Health Insurance Companies To Hike Prices Now, Suffer Later

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Includes: AET, ANTM, HUM, UNH
by: Adam Alvarez

Summary

Healthcare costs to surge in 2017.

The spike in prices to lead to potentially more calls for universal healthcare.

Despite headwinds and uncertainty, health insurers expecting solid 2017 earnings.

If you purchased health insurance through Blue Cross Blue Shield this year in Florida, your price for a silver plan came in around $245 a month. For 2017, the cheapest bronze plan offered - one with an over $7,000 individual deductible, which covers little more than the potential government fine for failing to have coverage - will come in around the same price.

Sure, those qualifying for subsidies may be spared a large chunk of that monthly increase. Yet, that won't matter when those individuals try to use their insurance and realize what they're paying for and what they need are two entirely different things.

The reason for such increases isn't entirely surprising. Between healthy individuals deciding to simply pay the fine for not having coverage and those canceling their policy after receiving treatment, insurers face a constant battle. Nevertheless, with another 1.4 million people set to be left scrambling to find a new health plan upon open enrollment, the odds of a change in the law, or repeal, might seem to offer some hope. However, the chance of health insurers winning in the end may be even less than the chance of consumers gladly paying more for less.

Dangers for Health Insurance Companies and Their Stocks

  • Universal Healthcare: It may still seem a stretch, but Bernie Sanders' populist message regarding government-provided healthcare won over a lot of voters during the Democratic primary. Also, with premiums skyrocketing, the push to blame insurers will only grow. There may be a lot of problems with providing government even more power, but voters oftentimes don't look too far into the future.
  • Return to Status Quo all but Impossible: Whether you support the law or not, there are elements which remain popular, such as insurers not being allowed to deny coverage as a result of preexisting conditions. If the law is fully repealed, these companies may thrive in the near term, but will be met with even more animosity in the long run. As a result, the industry may be left merely hoping for a less bad scenario.
  • Companies Leaving: There's one easy way for insurers to handle the unprofitable scenario presented by the healthcare law, and that's to just get out of the exchanges. Only 11 states and Washington, D.C., will be unaffected by the exodus, leaving those few that remain to hike prices without repercussion - at least for now.
  • Investors and Companies Not Preparing for the Uncertainty: Between leaving the exchanges and hiking premiums, health insurance companies may seem to be in good shape for the upcoming year. In fact, Humana (NYSE:HUM), UnitedHealth (NYSE:UNH), Anthem (NYSE:ANTM), and Aetna (NYSE:AET) are all expecting earnings growth of at least nine percent for 2016-2017. However, with uncertainty plaguing the industry, the time isn't right to assume the best possible outcome.

While feelings toward the healthcare law may not have improved, the aura of hatred the law casts on insurance companies as a whole has dramatically increased. Consequently, voters will most likely never jump at the opportunity to give back more control to these corporations, and will most likely back any government effort to strangle their power and, most importantly for investors, opportunity to profit.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.