Best of the Week
Most Popular
1.Putin’s World: Why Russia’s Showdown with the West Will Worsen - John_Mauldin
2. Stocks Bull Market Grinds Bears into Dust, Is Santa Rally Sustainable? - Nadeem_Walayat
3. Gold and Silver 2015 Trend Forecasts, Prices to Go BOOM - Austin_Galt
4.Gold Price Golden Bottom? - Toby_Connor
5.Gold Price and Miners Soar on Huge Volume - P_Radomski_CFA
6.Stock Market and the Jaws of Life or Death? - Rambus_Chartology
7.Gold Price 2015 - EWI
8.Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - Nadeem_Walayat
9.Gold, Silver, Crude and S&P Ending Wedge Patterns - DeviantInvestor
10.Is the Gold And Silver Golden Rule Broken? - Michael_Noonan
Last 5 days
Gold Price Would Soar on Possible Swiss Yes Vote - 27th Nov 14
Crude Oil Asset Bubble Trouble - 27th Nov 14
Thanksgiving and Puritan Geopolitics in the Americas - 27th Nov 14
The Dow Jones Stocks Index - Beautiful Tree in the Desert - 27th Nov 14
The Digital World, The Opiate of The People - 27th Nov 14
Harry Dent's Simple Strategy for Surviving Withdrawals from Markets on Crack - 27th Nov 14
Socialist France Just Cannot Compete Against Google Freedom - 27th Nov 14
A Short Tale About the Grand Manipulation of Crude Oil Prices - 26th Nov 14
China Secret Gold Buying ... How Could It Happen? - 26th Nov 14
Gold Price Spikes to $1,467.50/oz on Computer Glitch? - 26th Nov 14
Gold - So Bad It's Good: Surviving 2014 - 26th Nov 14
TrueShopping.co.uk Real Customer Experience Review - Online Shopping Lessons - 26th Nov 14
Is There A New Global Consensus About Cheating Investors To Reboot Employment? - 26th Nov 14
EUR/USD – Currency Bulls Don’t Give Up - 26th Nov 14
Swiss Gold Referendum A Golden Opportunity for Switzerland - 25th Nov 14
Silver: What COT Analysis Tells Us - 25th Nov 14
Stock Market Big, Bold and Ugly - 25th Nov 14
U.S. Dollar Near Top? Gold and Silver Trading, Platinum Breakout Invalidation - 25th Nov 14
Buy Fear - Easily Pick Up Profits on Stock Market Dips - 25th Nov 14
The Islamic State Reshapes the Middle East - 25th Nov 14
Gold Price Forecast 2015 - 25th Nov 14
The Swiss Referendum On Gold: What’s Missing From The Debate - 25th Nov 14
Clash of Generations - Why Millennials Still Live at Home; Not Jobs, Student Debt, or Housing - 25th Nov 14
Stock Market Reminiscent of Pompeii - 25th Nov 14
Once Upon A Time There Were Philosopher Kings - 24th Nov 14
The 2014 Crude Oil Price Crash Explained - 24th Nov 14
China Stock Investing - Follow the Money! - 24th Nov 14
122 Tonnes of Gold Secretly Repatriated to Netherlands - 24th Nov 14
What Causes the U.S. Dollar to Move? - 24th Nov 14
Stock Market Indexes New Highs - Will Uptrend Extend Even Further? - 24th Nov 14
All Hail the King U.S. Dollar - Trend Forecast - 24th Nov 14
Where Is China Economy On The Map Exactly? - 24th Nov 14
Most of The World Economies Panic - Is The US Next? - 24th Nov 14
Stock Market Exhaustion Gap? - 24th Nov 14
Gold Golden Gains Come After The Pain - 24th Nov 14
Crude Oil and Stock Market Setting The Stage For The Next Recession - 23rd Nov 14
This Publicly-Owned Bank Is Outperforming Wall Street - 23rd Nov 14
Who’s Ready For $30 Crude Oil Price? - 23rd Nov 14
Strategic, Methodological and Developmental Importance of Knowledge Consumption - 23rd Nov 14
Manipulated Stock Market Short Squeezes to Another All Time High - The China Syndrome - 23rd Nov 14
Gold Price 2015 - 22nd Nov 14
Stock Market Medium Term Top? - 22nd Nov 14
Is the Gold And Silver Golden Rule Broken? - 22nd Nov 14
Malaysia's Subsidy and Budget Deficit Conundrum - 22nd Nov 14
Investors Hated Gold at Precisely the Wrong Time: What About Now? - 22nd Nov 14
Gold and GLD ETF Selloff - 22nd Nov 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Gold Report 2015

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