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Health insurers fall after ACA ruling; market suffers worst losses in decade


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Health insurers fall after ACA ruling; market suffers worst losses in decade

Managed care stocks slumped amid an equity market rout and following a federal judge ruling the Affordable Care Act unconstitutional.

The U.S. stock market had its worst week in at least 10 years as the S&P 500 plummeted 7.05% to 2,416.62, while the SNL U.S. Insurance index slumped 4.85% to 942.96 for the week ending Dec. 21.

Siding with a group of 20 Republican state attorneys general in their effort to invalidate the ACA, a federal district judge in Texas late on Dec. 14 struck down the law, arguing that the essential repeal of the individual mandate invalidated the entire law. The law remains in effect as the case winds through the appeals process, however.

The ruling directly hit the shares of public managed care companies that offer plans on health exchanges, with Molina Healthcare Inc. taking the biggest fall. The insurer's stock slumped 16.13% to $110.48.

Among other managed care companies, Centene Corp. saw its shares tumble 11.78% to $112.51 In an interview with S&P Global Market Intelligence, Chairman and CEO Michael Neidorff said he believes higher federal courts will eventually uphold the ACA.

Though many industry experts agree with Neidorff that the ACA will not be repealed in the end, its dismantling could turn out to be a blessing for eHealth Inc., according to Cantor Fitzgerald equity analyst Steven Halper.

The analyst believes that with uncertainty surrounding policies on health insurance exchanges, individuals will look elsewhere for coverage.

"Some people will go back to buying whatever is available on the market," he said.

The online health broker was one of very few insurance stocks to see gains this week, as its stock ticked up 2.83%.

Elsewhere in the health insurance space, UnitedHealth Group Inc.'s shares declined 10.07%, Anthem Inc. slid 8.57% and Humana Inc. dropped by 8.43%.

Another large managed care company, Cigna Corp., went through a transition this week as it closed its acquisition of Express Scripts Holding Co. on Dec. 20. The deal's closing prompted S&P Global Ratings to downgrade its issuer credit rating on Cigna.

The rating agency said the transaction will result in a stronger business than the companies on their own, but carried integration and client-retention risks and led to elevated financial leverage. S&P Global Ratings also said its negative outlook reflects the potential for one-notch downgrades in 2019 to 2020 if Cigna encounters business and/or integration setbacks and cannot cut its leverage below 40%.

S&P analyst James Sung in an interview said the Express Scripts reflects a pattern in the managed care sector, which was first started by UnitedHealth with Catamaran, now OptumRx, followed by the merger of CVS Health Corp. and Aetna Inc.

Because pharmacy costs make up about 30% of total medical costs, managed care organizations with the best operating cost structures and consumer experiences will have the edge in gaining and retaining membership and sustaining solid earnings in the long run.

Cigna will mostly operate as usual on a standalone basis, but will need to work on integrating its captive pharmacy benefit managers with that of Express Scripts, said Sung, and that could take some time. That said, Cigna can now benefit by cross-selling Express Scripts full suite of specialty managed care products through eviCore.

Cigna's stock was down 11.72% for the week.