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 Reform Would Help Insurers

NEW YORK ( TheStreet) -- Insurance-company stocks have risen on hopes that health care reform will be stillborn. The opposite ought to be happening. Reform would widen and enlarge companies' customer base, and, for the most efficient insurers, substantially higher profits.

House and Senate health care bills call for the biggest changes in 40 years. Both would extend coverage to tens of millions of uninsured Americans while curtailing costs. They also would extend the Medicaid program for the poor and put restrictions on insurers. Republican Scott Brown's surprise victory in the Massachusetts Senate race imperils President Barack Obama's health care plan, a centerpiece of his presidential campaign.

Health-insurance companies' margins are about the slimmest of any business in America. Operating margins are about 2% -- for every $100 in revenue, only $2 is earned. Companies that dominate a region are able to charge more, and their margins increase to about 3%. WellPoint's (WLP) margin was 7.9% in the first half of last year. Increased membership and reduced medical expenses have widened profitability. In contrast, smaller rival Aetna (AET - Get Report) has a margin of only 1.8%.

UnitedHealth Group (UNH - Get Report), which has 70 million customers in the U.S., would stand to gain significantly from an increased number of members. A total of about 46 million Americans currently have no health insurance. The U.S. health care industry is massive, with total premiums of $450 billion. Reform would have boosted the size of the sector, leading to a potential average increase in premium income of about 20%.

To be sure, reduced rates for Medicare would hurt some companies. Insurers such as Humana (HUM - Get Report), among the largest Medicare Advantage providers, would need to adjust costs and expenditures. It could be done profitably. Many insurers in the industry have shown they've been able to stay profitable during the recession by reining in costs.
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 $107.50 4.62%
HUM $173.55 2.90%
UNH $116.26 3.15%
WLP $136.01 1.43%
AAPL $117.34 -0.81%


Chart of I:DJI
DOW 17,888.35 +168.43 0.95%
S&P 500 2,102.63 +22.22 1.07%
NASDAQ 5,156.3060 +47.64 0.93%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs