beatrice Welters to serve as the ambassador to Trinidad and Tobago.

UnitedHealth is demonstrating to its shareholders and corporate America there is no better business than a public-private partnership with the Obama Administration. Despite all the great gnashing of teeth by the public about higher insurance costs and more people priced out of coverage, UnitedHealth’s stock price continues to party.   

The author welcomes feedback @ chriss@chrissstreetandcompany.com.
Chriss Street teaches microeconomics at University of California, Irvine.


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