
Health Care Stocks: Mixed Benefits
(Health care stocks story updated with additional analyst commentary)
NEW YORK (
) -- The signing of $938 billion health care reform bill on Tuesday could pave the way for only modest pain on most of the larger health care companies, while contributing to the growth of others, according to analysts.
"The stocks went up preceding bill's passage," BMO analyst Dave Shove says. But since it was passed they've been slightly down. "Once you dig around and you get into it ... although there are some positives, there are also some negatives." The negative, Shove says, comes from some uncertainties of "how all this gets done."
Shove points out that the CMS, who "will oversee all this, doesn't even have a boss yet."
According to Morningstar analyst Matthew Coffina, the company that could be hurt most by the health care reform is
Humana
(HUM) - Get Report
, which has significant exposure to Medicare Advantage, a program that would receive spending cuts under the plan. Humana has been receiving about 60% of its operating income from Medicare Advantage, according to Coffina.
"A significant portion of both its revenue and profitability" are exposed to Medicare Advantage, Coffina says. But he adds that "Medicare Advantage is an easy target for spending cuts...
that would have probably happened anyway."
On top of all this, Coffina mentions that Humana's immediate challenge right now is converting members to network-based plans from private fee-for-service, as the private fee-for-service program ends in 2011.
Other companies that could experience negative impacts from health care reform as it pertains to Medicare Advantage plans -- though they won't be burned too badly -- are
Coventry Health Care
( CVH),
Health Net
(HNT)
and
UnitedHealth
(UNH) - Get Report
.
Each of those derive far less than 50% of their operating income from Medicare Advantage, according to Coffina.
Aetna
(AET)
,
Cigna
(CI) - Get Report
and
WellPoint
(WLP)
could also expect to some limits on profitability -- having to spend about 80% of small group premiums on medical costs and at least 20% for profit and administrative costs under new law; but "the level is manageable," Coffina says. They "can reclassify some administrative costs as medical costs," muting the overall impact.
"Aetna and Cigna ... are positioned a bit better than a lot of other players," Shove says.
On Mar. 19, Collins Stewart analyst Brian Wright wrote, in a note to investors, that "Medicaid names (
AMERIGROUP
( AGP),
Centene
(CNC) - Get Report
,
Molina Healthcare
(MOH) - Get Report
,
WellCare Health Plans
(WCG) - Get Report
) are even bigger winners under the House bill, as it includes Medicaid physician rate increases to Medicare levels in 2013 and 2014."
The finishing touches of health care reform have yet to be completed by the Senate and, Shove says, that assuming this all goes through smoothly and as planned, revenue will be bigger from the Medicaid expansion -- though it isn't a high-profit enterprise -- and Medicaid HMOs will benefit in a slightly positive or net neutral way."
Shove points out that the positive parts of the Medicaid effect won't necessarily kick in until 2014.
-- Reported by Andrea Tse in New York
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