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TheStreet Open House

Here's Why the Roof Hasn't Caved in on Health Insurers Under Obamacare

NEW YORK (TheStreet) -- If you listened to lobbyist predictions about the Affordable Care Act and sold the health insurers when the act was passed in 2010, you may be spitting out your corn flakes today.

If you listened to what I wrote in October, on the other hand, you're probably smiling.

All of the largest health insurance companies continue to do well. UnitedHealth (UNH) is just the latest to report earnings, and this month represents the first batch of earnings to come out reflecting results from the Obamacare exchanges.

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For the quarter ending in June, UnitedHealth reported revenue of $32.6 billion with net earnings of $1.4 billion, or $1.42 per share. The forecast of 16 analysts following the stock was for earnings of $1.25 per share. At around $85.60, share are up nearly 14% for the year to date.

UnitedHealth shares had already been gaining before earnings despite a recent downgrade from Jefferies. 

Over the last five years investors have gained 128% on shares of WellPoint (WLP), 281% on Cigna (CI), 218% on Aetna (AET), 241% on UnitedHealth and a whopping 354% on Humana (HUM).

What happened?

From a financial point of view the law has done what it promised. It brought in new customers, creating a new individual insurance market, and led to the creation of policies with big incentives for both insurers and patients to hold costs down.

The most-popular "silver" plans sold on the exchanges still have patients footing 20% of bills. That's an incentive for them to avoid unnecessary tests and procedures. It also makes it profitable for insurers to provide wellness services and to be proactive regarding chronic conditions like diabetes and hypertension, which can be managed profitably through medication.

Hospitalizations, in other words, now cost both patients and insurers a lot more than actions that prevent hospitalizations.

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