Health insurace stock selling like hot cakes
July 3, 2011 4:12PM
Updated: July 7, 2011 2:28PM
Dear Mr. Berko: Health insurance stocks have been making new highs. How can this be, when Obamacare will change how insurance companies do business and how hospitals and doctors bill patients?
While I don’t like Obamacare, my broker believes the health insurance industry will make more money under Obamacare than it does now and has recommended that I invest $5,000 in Cigna, UnitedHealth, Aetna, WellPoint, Coventry and Humana. Please tell me what you think. Meanwhile, my wife doesn’t believe that members of Congress and their families are exempt from Obamacare. We have a wager on your answer. I say they are exempt, and my wife says they are not. — RP in Rochester, Minn.
Dear RP: It’s not correct to call our health care bill “Obamacare.” Our president should not get all the credit. This legislation, though encouraged by Obama, is really a caring, collaborative effort by 535 members of Congress who were concerned that Americans are being treated unfairly by the health care industry. Its real name is the Patient Protection and Affordable Care Act (PPACA). So we owe our 535 selfless, hard-toiling and empathic members of Congress heartfelt shouts for their unerring wisdom and forethought in crafting the PPACA. Without them, it never could have happened.
Frankly, without its passage, our health insurance companies would not be raking in the lucre now overflowing their coffers. And passage of the PPACA is the reason health insurance stocks are setting record highs, receiving record premiums and making record earnings. The health insurance industry aggressively supported passage of the PPACA, contributed huge sums of money to ensure passing votes and helped inform the public that the PPACA was essential to their health. In return, Congress gave insurers a free pass to raise premiums, reduce coverage and pay enormous salaries.
In 2010, for instance, UnitedHealth Group (UNH-$51) increased revenues 9 percent, raised premiums 18 percent, grew net income by 26 percent, boosted its dividend four-fold and then paid CEO Stephen “Hot Cakes” Hemsley the equivalent of $103 million in compensation. No wonder UNH and Steve contributed so copiously to congressional PACs.
And while the CEOs of AETNA (AET-$44), HUMANA (HUM-$80), COVENTRY (CHV-$34.98), WELLPOINT (WLP-$77) and CIGNA (CI-$48) don’t earn as much as “Hot Cakes,” their pay scales are soon to zoom as their revenues and earnings find the federal mother lode to nobble the market. Unlike their policyholders who are being “premiumed” into urinal poverty, those CEOs won’t have trouble meeting their co-pays. So the talk on the Street is that most insurers have uncommon potential for gains in the next few years.
The Street thinks CIGNA, WELLPOINT, UNITEDHEALTH, HUMANA, COVERNTRY and AETNA may in a few years trade at $80, $105, $95, $120, $50 and $85 respectively. Meanwhile, their revenues and earnings should continue to grow enormously. And with the blessings of Congress, these insurers will continue to make even more money under the provisions of the PPACA. These companies have been awarded a license to steal.
And yes, according to page 144, line 22 of the PPACA, members of Congress and their families are exempt from its provisions — as they should be. These people are important, and the work they do is critical to keeping America running smoothly. Our congressmen and women should be above the niggling paperwork, the bothersome co-pays, the crowded waiting rooms. They must be allowed to choose the best doctor and the best hospital, rather than their insurer picking that doctor or hospital for them.
Address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775 or email him at email@example.com.