When President Barack Obama signed his name on the healthcare law on March 23, 2010, observers were unsure how exactly it would affect health insurance companies. Five years later, investors are surely cheering.
Health insurers supported the Patient Protection and Affordable Care Act and were one of the key constituencies consulted when policymakers crafted the legislation. The administration instituted significant changes—insurers cannot refuse coverage or charge more to people with pre-existing health conditions, cuts to Medicare Advantage rates, caps to medical-loss ratios, etc.—that were thought to threaten their bottom lines.
In exchange, the law required all people to buy health coverage of some kind. It also provided the three Rs—reinsurance, risk corridors and risk adjustment—which are financial protections that are helping insurers weather the initial choppiness of taking on larger groups of people.
So how are health insurers adapting so far? Very well, according to their five-year stock prices.
Since March 23, 2010, the day the Affordable Care Act was signed, the nine largest publicly traded insurers by market capitalization have each at least doubled their stock prices. Some have tripled. The Standard & Poor's 500, by comparison, has increased 75% over the same timespan.
Among the big five, UnitedHealth Group has benefited the most. The Minnetonka, Minn.-based insurer's stock has risen 237% from March 23, 2010, through Monday. The company reported last week that 2014 was better than expected, and it has lofty profit expectations for the next five years, which are likely to drive up shares even more. Financial analysts agree that trend will likely occur across the sector,at least for this year.
No insurer has benefited more than Centene Corp. Its stock has gone from $24.24 to $111.80 as of Monday, a 361% difference. Centene mostly works with state Medicaid agencies for managed-care contracts. Earlier this month, CEO Michael Neidorff said he believed Centene would be one of the four or five major insurers left standing in the future.
Of course, the ACA and healthcare markets face a lethal challenge later this year when the U.S. Supreme Court will decide whether premium tax credits can be issued to people who buy health plans through federally operated marketplaces.
Anthem reports its 2014 results Wednesday morning. The rest of the insurers will release 2014 earnings through the second week of February.
Follow Bob Herman on Twitter: @MHbherman