Health insurance stocks are hot, despite chilly predictions

Health insurers' financial prospects are looking up, to investors at least, even as the industry's trade group continues to warn of dire times ahead.

Stock prices for the largest publicly traded insurance companies have soared in recent weeks. Since the CMS announced preliminary 2015 rates for Medicare Advantage plans last month—with cuts that were lower than anticipated—the five companies with the largest number of Advantage enrollees have seen their stock prices rise by at least 6%. That includes double-digit spikes for Humana and UnitedHealth Group, which together command more than a third of the private Medicare market.

That suggests investors don't share the dire outlook presented by America's Health Insurance Plans, the industry's main trade association. AHIP has repeatedly warned that the proposed 2015 rates would result in premium increases and benefit cuts to seniors and has waged an aggressive lobbying campaign to reduce the cuts. The CMS is scheduled to release final 2015 Advantage rates on April 7.

Another major player, WellPoint, has boosted its projected earnings for 2014. The Indianapolis-based publicly traded insurance company now expects profits to exceed $8.20 per share, up from a previous estimate of $8 per share. WellPoint is the fourth largest Advantage insurer, with more than 600,000 enrollees.

The rosier outlook was based in part on WellPoint's projection that it will add at least 1 million new customers in 2014. But the Blue Cross and Blue Shield-affiliated health plan, which is more active in state and federal exchanges than any other large, publicly traded insurer, also expressed confidence about its position in the emerging individual marketplace.

“We're a market leader in the exchange rollout,” said Joseph Swedish, WellPoint's CEO, in a presentation to investors Friday morning. “It's clear that we have been a winner with respect to how that has played out.”

WellPoint officials also offered an optimistic assessment of how many exchange customers are following through on their first premium payments. Previously, the company said it anticipated that close to 80% of enrollees would make their first payments on time. But now it believes that number has risen to roughly 90% in recent weeks. That's further buoyed WellPoint's optimism about its decision to aggressively compete for customers in the exchanges.

“We believe that the time that we have arrived at—this moment—is one that can best be described as part of a revolutionary period,” Swedish said. So far, investors seem to agree. Wellpoint's common stock closed 2013 at $92.39 per share, but recently touched $100 per share.

Follow Paul Demko on Twitter: @MHpdemko