This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Health Insurers May Not Love Obamacare for Long

NEW YORK ( TheStreet) -- Now that the Affordable Care Act's official enrollment date upon us, investors could be forgiven for thinking insurance companies are no longer viable investments.

After all, proponents of "Obamacare" promised lower insurance costs from squeezing insurance company's profits and administrative costs. A smaller share of the pie normally results in severe news for investors.

The market has taken the opposite approach, driving shares higher. Aetna (AET - Get Report), UnitedHealth Group (UNH - Get Report), Humana (HUM - Get Report), Wellpoint (WLP), WellCare Health Plans (WCG - Get Report), and Health Net (HNT - Get Report) are trading above the level of when Obamacare was sent to the White House for signing.

First, let's look at the some key provisions that appear to negatively impact upon insurers, and how the mandates turn them into the insurer's advantage.

Insurance companies will no longer turn down customers because of pre-existing conditions. This provision was championed by many advocates because insurance companies won't knowingly take a customer expected to cost the company money.

How this helps insurance companies is they no longer have the expense of the underwriting process along with investigating claims that may be suspect. In a free market, this provision would financially destroy insurance companies.

In a free market, many people would simply choose to wait until an insurance policy is a "sure thing" before buying. An uninsured person finding out they need expensive long-term treatment is the type of person expected to have a quick change of heart in determining their insurance needs.

Obamacare addresses the "wait until you need it" strategy with its arguably most contentious mandate, the individual requirement to buy insurance. Some people without insurance in 2014 will have to pay a fine starting in 2015.

If reality departs too far from theory, and healthy people don't sign up in significant numbers to offset sick people, the next provision may turn into a disaster for insurance companies and their shareholders.

Consumers and insurance companies are no longer allowed to agree upon a lifetime cap of insurance coverage. Not having a lifetime cap is like buying home insurance and not telling the insurance company what your home is worth.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AET $103.95 -2.01%
HNT $62.69 -0.25%
HUM $168.39 -0.01%
UNH $114.41 1.08%
WLP $136.01 1.43%


Chart of I:DJI
DOW 17,813.39 +1.20 0.01%
S&P 500 2,088.87 -0.27 -0.01%
NASDAQ 5,116.1430 +13.3350 0.26%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs