The Obamacare Effect: 3 Great Insurance Picks - Analyst Blog

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With the sixteen day partial government shutdown coming to an end, critics of Obamacare have shifted their focus from aspects of the laws which they find objectionable. Now, the various problems occuring its implementation have become the focal point of their discussions.

Rollout Glitches

Even as the government shutdown began, Obamacare had already come into effect. Online insurance exchanges are at the heart of the new regime and have been operative since October 1. But they have been plagued by serious problems and remain unusually difficult to use.

Healthcare.gov, the portal for insurance registration in 36 states, has been affected by a series of technical problems. These include delays in loading pages, error messages and undecipherable text. The Obama administration has said that this is primarily due to the large number of visitors during the first 10 days, a figure which it says is in excess of 14.6 million.

Health and Human Services Secretary Kathleen Sebelius has acknowledged that the rollout has faced serious problems. However, speaking to an audience at Cincinnati she said "constant improvements are underway, so that we are getting people in much more quickly."

The Insurance Sector Impact

The reason why investors and insurers alike continue to be wary of the Obamacare launch is not just the fees and restrictions it requires of insurers. The Act reduces funding for Medicare Advantage, which benefits the elderly and disabled. This could result in lower profit margins for investors.

One among the larger insurers, UnitedHealth Group Inc. ( UNH ) reported its earnings this week, which were near enough estimates to be satisfactory. Third quarter earnings for 2013 came in at $1.53 per share, missing the Zacks Consensus Estimate by a penny. Earnings continued to grow at 2.0% year over year. This was primarily due to increased enrollment and higher revenues.

Among other major players, Aetna Inc. ( AET ) and WellPoint Inc. ( WLP ) are slated to report earnings later in October while Humana Inc. ( HUM ) will release these numbers in November. The response to the new situation from most of the major players in the sector has been to refrain from participating in state-run exchanges. For instance, in Connecticut, the number of insurers is now down to three.    

Initial numbers have shown that the number of customers signing up will increase. There are also indications of a rise in premiums. Eventually, much will depend on the success of Obamacare but the decision to selectively choose state exchanges is meant to counter a situation in which the number of users signing up remains low.  

3 Great Choices

If Aetna and Humana continue the trend set by UnitedHealth, they may become the best choices from the insurance sector. These three are also essential additions when it comes to investing in the healthcare sector.

UnitedHealth

As discussed earlier, UnitedHealth has not disappointed investors hugely with its earnings numbers. In fact, it has increased the lower bound of its earlier 2013 EPS forecast. It now expects earnings per share of $5.40 to $5.50. The company continues to state that its 2013 revenue expectation is $122 billion.

UnitedHealth holds a Zacks Rank #2(Buy) and has expected earnings growth of 9.85%. The forward price-to-earnings Ratios (P/E) for the current financial year (F1) is 13.03.

Aetna

Next up we have Aetna. The company has recently formed an Accountable Care Organization with WellSpan Health. This is in keeping with the company's efforts to improve safety and quality of patient care and reduce the costs of healthcare.

Aetna has also acquired Coventry this year, which has resulted in multiple benefits for the company. Currently the company holds a Zacks Rank #2(Buy) and has expected earnings growth of 11.94%. It has a P/E (F1) of 10.90.

Humana

Ourthirdchoice isHumana. Recently, it has entered into a partnership with prominent home health service provider Valued Relationships Inc. The association with Valued Relationships will reduce the serious long term effects of medical emergencies faced by customers.

The company has also entered into strategic alliances with the likes of Boehringer Ingelheim Pharmaceuticals, and Greenway Medical Technologies Inc. ( GWAY ) Besides a Zacks Rank #2 (Buy), the company has expected earnings growth of 10.56%. It has a P/E (F1) of 10.65.

Though the introduction of Obamacare has radically changed the healthcare insurance environment these three choices are large companies with the ability to tide over such choices. All of these three choices would make good additions to your portfolio.



AETNA INC-NEW (AET): Free Stock Analysis Report

GREENWAY MEDICL (GWAY): Free Stock Analysis Report

HUMANA INC NEW (HUM): Free Stock Analysis Report

UNITEDHEALTH GP (UNH): Free Stock Analysis Report

WELLPOINT INC (WLP): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: AET , GWAY , HUM , UNH , WLP

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