Amid the cacaphony of politics surrounding the Affordable Care Act, aka ObamaCare, the strangest message is that of the market.
Health insurers are rising, and those which are tied most closely to the President's plan are rising fastest.
Wellpoint (WLP), a licensee of Blue Cross and Blue Shield in many states, is up 31% in price so far this year. Aetna (NYSE:AET), which has been buying groups involved in Medicare and Medicaid, like Coventry Health, for some time, is up 34%. When the President recently met health insurance executives in preparation for the launch of nationwide exchanges, Blue Cross executives were prominent among them.
Meanwhile UnitedHealth (NYSE:UNH), which has been building technology platforms under the Optum name and lobbying hard against ObamaCare, is up just 19%. This is in line with the Vanguard Health ETF (NYSEARCA:VHT), which covers that whole healthcare space and is up just 18% for the year as a whole. UnitedHealth avoided the Obama meeting.
PriceWaterhouseCoopers said recently that healthcare cost increases are moderating despite the addition of millions of new patients under the law. The government says consumers saved $3.9 billion under the law last year and that these savings are accelerating.
How is it possible that costs are moderating at the same time insurers working within the law are rising in value?
It's because at the heart of the health reform law is a different business model. Instead of getting fees for service, insurers and others are starting to be paid per-patient. By focusing on wellness, insurers keep more of their premiums this way. It's the difference between getting regular maintenance for your car and not getting such maintenance. The car breaks down less often, and repairs cost less.
The model is becoming standard in the Medicare market, where higher risks require that something be done in order to stay under increasingly strict cost guidelines.
That's why all the insurers - including UnitedHealth - have been buying up companies that serve Medicare populations. They're looking for the "secret sauce" of a new business model that they can adapt to other markets down the road as it becomes a necessity and even a competitive advantage.
That's not a political statement, but I'm sure some investors will take it as one. It's an economic statement, a business case that is expanding from Medicare and Medicaid into the general population, and which should assure profit. Even if the law were somehow repealed tomorrow, this economic fact would remain, and the insurers would remain a good place for investors to make money?
How much money? Consider that in addition to that capital gain, Wellpoint shareholders are enjoying a rising dividend, currently 38 cents per quarter. That's up from 25% a share in 2011. Investors who got in at about $60/share at the start of that year have $3 in dividends to add to their capital gains, and the prospect for even more down the line.
These stocks are looking like no-brainers for people with conservative portfolios, which is not at all what executives with those companies predicted would happen.
Vote with your heart but invest with your head.