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Is Obamacare Becoming Good Business?

30 May 2014 in Trading Ideas

Don’t look now, but health insurance companies appear to be increasingly inclined to give this whole Affordable Care Act a try.

Earlier this week, the New York Times reported that several insurers who have been sitting on the sidelines now say they will sell policies on the new exchanges, with others planning to expand their offerings in more states.1

“Insurers continue to see this as a good business opportunity,” Larry Levitt, a health policy expert at the Kaiser Family Foundation, told the Times. “They see it as an attractive market, with enrollment expected to ramp up in the second year.”

Eight million people have signed up for coverage in 2014, according to the report, and estimates are putting next year’s enrollment around 13 million.


In New Hampshire, where Anthem Blue Cross is the only insurer offering individual coverage on the state exchange, two other plans, both from Massachusetts, say they intend to offer policies next year. Harvard Pilgrim Health Care, a nonprofit insurer with 1.2 million members, said it expected to participate in the exchanges in both New Hampshire and Maine for the first time and to add Connecticut to the mix in 2016.

UnitedHealth Group and Cigna, which were notable in their caution about the exchanges last year, according to the Times, are expected to enter more markets this year. In Washington State, United is among four new insurers that have told state regulators they are interested in offering plans in 2015.

The Times reported that companies must decide in the coming weeks whether they want to participate in the online exchanges run by the federal government, and states may have their own deadlines.

However, the key issue of premiums — what insurers want to charge in 2015 and what regulators will allow them to charge — won’t be decided for months, and insurers do not have enough experience to know if the prices they set for 2014 will cover the medical costs of the people enrolled in their plans, according to the report. As a result, said the Times, some insurers expressing interest now may back out later, and regulators could refuse to license a new entrant.

Still, there is evidence to suggest that small and big insurers alike are seeing opportunity in growing through Obamacare. In some states, small insurers are targeting opportunities for expansion in states where competition is limited.

Meanwhile, in other markets, Blue Cross plans, which traditionally are the largest players in any given market, appear to be interested in changing their bystander status, the Times said. Wellmark, the Blue Cross for Iowa and South Dakota, has said it plans to offer coverage on the exchanges this year, while Blue Cross of Mississippi said it had not yet decided.

One industry consultant told the paper that the advantage of having a large player join the fray extends beyond the additional competition to its ability to attract more overall customers through heavy marketing.

Of course, it’s the expectation that customer rolls will grow via Obamacare that has, for some time now, rewarded some investors who have been targeting healthcare stocks that stand to benefit from higher demand for health-care services.

The Obamacare motif, for example, has gained 29.6% in the past 12 months. During that same time period, the S&P 500 is up 17.6%.

In the past month, the motif has increased 6.7%; the S&P 500 has gained 2.4%.

1Reed Abelson, “Insurers Once on the Fence Plan to Join Health Exchanges in ’15,” nytimes.com, May 25, 2014, http://www.nytimes.com/2014/05/26/your-money/health-insurance/insurers-once-on-the-fence-plan-to-join-health-exchanges-in-15.html.

Tags: Obamacare