No matter which type of stocks you are buying, you should focus upon two factors – revenue and earnings growth. In addition, there are some industry-specific factors to consider when you purchase health insurance stocks. You must consider the company’s revenue mix, medical care ratio (MCR), and diversification beyond health insurance. Analysis of the revenue mix will point to the major revenue streams to understand the growth prospects and vulnerabilities. The MCR is the benefit expense ratio, which considers the medical cost ratio and the premium revenue expressed in percentage. Pay attention to the company’s focus in other areas as it helps to understand the associated risks and the growth prospects. If the company ties for too much diversification, it can lose focus of the core business, adversely affecting performance.
Consider the risks of the health insurance industry that often faces challenges due to regulatory changes. The other risk factors are unforeseen medical costs experienced during the pandemic and constant reimbursement rates. Finally, considering the opportunities that lie ahead for the health insurance industry due to increased demand for Medicare Advantage and Medicare supplement plans coupled with the aging baby boomers, there is good reason to buy some of the best health insurance stocks.
United Health Group holds good prospects among health insurance stocks
UNH is the ticker given by NYSE for the United Health Group, the world’s biggest insurer. The company is a major player in Medicaid, Medicare Advantage, and Medicare Supplemental plans while offering health plans for individuals and employers. The company provides IT-enabled health services through its Optum business segment, including Optum Rx PBM or pharmacy benefits management services. Although 75% of the total revenue comes from United Healthcare, the Optum component is a bigger growth driver.
CVS Health (CVS: NYSE)
Although most people consider CVS Health a mere pharmacy retailer, the company also runs the country’s largest PBM under the CVS Caremark package. CVS stocks have now made it to the list of health insurance stocks since the acquisition of Atena in 2018 by CVS Health. Atena is the major contributor to CVS Health’s healthcare segment and generates more than 25% of the total revenue for the company. CVS offers the most attractive dividend among the top health insurance companies.
Anthem (ANTM: NYSE)
Anthem is one of the largest health insurers, much like United Health Group, although the company’s market capitalization is only a fraction of the latter. Anthem sells its Blue Cross, and Blue Shield plans across 14 states despite having the license to operate across the country. Anthem is a direct competitor of United Health group as they operate in the same area, like offering individual and employer-sponsored health plans. Anthem also provides Medicaid, Medicare Advantage, and Medicare Supplement plans. Ingenix is the name of the PBM scheme that Anthem operates, which contributes a little less than 20% of the stream.
iShares US Healthcare Providers ETF
Buying shares in an ETF is one of the ways of acquiring the shares of big companies. The strategy is suitable for buying stocks in any industry, including health insurance. No ETFs are concentrated only on health insurers. iShares US Healthcare Providers ETF (IHF: NYSEMKT) can be a good option. The ETF monitors the performance of the Dow Jones US Select Healthcare Providers Index, which includes the health insurance companies and those offering specialized treatment and diagnostics. The largest holders of the fund are United Health Group, Anthem, and CVS. Other health insurers like Cigna (CI: NYSE), Centene (CNC: NYSE), and Humana (HUM: NYSE).
As President Biden signed executive orders to extend enrolment for health plans within the ambit of the Affordable Care Act (ACA) and the federal agencies are facilitating easier access to these plans and Medicaid, it provides enormous opportunities for growth for the health insurance industry. President Biden’s move to widen the scope of Medicare will allow everyone to buy some type of health insurance. Increasing federal subsidies for ACA plan premiums is also on the cards.
Considering the government’s added attention to healthcare, it seems that health insurance stocks have good prospects in the coming months.
