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Best Health Insurance Stocks to Buy in 2021

Best Health Insurance Stocks to Buy in 2021

Best Health Insurance Stocks 2021

Investing in a company that offers products and services that people should have can be a smart strategy. Like it or not, health insurance is a necessity for Americans today.

What are the most important health insurance actions to consider? What do you need to know to start investing in health insurance stocks? As the major health insurers would say: we've got you covered.

Top health insurance stocks for 2020

  1. UnitedHealth Group (NYSE: UN): UnitedHealthGroup ranks as the world's largest health insurance company by far. Its UnitedHealthcare unit offers health plans for employers and individuals and is also a major player in the Medicare Advantage markets and supplemental plans for Medicare and Medicaid. The company's Optum business segment provides health information and services that support technology, including OptumRx Pharmaceutical Benefit Management (PBM) services. While UnitedHealthcare generates more than three-quarters of the company's total revenue, Optum is the primary driver of UnitedHealth Group's growth.
  2. Anthem (NYSE: ANTM): Although Anthem is less than one-third the size of UnitedHealth Group by market value, it is still one of the largest health insurers. Anthem operates Blue Cross and / or Blue Shield plans in 14 states, but is licensed to sell health insurance throughout the United States. It competes in the same fields as UnitedHealth Group, including individual and employer plans, Medicare Advantage, Medicare supplements, and Medicaid. Anthem also operates a PBM, IngenioRx, which contributes about 18% of the company's total revenue.
  3. CVS Health (NYSE: CVS): You might think of CVS as a pharmacy retailer (which it is). However, the company also operates one of the largest PBMs in the country, CVS Caremark. Thanks to the acquisition of Aetna in 2018, CVS Health is also one of the leading health insurance companies. The company's health benefits segment, consisting primarily of Aetna, generates nearly 28% of CVS's total revenue. While the top three health insurance stocks pay dividends, CVS Health offers the most attractive dividend yield in the group.

One way to acquire shares in all the major health insurance stocks, among others, is to buy an exchange trading fund (ETF). Although there is no ETF focused solely on health insurance companies, the iShares US Healthcare Providers ETF (NYSEMKT: IHF) is getting closer.

The European Training Foundation (ETF) tracks the performance of the Dow Jones USA Healthcare Provider Index, which includes US companies that provide specialized medical insurance, diagnosis and treatment. UnitedHealth Group, CVS Health and Anthem are the three largest holdings of the iShares US Healthcare Providers ETF, which also hold significant positions in other leading health insurers including Centene (NYSE: CNC), Cigna (NYSE: CI) and Humana (NYSE ). : HUM).

What to look for in health insurance stocks

There are a few things, like revenue and profit growth, that you need to consider regardless of what type of inventory you have in mind. However, there are a few specific factors to consider when considering health insurance stocks:

  • Income mix: Check out where health insurance companies generate most of their income. Some, for example, can make more money with Medicare Advantage, while others focus more on Medicaid or commercial markets. Understanding a company's revenue mix gives you a better idea of ​​its growth prospects and risks.
  • Medicare Ratio (MCR) - This ratio (sometimes called the benefit expense ratio, medical cost ratio, medical loss ratio, or medical interest rate) measures medical costs as a percentage of premium income. The higher the MCR, the less profit the health insurance company will make.
  • Diversification outside of health insurance: It is increasingly common for health insurance companies to branch out into other businesses (or other companies to branch out into health insurance). Pay close attention to other areas of focus of health insurance companies, as they can greatly influence the growth prospects and potential risks of companies.

Health insurance stock risk

Like all companies, health insurance companies face risks, including the potential for an economic downturn and increased competition. However, health insurance stocks also have some unique risks, including:

  • Regulatory changes: The health insurance industry is highly regulated at the federal and state levels. The potential for major regulatory changes that cause challenges for health insurers is an ongoing risk. For example, if the United States implements a single-payer health plan in the future, health insurers are likely to see many of their business opportunities evaporate. On the other hand, some important reforms present opportunities for health insurance companies. The Affordable Care Act (known as Obamacare) expanded Medicaid programs, increasing the growth potential of health insurers in this market.
  • Reimbursement pressures: Even without major regulatory changes, health insurers constantly face the possibility that reimbursement pressures will hurt their bottom line. Businesses must get premium approval from government regulators, who may be reluctant to charge higher costs to residents of their states. The Medicare and Medicaid programs also set fees that can hurt the bottom line of health insurance companies.
  • Unexpected Medical Costs - Health insurance companies set their premium rates based on expected medical costs. However, there is always the possibility that these medical costs are much higher than expected. For example, the COVID-19 pandemic initially created great uncertainty for major health insurers and may have led to an increase in medical costs. Instead, the pandemic delayed non-emergency medical services, causing medical costs for health insurers to be temporarily lower than originally expected.

Even with the risks that health insurance companies face, there are still great opportunities ahead. As baby boomers age, the demand for Medicare Advantage and Medicare supplement plans increases.