Are UnitedHealth's Record Highs Sustainable?


UnitedHealth is in a unique position today. The health insurance giant's stock reached an all-time high in intraday action today, and it's the only one of the 30 Dow Jones tickers to explore fresh record prices these days.

It's pretty clear at this point that health insurance providers won't suffer at the hands of upcoming Obamacare rules. UnitedHealth's latest share-price boost comes on the heels of survey results (link opens PDF) from health care information specialist Kaiser Family Foundation, which looked at potential insurance costs under the new system. The study found a wide range of out-of-pocket costs for insurance buyers of various ages, but tax credits even out the results in many cases. In some cases, the tax benefits bring down the total cost of an entry-level plan to $0 per month -- that's zip, nada, zilch.

The variety of up-front payments suggest that insurance providers will be able to collect profitable levels of insurance premiums, and the fairly stable after-tax costs indicate that regular Americans should be able to pick an Affordable Care Act plan without breaking the bank. You may think this puts a heavy financial burden on the federal government, but the Kaiser Foundation disagrees: "Fifteen of the eighteen rating areas we examined have premiums below [the budgeted projection of $320 per month for a 40-year-old's Silver plan], suggesting that the cost of coverage for consumers and the federal budgetary cost for tax credits will be lower than anticipated."

In other words, the foundation found a win-win-win situation for insurance buyers, insurance providers, and the federal budget. UnitedHealth investors take this report as a confirmation that Obamacare won't neutralize the Baby Boomer retirement catalyst, and other insurance investors are jumping on the same bandwagon.

Shares of rival firm Cigna also set fresh all-time highs today, as did Humana stock. Aetna fell just $0.64 short of record highs set in July.

UNH Total Return Price Chart
UNH Total Return Price Chart

All of these health insurance giants trade at or near all-time highs, even as Obamacare's implementation draws closer. UNH Total Return Price data by YCharts.

None of these insurance giants is likely to lose out when Obamacare takes full effect. Yes, there's a cap on their profit margins -- I got a refund check from UnitedHealth a couple of weeks ago in order to keep the company within the legal limits, for example -- but the market is also expanding. Some 50 million uninsured Americans may soon become health insurance buyers for the first time, so what's a little margin hit when the market is growing?

That's why UnitedHealth and its major rivals are all jumping hgher today -- and why I don't see the higher share prices deflating anytime soon.

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