Making Money On Healthcare Reform

Includes: ANTM, HUM, UNH
by: Regarded Solutions

The United States Supreme Court is in the process of deciding the fate of the future of the healthcare reform act that was passed over a year ago. Actually, the Supreme Court Justices probably already know its fate, but we have to wait until June for some reason.

Since we are here to hopefully profit from any direction the wind blows, let's just take a look at what might happen:

  • The Court decides to overturn the entire law
  • The Court decides to slice and dice the "emotional" part and remove the section that "forces" people to buy health insurance or face a stiff penalty
  • The Court decides to do nothing, and leaves the reform intact

Those are the only 3 scenarios that I can think of that could happen, and one of them probably will. We simply don't know which one yet.

How Can We Profit

Well, that depends on which event occurs. Right now, as the law stands, insurance companies will be required to take everyone with pre-existing conditions. That can cost a ton of money and the only way I can see insurance companies compensating for that cost is by having everyone "forced" into some sort of insurance coverage. I am certain that the risk management teams of every insurer are figuring out how much to charge us folks to cover the pre-existing coverage mandate, especially the millions of folks who will have to buy insurance.

Investing in one or more of the best health insurance companies, such as Humana (HUM), Wellpoint (WLP), or UnitedHealth Group (UNH) could be quite profitable because if the law stands as it is now, they will have more customers, higher premiums, and of course the ability to raise premiums on an ever increasing base of customers.

Unitedhealth Group, Inc. (NYSE:<a href='' title='UnitedHealth Group Inc.'>UNH</a>)

WellPoint Inc. (WLP)

Humana Inc. (NYSE:<a href='' title='Humana Inc.'>HUM</a>)

If the law is struck down, then we are back to square one, nothing changes with the insurance company business models, life goes on as we have known it, and health care costs will continue to increase, as will the profits of the aforementioned companies. We still could profit over the long haul anyway by owning shares.

Now let's say the Court decides to carve up the program by eliminating the most contentious issue, forcing people to buy health insurance, but keeping the pre-existing condition clause.

Obviously this would be the worst case scenario for the insurance companies, and could impact the share prices of all of them (in the short term), including the ones I have mentioned. The insurance companies would now be forced to take the highest-risk customers, but would not have the influx of new customers to offset the risks with risk-adjusted rates.

Not a pretty picture for that scenario. However, they would still have pricing power, so in time, the existing customer's insurance rates would continue to climb to eventually cover the added risks that the insurance companies will be facing. I would even venture a guess that the rates are already being "skewed" for that particular outcome. I know my rates have gone up a bit more than they have gone up before, percentage wise.

I think that the insurance companies are clever enough to have figured out all the scenarios and what they need to do to protect their bottom lines.

My Opinion

It is my own opinion that shares of the companies I mentioned will benefit no matter what. If the worst case scenario occurs, there could be a pullback. I prefer to call it a buying opportunity.

The fact remains that the insurance companies will continue to be profitable and continue to be viable investment opportunity. They even pay some dividends. I think a portion of everyone's portfolio could be enhanced by owning shares in a solid health insurance company, such as the ones I have noted.

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

Disclaimer: Please remember to do your own research prior to making any investment decisions. This article is not a recommendation to buy or sell any securities or stocks, and is the opinion of the author.