Health Insurers Experience July Heatwave

Associated Press

Health insurer stocks heated up in July.

UnitedHealth Group, Anthem and several other insurers outpaced the broader market in what has been an otherwise choppy year for the industry. The industry is also holding up surprisingly well during the most recent round of corporate earnings. It is showing solid profit growth while companies within the broader S&P 500 are expected to report an overall contraction.

Stocks within the sector spiked on July 11 after President Donald Trump nixed a regulation that would have changed how prescription drug rebates work for Medicare beneficiaries. The rebates are paid from drugmakers to insurance companies and middlemen and changes would have sent them directly to seniors. Yanking the regulation was a win for insurers and pharmacy benefit managers, which run prescription coverage for employers, insurers and other big clients.

The industry is outpacing others when it comes to profit growth. UnitedHealth reported more than 13% growth during the most recent quarter, while Anthem posted 9% growth and Cigna reported nearly 72% growth. The broader health care sector, which includes other pharmaceuticals, biotech and other industries, is expected to report nearly 8% profit growth overall.

UnitedHealth and Anthem, the two largest insurers in the U.S., each beat Wall Street estimates with their second quarter results and raised their profit forecasts for the year. Each reported solid gains in their pharmacy benefit manager operations. UnitedHealth’s PBM, OptumRx, added more customers and expanded into specialty services, including the infusion of drugs at patients’ homes.

Election season politics have hung over some of the largest insurers as presidential candidates and others call for changes to the American health care system, at times highlighting the profits being made by insurers. Congress is debating ways to lower drug prices and any changes could impact pharmacy benefit managers, including UnitedHealth’s OptumRx unit. The industry is also still contending with changes to the Affordable Care Act that went into effect this year, including the elimination of the individual mandate.

The bumpy ride this year has been partly driven by Democratic presidential candidates and their calls for changes, some drastic, to the health insurance system. Some of those proposals have spooked investors, including Elizabeth Warren’s call to completely scrap private insurance.

Analysts, though, have brushed off worries over any actual impact of the plans.

“We continue to view drastic changes to the current health care system as unlikely and instead believe buildout and tweaks are more practical and realistic, if anything at all,” wrote Citi analyst Ralph Giacobbe in a note to investors earlier this month.