Shares of Health Insurers Suffering at Prospect of Medicare for All

- By Barry Cohen

Shares of health care insurers have suffered lately as investors are spooked by the prospect of Medicare for All, but the threat may be overblown.

Many believe it's far from a sure thing that a national health insurance plan will be implemented soon, even after the 2020 election.

Although comprehensive Medicare for All legislation has been introduced in both chambers of Congress, the current Democratic leaders -- Senator Chuck Schumer of New York and Nancy Pelosi of California, the House speaker -- haven't endorsed it. And the Trump administration wants government to have a smaller role in health care, not a larger one, according to an April 19 article in The New York Times.


"Even in a best-case scenario for Democrats in which they hold the House and take the White House and the Senate in 2020, Republicans likely would hold enough Senate seats to, via filibuster, deny such a sweeping change in the health care system as anything remotely like Medicare for All," Steven Goldberg, an investment adviser, wrote in an April 30 article for Kiplinger. He thinks the recent dips make health insurance stocks a good buy.

Stephen Tanal, a Goldman Sachs analyst, is taking a more middle-of-the-road approach. In The Times article, it was reported that in a note to clients he said the bottom for health insurers will take place well before the 2020 election. He qualified that opinion by cautioning investors to look for signs that the single-payer concept keeps gaining momentum.

2122189626.png

But investors hate uncertainty, and that's what seems to be driving the retreat from the stocks of health care insurers. Shares of the largest member of the group, UnitedHealth Group (UNH), have declined nearly 14% in the past year, though at about $246 it's up from the 52-week low of $217 it charted in mid-April.

Some have speculated the selloff is just a natural rotation out of the industry. After all, UnitedHealth has tripled in the past five years. Another industry lead, Anthem (ANTM) , has nearly matched that performance while other industry leaders have also fared well: Cigna (CI) is up 65%, Humana (HUM) has gained more than 100% and Centene (CNC) shares have nearly doubled since 2014.

Despite the dismissal by some, the likelihood of Medicare for All, or some variation of it, is gaining traction. A recent report by the Kaiser Family Foundation showed that 56% of the people who responded think the time has come for a national health program, while 39% disagreed.

One prominent economist thinks the falling insurance stocks are a sign that Medicare for All is real. University of California, Berkeley professor Robert Reich is confident that it's "the beginning of the end" for the for-profit business model favored by insurers, in which they try to avoid covering sick people.

Members of other health care sectors aren't likely to go unscathed. Medicare for All wouldn't mean Armageddon for pharma companies, but they'd be hit hard, according to Raymond James health care policy analyst Chris Meekins. In an article in ETF Daily News, he said drug prices would decline by 30%, with Pfizer (PFE) being hit hard given nearly half the company's revenues are generated in the U.S. Medical device companies like Johnson & Johnson (JNJ) would also be hurt as hospitals cut back on purchases. Speaking of hospitals, they could be in trouble too, contrary to popular belief, because the current Medicare system reimburses them only half of their actual costs.

So is the current situation an opportunity for investors who think Medicare for All won't happen? Or will they be chasing fool's gold. Time will tell.

Disclosure: The author has a position in Johnson & Johnson.

Read more here:



Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here .

This article first appeared on GuruFocus.