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B.S., M.B.A.,

University of Kansas.

France moved to

Donaldson Lufkin & Jenrette

in early August, but in June, when this survey was published, he covered managed health care for

Credit Suisse First Boston.

France has covered the health care industry for 20 years. His previous affiliations include

Dillon Read


Merrill Lynch


Smith Barney


First National Bank of Chicago.

Industry Outlook and Style

Like the other two top-rated analysts, France is betting on only a small group of managed health care companies. Unlike his colleagues,

UnitedHealth Group


is not one of them.

France downgraded both Aetna


and UnitedHealth on July 18, lowering his rating from a buy to a hold. He asserts that United remains an "excellent stock," yet, in his view, if a national company like Aetna can stumble (Aetna was a casualty of unexpectedly high medical costs), so can United. "We should be cautious of cost trends everywhere," he warns.

Managed care, however, is not just about getting costs under control, says France, who moved from Credit Suisse First Boston to Donaldson Lufkin & Jenrette early this month. It is even more about anticipating what the costs will be. He is concerned that at the end of 1999, companies told analysts that costs were going up 6%.Then, in May, analysts were told that costs were going up by 8%. Now, notes France, Aetna is predicting cost increases of 10% to 12%. Even if some of that increase is for a prior period, analysts are looking at a number larger than the 8% the industry was talking about at the beginning of the year. Disturbed by this lack of clarity, France worries that forecasting for 2001 could be negatively affected.

Two companies he does feel confident about are




Wellpoint Health Networks



France has a buy on both companies. Cigna, his top choice, has an enrollment made up primarily of self-funded accounts -- accounts that pay expenses as they are incurred. Cigna's business model carries much less risk than do some other insurers'; this protects the company somewhat from the same level of cost acceleration. In addition, France states, "The company's large share-repurchase program has the potential to leverage its 2000 earnings per share well above consensus estimates."

France praises Wellpoint for its excellent underwriting. Underwriting entails deciding whether to issue insurance (risk selection) and, if so, on what terms (risk classification). France observes of Wellpoint: "Their costs weren't any different than anyone else; they just priced them appropriately." (In the spring of 1999, Credit Suisse First Boston comanaged a preferred stock offering for Wellpoint.)

France agrees with his colleagues that mergers and acquisitions activity hasn't been very successful for this group. Part of the problem, in his view, has been a lack of business skills sophisticated enough to master this very complicated business, which requires knowledge of both health care and insurance. He does predict that Oxford likely will be "one of the handful of names to be acquired over the next year or two."

Contrary to his colleagues, France is disappointed that the patient bill of rights was not passed during the current congressional session. In his opinion, the average consumer doesn't understand the relationship between access to health benefits and the cost of those benefits: "If you ask 10 people how managed care companies work, how they make their money, nine of them will say, by not paying for stuff and not approving stuff. To the extent that you increase disclosure and you add independent third-party review, I think people will feel much better about their health plan."

Although cautious in the current environment, France believes managed health care has a future. Given that "domestic spending on health care is two or three times that of most industrialized countries and continues to grow at a rapid rate," the U.S. can't afford unregulated access to health, he contends.

France was the top stock picker for this industry in our

Analyst Rankings -- Equity 2000

(See our related

table.) And voters give France rave reviews. One comments that he is "an old-guard analyst, still working hard, doing original work." Other praise him for his reference reports on the industry, specifically mentioning his piece on HMO accounting.

Stock Pick

Favorite stock for next 12 months:



"This pick reflects my concerns about accelerating medical costs. Cigna has a large group of nonrisk businesses." Bottom line, says France, "They just don't take risks."

Rate Their Stock Picks:

Which stock do you like best?

Goodman and Arnold: UnitedHealth Group

France: Cigna

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