The Zacks Analyst Blog Highlights: UnitedHealth, Aetna, Molina HealthCare and Centene

For Immediate Release

Chicago, IL – January 27, 2017 – Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include UnitedHealth Group Inc. (NYSE: UNH- Free Report ), Aetna Inc. (NYSE: AET- Free Report ), Molina HealthCare, Inc. (NYSE: MOH - Free Report ) and Centene Corp. (NYSE: CNC - Free Report ).

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Here are highlights from Thursday’s Analyst Blog:

Will Trump’s Executive Order Rattle Healthcare?

 

President Trump has signed an executive order in relation to the Affordable Care Act (ACA) or the more popularly called Obamacare. The move signals the urgency to reshape the ACA. Trump’s executive order gives broad power to the federal agencies to undo stringent regulations enveloping the ACA. This includes the individual mandate which required every Americans to get a health insurance policy or to face a penalty.

This urgency to replace the law was evident in Trump’s comment in the final week of his campaign. He had declared, “We will do it, and we will do it very, very quickly. It is a catastrophe.”

Trump was a staunch opponent of the ACA and this action proves it. Though the order doesn’t specify what needs to be done, the fact that the President moved an order in his very early days of taking the office signals his hatred for Obama’s signature achievement.

Though the order did not specify what required to be done, Larry Levitt, senior vice president at the Kaiser Family Foundation stated that “Potentially the biggest effect of this order could be widespread waivers from the individual mandate, which would likely create chaos in the individual insurance market.”

The individual insurance market works via public exchanges set up in 2013. These provide subsidized coverage to attract people to get insurance cover. Though the exchanges pulled a million of uninsured people and led to an increase in enrollment for health insurers, they lost their appeal since the business conducted on these exchanges turned out unprofitable for most of the top players.

What led to losses was that the population buying coverage mainly consisted of the old and the sick carrying high frequency of claims for insurers. While the cost of insuring these individuals were to be compensated by the younger generation who would buy coverage (since the younger population is healthier and has low incidence of claims), they largely stayed away from the exchanges. This led to steep losses for some of the big players such as UnitedHealth Group Inc. (NYSE: UNH- Free Report ) and Aetna Inc. (NYSE: AET- Free Report ).

These plans have already narrowed down their presence on the exchanges but trouble looms large for those who still are carrying on the business like Molina HealthCare, Inc. (NYSE: MOH - Free Report ) and Centene Corp. (NYSE: CNC - Free Report ). This is because a repeal of subsidy will make insurance all the more costly and keep away customers from buying insurance, thus leading to a decline in membership.

The order also stated that one of the goals will be to provide greater flexibility to states. It is being inferred that this would mean granting block aid to states for Medicaid in place of open-ended funding under Obama. The open-ended funding by Obama provided greater flexibility to the states to manage their Medicaid program, the premiere health insurance program for low-income Americans.

Open-ended funding, by both federal and state governments, led to Medicaid expansion and brought more than 20 million people in the U.S. under the insurance net. If the state falls short of funds like in case of excess expenditure on Medicaid, it can turn to federal government for extra funding.

Trump, however, wants to cut funding on Medicaid by giving a block of fund to each state after which the states will have to solely manage their Medicaid funding, without recourse to federal funds in case of a shortfall. This will however take away flexibility. It is being widely anticipated that in order to manage their funds, the state governments might cut off benefits under Medicaid, impose premium or make other changes such as elimination of subsidies that would make Medicaid unattractive and drive people away from getting coverage under it.

The individual mandate and Medicaid expansion under the ACA provided coverage to nearly 25 million people. A repeal of this is expected to leave 20 million people uninsured.

A threat to ACA’s individual mandate provision and Medicaid expansion spell trouble for companies with Medicaid-centric business such as Molina and Centene. The stocks of these three companies have suffered the most since Nov 9, 2016, the day when the outcome of election was revealed.

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UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report
 
Aetna Inc. (AET): Free Stock Analysis Report
 
Molina Healthcare Inc (MOH): Free Stock Analysis Report
 
Centene Corporation (CNC): Free Stock Analysis Report
 
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