National elections this fall may wind up being as much of a factor behind managed care stock performance as issues like the cost of medical care, according to a Citi analyst.
The biggest long-term concern hanging over health insurance stocks is the uncertainty of what will happen to companies after 2014, when major provisions of President Barack Obama's health care overhaul begin, analyst Carl McDonald said in a research note.
Public exchanges are scheduled to start that year, on which people will be able to buy health insurance coverage with help from government subsidies. The overhaul, passed in 2010, aims to provide coverage for millions of uninsured people, but it also imposes new regulations and fees on managed care companies.
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Managed care company valuations could rise at least two points if Republicans take control of Congress and the White House, McDonald said. He noted that Republican control would introduce fresh uncertainty, but the analyst sees that as a positive.
"In other words, we don't know what Republicans would do in an effort to dismantle health reform, but whatever the strategy, it would be largely accretive to managed care earnings," McDonald wrote.
He noted that Republicans already control the House of Representatives and may take over the Senate. The analyst said the presidential race could be close, depending on which candidate faces Obama, He sees a higher probability of the president winning a second term than a Republican sweep.
In the meantime, investors will be watching medical costs and use to see whether they start rising at faster rates than premiums. Stocks will have a tough year if what's known as medical cost trend outpaces premium increases, which would pinch profit margins, McDonald said. But if premium increases keep up with that trend, then outside factors like elections may have a big impact.
Health care use has been growing at a slower-than-expected pace the past several quarters, something that has helped insurers trump analyst profit expectations.
UnitedHealth Group Inc. became the first insurer to report fourth-quarter earnings yesterday. The Minnetonka, Minn., company said its earnings jumped 21 percent. But the company left its forecast for 2012 unchanged and said it saw signs that health care use was picking up.
Shares of several health insurers largely mirrored a slight drop in the Standard & Poor's 500 index Friday morning:
— UnitedHealth fell 40 cents to $51.92
— WellPoint Inc. dropped $1 to $70.93
— Aetna Inc. fell 48 cents to $43.65
— Cigna Corp. declined 21 cents to $46.07.
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