10 Updates

Health Insurance Stocks Gain As Humana Says Government Cuts Won't Be As Bad As Feared

Feb 25 2014, 1:03pm CST | by

UnitedHealth Group’s stock gained 3% on Monday after peer Humana announced that the government’s cuts to the Medicare program would not have as severe an effect as earlier estimated. Humana’...

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21 weeks ago

Health Insurance Stocks Gain As Humana Says Government Cuts Won't Be As Bad As Feared

Feb 25 2014, 1:03pm CST | by

UnitedHealth Group’s stock gained 3% on Monday after peer Humana announced that the government’s cuts to the Medicare program would not have as severe an effect as earlier estimated. Humana’s stock surged 11% following the announcement while Aetna gained 2%.
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The Medicare program provides healthcare services to individuals aged 65 or older and younger people with disabilities. It is run by the Centers for Medicare and Medicaid Services, with companies like UnitedHealth assuming health care insurance coverage in return for a fixed monthly premium per member served from CMS. There are close to 50 million Americans enrolled in the Medicare program, of which around 21% are enrolled through UnitedHealth, making it the largest provider in the country. More than 30% of the company’s revenues and EBITDA come from this division.

Our $74 price estimate for UnitedHealth’s stock is in line with the current market price.

See Full Analysis For UnitedHealth Group Here

Medicare funding comes from the Hospital Insurance Trust Fund and the Supplementary Medical Insurance Trust Fund, held by the U.S. Treasury. The funds utilize payroll taxes paid by employees and employers as well as other sources such as income taxes paid on Social Security benefits and premiums from people who aren’t eligible for premium-free Medicare coverage. Total government expenditures on the Medicare program are around $550 billion per year.

However, following the implementation of the Protection and Affordable Care Act and the online health insurance exchanges, the government has decided to cut Medicare payments to insurance companies by nearly 30% in the next 10 years. UnitedHealth has been preparing for the rate reductions and has resorted to cost cutting and fraud prevention measures in the past, but its bottom line has been affected by the government funding cuts; the United HealthCare division’s EBITDA margin dropped from 9% in 2012 to 7.6% in 2013, partly because of the aforementioned cuts.

Humana has announced that the proposed funding cuts will lead to a funding decline of 3.5% to 4% instead of the 6% to 7% range it had earlier expected. This will also have a positive impact on UnitedHealth, which has a share of more than 20% in the U.S. Medicare market. However, we still expect a slight decline in margins in the coming years. More than 80% of UnitedHealth’s operating expenses are medical costs, and the company has maintained a medical care ratio of 80% for the last few years. However, the PPACA mandates a minimum medical care ratio (medical costs divided by premiums) of 80% for individual and small group plans, and 85% for large group plans. The impact of this was observed in 2013 earnings, as the medical care ratio increased from 80% in 2012 to 82% and could still increase further.

Other Factors

Another mitigating factor is the so-called “adverse selection death spiral.” The PPACA requires policies to be issued regardless of community rating or medical condition, with insurers offering the same premium to all insured parties of the same age and location, regardless of gender or pre-existing condition. The act also offers subsidies to low income individuals and families with income below the federal poverty level. This means that the cost of health insurance will increase for young and healthy citizens who might be disinclined to opt for the plans. Younger and healthier citizens are likely to visit medical providers less frequently, which could benefit health insurers.

We expect UnitedHealth’s margins to fall to around 6.7% by the end of the decade, but there is a 10% upside to our price estimate if the company can maintain its current EBITDA margin of 7.6%. The potential upside is around 20% if the company can maintain an EBITDA margin close to the historical average (from 2010 to 2012) of 9%, though that is unlikely.

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Source: Forbes Business

 
Update
10

7 weeks ago

RM47mil KWSG contributions still unclaimed

Jun 9 2014 7:54am CDT | Source: Business Times Malaysia

KUALA LUMPUR: About RM47 million of contributions in the Teachers Provident Fund (KWSG) still remain unclaimed, the De ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
9

7 weeks ago

Gold shop lost almost RM1mil

Jun 9 2014 3:50am CDT | Source: Business Times Malaysia

KANGAR: A gold shop owner lost almost RM1 million after after the safe on in his shop was broken into by robbers ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
8

7 weeks ago

Motion to debate MAS losses in Dewan Rakyat rejected

Jun 9 2014 3:39am CDT | Source: Business Times Malaysia

KUALA LUMPUR: AN emergency motion to debate the losses incurred by Malaysia Airlines last year, amounting to RM1.2 billion was rejected by the Dewan Rakyat to ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
7

7 weeks ago

MH370 Tragedy: Hisham: RM27.6 mil spent on 1st phase of SAR

Jun 9 2014 2:11am CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia spent some RM27.6 million in its first phase of the search operations for missing Malaysia Airline flight MH370, said Acting Transport Minister, Datuk Seri Hishammuddin Hussei ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
6

7 weeks ago

9.1m litres of diesel seized in a month

Jun 8 2014 1:11am CDT | Source: Business Times Malaysia

PUTRAJAYA: The Domestic Trade, Cooperatives, and Consumerism ministry has seized some 9.1 million litres of diesel and property worth RM58 million since mounting ‘Operasi Diesel Selatan’ in the southern states l ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
5

7 weeks ago

Girl, 9, awarded RM2.78m compensation for medical negligence

Jun 6 2014 4:56am CDT | Source: Business Times Malaysia

KUALA LUMPUR: A nine-year-old girl who suffered brain damage during her birth at a government hospital was awarded over RM2.78 millio ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
4

7 weeks ago

Malaysia's total trade in April up 12pc

Jun 5 2014 11:52pm CDT | Source: Business Times Malaysia

KUALA LUMPUR: Malaysia's total trade in April 2014 rose by 12 per cent from a year ago to RM123.86 billion due to growing trading activities, International Trade and Industry Minister Datuk Seri Mustapa ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
3

7 weeks ago

Works Ministry to spend RM20m for upgrading works at 50 accident black spots

Jun 4 2014 11:35pm CDT | Source: Business Times Malaysia

JOHOR BARU: The Works Ministry will implement upgrading works at 50 accident prone locations in the country that have been identified this year involving an all ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
2

7 weeks ago

Najib launches loan scheme for Ramadan traders

Jun 4 2014 10:24pm CDT | Source: Business Times Malaysia

PUTRAJAYA: Prime Minister Datuk Seri Najib Razak today launches RM45 million Ramadan ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 
Update
1

7 weeks ago

Residents bring up objection against Kidex to Suhakam

Jun 4 2014 4:49am CDT | Source: Business Times Malaysia

PETALING JAYA: A group of 20 Petaling Jaya residents held a meeting with the Human Rights Commission of Malaysia (Suhakam) over their objection against the proposed RM2.2 billion Ki ...
Source: Business Times Malaysia   Full article at: Business Times Malaysia
 

 

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