The U.S. Supreme Court ruled in June that the Patient Protection and Affordable Care Act (PPACA) passes constitutional muster, upĂ‚Âholding the individual mandate and striking down only one provision of the law.
I largely expected this outcome. I won’t comment on the wisĂ‚Âdom of the law, but in the wake of the ruling the health care sector has been the top performer.
Health care providers and insurers anticipate about 35 million new cusĂ‚Âtomers and billions of dollars in adĂ‚Âditional spending when the law’s reĂ‚Âquirement for every American to carry insurance or pay a penalty comes into effect by 2014.
Despite the top court’s ruling, PPACA isn’t completely out of the woods. Republicans have made the law’s repeal a major plank in their 2012 campaign platform. However, with Republicans and Democrats in a statistical dead heat in most of the key November races — including the one for the White House — it looks likely that it will take at least anothĂ‚Âer four years for any repeal efforts to gain traction, by which point the law will be entrenched.
Now could be a good time for investors to look at a WellPoint (WLP, Financial).
Covering approximately 34 milĂ‚Âlion patients in 14 states, WellPoint is one of the largest managed care companies in the nation. It is also one of the largest in terms of the number of medical practitioners offering their services through WellĂ‚ÂPoint’s insurance networks.
The size of its network has alĂ‚Âlowed WellPoint to develop subĂ‚Âstantial pricing power in its marĂ‚Âkets. Moreover, being the exclusive licensee of the trusted Blue Cross Blue Shield name has made the company extremely attractive to its target market of small businesses.
Despite its clear advantages, WellĂ‚ÂPoint has been walloped in the marĂ‚Âket after it announced its intention to buy Amerigroup (AGP) for $4.5 billion. Ordinarily, such an announcement wouldn’t be a major market-moving event, particularly since WellPoint expects the deal to add at least $1 to earnings per share within the next two years.
HowĂ‚Âever, the perceived problem is that Amerigroup primarily serves 2 milĂ‚Âlion Medicaid patients in 11 states.
Although the Supreme Court upĂ‚Âheld the majority of PPACA, it struck down the provision that would have allowed the federal government to withhold all federal Medicaid funding from states that did not participate in the expansion of the program called for under the law.
Republican governors alĂ‚Âready have said that they will reĂ‚Âfuse to participate in the Medicaid expansion, spooking investors who worry that WellPoint is making an acquisition in anticipation of a marĂ‚Âket development that may not come to pass.
It is not my job to espouse any poĂ‚Âlitical position. However, sheer pragĂ‚Âmatism dictates that the Medicaid expansion is likely to occur because it will benefit hundreds of thousands of people in each state, primarily children, the poor and the elderly.
What’s more, the federal governĂ‚Âment is picking up the entire tab for the revamped Medicaid program through 2016, with states only reĂ‚Âsponsible for about 10 percent of the cost thereafter. Refusing to acĂ‚Âcept this largesse could make for tricky campaigns in the next elecĂ‚Âtion cycle, even in the most conserĂ‚Âvative states. Advocates for the poor and many hospital associations alĂ‚Âready are pushing back on gubernaĂ‚Âtorial efforts to opt out of the law’s Medicaid plan.
While a few states may ultimately decide not to participate, I expect most to acquiesce. Within Amerigroup’s coverage area, Texas and FlorĂ‚Âida are the only states in danger of not joining the Medicaid expansion.
Consequently, WellPoint’s acquiĂ‚Âsition of Amerigroup should not only net it about 2 million new cusĂ‚Âtomers, but also allow it to claim a bigger slice of the estimated 18 milĂ‚Âlion Americans who would be covĂ‚Âered under the broader Medicaid program.
Even if the law’s Medicaid exĂ‚Âpansion were to hit some bumps in the road, the acquisition of AmeriĂ‚Âgroup is a savvy decision, as a growĂ‚Âing number of states privatize their MedicĂ‚Âaid plans to cut costs and improve coverĂ‚Âage. By acquiring Amerigroup, WellĂ‚ÂPoint will get the systems it needs to better compete for privatized Medicaid business.
In addition to these tailwinds, WellPoint is attractively valued, trading almost on par with its book value and at a small discount to its expected earnings growth. WellĂ‚ÂPoint also pays a small quarterly dividend with a current yield of 1.8 percent. Check out Medicaid Nation: Winning and Losing Healthcare Stocks under Obamacare for more stock picks that could benefit from the Patient Protection and Affordable Care Act.
I largely expected this outcome. I won’t comment on the wisĂ‚Âdom of the law, but in the wake of the ruling the health care sector has been the top performer.
Health care providers and insurers anticipate about 35 million new cusĂ‚Âtomers and billions of dollars in adĂ‚Âditional spending when the law’s reĂ‚Âquirement for every American to carry insurance or pay a penalty comes into effect by 2014.
Despite the top court’s ruling, PPACA isn’t completely out of the woods. Republicans have made the law’s repeal a major plank in their 2012 campaign platform. However, with Republicans and Democrats in a statistical dead heat in most of the key November races — including the one for the White House — it looks likely that it will take at least anothĂ‚Âer four years for any repeal efforts to gain traction, by which point the law will be entrenched.
Now could be a good time for investors to look at a WellPoint (WLP, Financial).
Covering approximately 34 milĂ‚Âlion patients in 14 states, WellPoint is one of the largest managed care companies in the nation. It is also one of the largest in terms of the number of medical practitioners offering their services through WellĂ‚ÂPoint’s insurance networks.
The size of its network has alĂ‚Âlowed WellPoint to develop subĂ‚Âstantial pricing power in its marĂ‚Âkets. Moreover, being the exclusive licensee of the trusted Blue Cross Blue Shield name has made the company extremely attractive to its target market of small businesses.
Despite its clear advantages, WellĂ‚ÂPoint has been walloped in the marĂ‚Âket after it announced its intention to buy Amerigroup (AGP) for $4.5 billion. Ordinarily, such an announcement wouldn’t be a major market-moving event, particularly since WellPoint expects the deal to add at least $1 to earnings per share within the next two years.
HowĂ‚Âever, the perceived problem is that Amerigroup primarily serves 2 milĂ‚Âlion Medicaid patients in 11 states.
Although the Supreme Court upĂ‚Âheld the majority of PPACA, it struck down the provision that would have allowed the federal government to withhold all federal Medicaid funding from states that did not participate in the expansion of the program called for under the law.
Republican governors alĂ‚Âready have said that they will reĂ‚Âfuse to participate in the Medicaid expansion, spooking investors who worry that WellPoint is making an acquisition in anticipation of a marĂ‚Âket development that may not come to pass.
It is not my job to espouse any poĂ‚Âlitical position. However, sheer pragĂ‚Âmatism dictates that the Medicaid expansion is likely to occur because it will benefit hundreds of thousands of people in each state, primarily children, the poor and the elderly.
What’s more, the federal governĂ‚Âment is picking up the entire tab for the revamped Medicaid program through 2016, with states only reĂ‚Âsponsible for about 10 percent of the cost thereafter. Refusing to acĂ‚Âcept this largesse could make for tricky campaigns in the next elecĂ‚Âtion cycle, even in the most conserĂ‚Âvative states. Advocates for the poor and many hospital associations alĂ‚Âready are pushing back on gubernaĂ‚Âtorial efforts to opt out of the law’s Medicaid plan.
While a few states may ultimately decide not to participate, I expect most to acquiesce. Within Amerigroup’s coverage area, Texas and FlorĂ‚Âida are the only states in danger of not joining the Medicaid expansion.
Consequently, WellPoint’s acquiĂ‚Âsition of Amerigroup should not only net it about 2 million new cusĂ‚Âtomers, but also allow it to claim a bigger slice of the estimated 18 milĂ‚Âlion Americans who would be covĂ‚Âered under the broader Medicaid program.
Even if the law’s Medicaid exĂ‚Âpansion were to hit some bumps in the road, the acquisition of AmeriĂ‚Âgroup is a savvy decision, as a growĂ‚Âing number of states privatize their MedicĂ‚Âaid plans to cut costs and improve coverĂ‚Âage. By acquiring Amerigroup, WellĂ‚ÂPoint will get the systems it needs to better compete for privatized Medicaid business.
In addition to these tailwinds, WellPoint is attractively valued, trading almost on par with its book value and at a small discount to its expected earnings growth. WellĂ‚ÂPoint also pays a small quarterly dividend with a current yield of 1.8 percent. Check out Medicaid Nation: Winning and Losing Healthcare Stocks under Obamacare for more stock picks that could benefit from the Patient Protection and Affordable Care Act.