Best of the Week
Most Popular
1.U.S. Inner City Turmoil and Other Crises: Ron Pauls Predictions for 2015 - Dr_Ron_Paul
2. What’s In Store For Gold Price in 2015? - Ben Kramer-Miller
3.Crude Oil Price Ten Year Forecast to 2025: Importers Set to Receive a $600 Billion Refund - Andrew_Butter
4.Je ne suis pas Charlie - I am not Charlie - Nadeem_Walayat
5.The New Normal for Oil? - Marin_Katusa
6.Will Collapse in Oil Price Cause a Stock Market Crash? - OilPrice.com
7.UK CPI Inflation Smoke and Mirrors Deflation Warning, Inflation Mega-trend is Exponential - Nadeem_Walayat
8.Winter Storms Snow and Wind Tree Damage Dangers, DIY Pruning - Nadeem_Walayat
9.Oil Price Crash and SNP Independent Scotland Economic Collapse Bankruptcy - Nadeem_Walayat
10.U.S. Housing Market Bubble 2.0 Meet the Pin - James_Quinn
Last 5 days
Kaminak Yukon Gold - 30th Jan 15
U.S. Asset Price Deflation Coming Up? Food Prices Drop? CPI Negative? Credit Deflation? - 30th Jan 15
An Often Overlooked Predator: State Governments and Income Taxes - 30th Jan 15
Bullard Says Rates at Zero Interest Rates Not Right for U.S. Economy - 30th Jan 15
Why the European Central Bank's Massive Economic Experiment Will Fail - 30th Jan 15
Gold Price Short-Term Bottom Due, Higher into February - 30th Jan 15
Silver and Other Precious Metals To Manipulate - 30th Jan 15
Socialism Is Like a Nude Beach - Sounds Like a Great Idea Until You Get There - 30th Jan 15
To Create Unlimited Market Liquidity or Not; That Is the Question - 30th Jan 15
Seen the Energy Downturn Movie Before, and Not Worried - 30th Jan 15
It’s Not Time to Sell Everything – Yet - 30th Jan 15
13 Investment Themes for 2015 - 29th Jan 15
The Raging Currency Wars Across Europe - 29th Jan 15
The End of Currency 'Safe-Havens' - 29th Jan 15
Ron Paul on U.S. Fed, Central Bankers Monetary Psychopaths - 29th Jan 15
Why Microsoft Stock Will Provide Major Investing Returns - 29th Jan 15
Exploring the Clash Within Civilizations - Mind the Gap - 29th Jan 15
Saudi Arabia Changes Kings, But Not its Oil Policy - 29th Jan 15
Crude Oil Price Bulls vs. Resistance Zone - 28th Jan 15
Acceleration Of Events With Rising Chaos – US Dollar Death Foretold - 28th Jan 15
The Fed and ECB Take the West back to when the Rich Owned Everything - 28th Jan 15
Washington's War on Russia - 28th Jan 15
Cyber War Poses Risks To Banks and Deposits - 28th Jan 15
Lies And Deception In Ukraine's Energy Sector - 28th Jan 15
EUR, AUD, GBP USD – Invalidation of Breakdown - 28th Jan 15
“Backup-Camera Envy” Is Driving This Unstoppaple Investment Trend - 28th Jan 15
The Great "inflated" Expectations for Gold, Oil, Commodities -- and Now Stocks - 28th Jan 15
How to Find the Best Offshore Banks - 28th Jan 15
There’s More to the Gold Price Rally Than European Market Fears - 28th Jan 15
Bitcoin Price Tense Days Ahead - 27th Jan 15
The Most Overlooked “Buy” Signal in the Stock Market - 27th Jan 15
Gold's Time Has Come - 27th Jan 15
France America And Religious Terror War - 27th Jan 15
The New Drivers of Europe's Geopolitics - 27th Jan 15
Gold And Silver - Around The FX World In Charts - 27th Jan 15
It’s Not The Greeks Who Failed, It’s The EU - 27th Jan 15
Gold and Silver Stocks Investing Basics - 27th Jan 15
Stock Market Test of Strength - 26th Jan 15
Is the Gold Price Rally Over? - 26th Jan 15
ECB QE Action - Canary’s Alive & Well - 26th Jan 15
Possible Stock Market Pop-n-drop in Store For SPX - 26th Jan 15
Risk of New Debt Crisis After Syriza Victory In Greece - 26th Jan 15
How Eurozone QE Works: A Guide to Draghi's News - 26th Jan 15
Comprehensive Silver Price Chart Analysis - 26th Jan 15
Stock Market More Retracement Expected - 26th Jan 15
Decoding the Gold COTs: Myth vs Reality - 26th Jan 15
Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch - 26th Jan 15
Draghi's "No-growth" QE Money for Stocks, Zilch for the Economy - 25th Jan 15
Unjust and Undeclared Wars - 25th Jan 15
The European Central Bank Commits Monetary Suicide - 25th Jan 15
Stock Market ECB EQE week - 25th Jan 15
Gold And Silver Timing Is Most Important Element - 25th Jan 15
The Best Way to Invest in the Next Alibaba Internet Stock IPO - 25th Jan 15
The Outpatient Surgery Business Rains Cash into Healthcare Stocks - 25th Jan 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Learn to Trade

Healthcare Stocks: Mergers Show How Obamacare Will Deliver Investor Profits

Companies / Healthcare Sector Jul 20, 2012 - 06:33 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleDon Miller writes: Want proof that healthcare stocks are poised to reap rewards from Obamacare?

Just take a look at this recent blockbuster healthcare merger.

Giant managed care firm WellPoint Inc. (NYSE: WLP) announced July 9 that it would buy Amerigroup Corp. (NYSE: AGP), the country's largest private Medicaid managed care company, for $4.9 billion in cash.


The day acquisition was announced, Amerigroup stock jumped 38%.

Of course, healthcare mergers and acquisitions (M&A) are nothing unusual. But a close look at this deal sheds light on the direction of the next major trend of consolidation within the industry.

In fact, when it narrowly upheld the Affordable Care Act (informally known as Obamacare), the Supreme Court unwittingly set the table for a new wave of M&A in a downtrodden healthcare space --Medicaid.

Government-sponsored programs like Medicaid and Medicare have traditionally been viewed as ho-hum businesses with razor-thin profit margins.

So why is WellPoint jumping with both feet into a business that is typically not a big money maker?

Let's take a closer look...

Insurers Eye Government Programs for Profits
Medicaid has a long history as a perpetual money pit, funded jointly by the states and federal government to assure healthcare for the needy.

But Medicaid spending currently takes up 24% of the average state's already strained budget and is growing at 7% a year.

In an effort to rein in spending, more and more beleaguered states have been turning to private managed care companies to run their publicly-funded healthcare programs like Medicaid.

But Obamacare promises to fundamentally alter the landscape by expanding Medicaid to cover more people.

In fact, when Obamacare kicks into high gear in 2014, a whopping 20 million more individuals are likely to enter the Medicaid system. The $80 billion that states spend to outsource Medicaid could grow to $300 billion in five years, according to Barron's.

Overall Medicaid spending, which hit $457 billion this year, is expected to double by 2020.

None of this has been lost on the fat-cat insurance companies.

With that kind of money on the table, the biggest managed care companies are betting they can squeeze costs and maximize profits by sucking up companies already operating in the space.

But frankly, the writing has been on the wall for some time.

Most managed care companies have actually been reporting flat or shrinking membership in the private sector and healthy growth in public sectors for several years. And more and more small businesses are dropping coverage for their employees because of the high premiums insurers demand.

Simply put, big insurers have been moving away from private sector business because it's just not profitable enough.

The two largest managed care firms, UnitedHealth Group Inc. (NYSE: UNH) and WellPoint, are now big players in Medicare Advantage and Medicaid, according to The Huffington Post.

And with the impending influx from Obamacare, they plan to get even bigger.

With the Amerigroup purchase, WellPoint will gain 2 million Medicaid members, spreading its footprint across 19 states and 4.5 million accounts.

States Will Participate
One slightly overlooked aspect of the Supreme Court's ruling said that states could not be penalized for refusing to go along with the Medicaid expansion in 2014.

At least seven governors who fear their states won't be able to pay for it are concerned about the issue.

But in the long run, it's likely the states will go along because the law is laden with incentives to expand coverage.

You see, the federal government will pay for a full 100% of newly eligible Medicaid beneficiaries for the first three years of the expansion, and 90% of the cost after that until 2020.

"When you think about it that way, the Medicaid expansion sounds like a real win: States get loads of free money to pay their residents' health-care bills,"wrote Sarah Kliff in a blog for The Washington Post.

Despite the states' misgivings, odds are when the Feds start doling out billions of dollars in 2014, the states will come around.

Healthcare Stocks: Who's Next in the M&A Game?
The Amerigroup deal has the industry buzzing about the next likely target.

"Expect other companies with government exposure to see greater investor interest," Credit Suisse AG (ADR NYSE: CS) analyst Charles Boorady wrote in a note to clients obtained by The Street.

Here are a few companies with significant public sector exposure that might be next in line.

Centene Corp. (NYSE: CNC): With over 2.1 million members in 17 states, the company provides Medicaid and Medicaid-related health plan coverage to individuals through government subsidized programs, including Medicaid, foster care, and Medicare special needs plans. After slipping near its 52-week low on June 15, Centene has rebounded 30%.

WellCare Health Plans Inc. (NYSE: WCG): As of December 31, 2011, it provided approximately 2,562,000 members with prescription drug plans under the Medicare Part D program that offers prescription drug coverage to Medicare-eligible beneficiaries. WellCare has already started to expand its managed care presence. On July 18 it announced a deal with Humana Inc. (NYSE: HUM) to acquire select assets of Arcadian Health Plan Inc.'s Desert Canyon Community Care Medicare Advantage plans in Arizona. WellCare stock has soared 28% this year.

Healthnet Inc. (NYSE: HNT): Healthnet serves approximately 6 million members in the United States through group, individual, Medicare, Medicaid, and Veterans Affairs programs including Medicare advantage plans. HNT stock is up 6% over the past month.

Source :http://moneymorning.com/2012/07/19/healthcare-stocks-mergers-show-how-obamacare-will-deliver-profits/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Brandt Hardin
20 Jul 12, 19:36
Equality for All

Republicans would have us believe Obamacare is bad for America. Is there any doubt that a Romney administration would favor the rich and increase the income gap in our country while leaving millions of our citizens uninsured and unprotected? Mitt is a pariah in Mormon Clothing and will stop at nothing to expand an empire of greed for the rich in this country. Can his sacred Mormon underwear gain him enough donations to buy this election? See for yourself as Mitt dons his tighty-whities sent from the Good Lord Himself at http://dregstudiosart.blogspot.com/2012/05/mitt-romneys-magic-mormon-underwear.html


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014