It’s been a tough year for major health insurers, but Barron’s magazine predicts a big comeback for Indianapolis-based WellPoint Inc. and its rival, Minnesota-based UnitedHealth Group.
Barron’s writer Johanna Bennett writes that both companies are poised to roll up or steal market share from the roughly 1,200 smaller rivals that do not have the “enormous scale” needed to thrive in the lower-profit environment the new health law will create.
"It is going to be a very Darwinian situation," Scott Richter, a portfolio manager with Cincinnati-based Fifth Third Asset Management, told Barron’s. "Size and scale will win out and create a new playing field."
WellPoint’s stock price has swooned 16 percent since President Barack Obama signed the new Patient Protection and Affordable Care Act into law on March 23. The law requires health insurers to take all comers, no matter how sick, and requires them to devote at least 80 percent of premium income to medical care, not overhead or profit.
Enrollment in health insurance plans should surge in 2014 thanks to the new law’s mandate that all Americans buy insurance. Barron’s reported that Credit Suisse analyst Charles Boorady expects total revenue in the health insurance industry to increase by a third, to $795 billion, by 2019. Profits should rise a tidy 8 percent annually during that time.
WellPoint’s 33 million health plan customers and strong Blue Cross brand names should help it draw a better-than-average portion of that growth.
"If you look down the road a few years, these big companies like United and WellPoint could be generating some pretty healthy cash flow," Jason Nogueira, an analyst with T. Rowe Price, told Barron's.
You can read the Barron's story at this website, although it requires a subscription to access.