Sept. 11 (Bloomberg) -- The U.S. health-care overhaul proposed in Congress will do more than impose greater controls on private insurers. It will also swell their profits.

New legislation may generate 10 million more customers for Amerigroup Corp.,UnitedHealth Group Inc. and other companies that administer Medicaid, the government plan that covers the poorest Americans, according to James Carlson, Amerigroup’s chief executive officer. Molina Healthcare Inc.’s Medicaid enrollment may jump by 43 percent, CEO J. Mario Molina said. WellPoint Inc., the largest U.S. insurer, may also gain.

While President Barack Obama has pitched his revamping of health care as a bid to “keep insurance companies honest,” expanding Medicaid is likely to offset any losses from new regulations and taxes, at least for insurers who specialize in the program, Carlson said.

“Most of what we’re reading would grow our business dramatically,” he said in an interview. “I don’t think you can say that about a lot of other participants in the health-care system.”

That means more revenue for an industry House Speaker Nancy Pelosi called “immoral” and the chief obstacle to covering the uninsured, in an Aug. 1 interview with the California Democrat. Expanding the program has emerged as one of the least- controversial items on Obama’s health-care agenda, said Carl McDonald, an Oppenheimer & Co. insurance analyst in New York.

‘Politically Protected’

“Medicaid seems to be the only managed care sub-sector that seems to be politically protected, and the only group with potential for significant benefits from reform,” McDonald said in a telephone interview.

Obama and allies on Capitol Hill are pushing legislation to cover more of the 46 million uninsured in the U.S. at a potential cost of $900 billion or more over a decade. While the proposal could create millions of additional, taxpayer- subsidized customers, it also may cap insurers’ profit margins, bar them from denying coverage to sick people and create a new government-run plan to compete with the industry.

A Sept. 8 proposal by Senate Finance Committee Chairman Max Baucus, a Montana Democrat, also would impose annual fees of $6 billion on insurers to help fund the overhaul.

Others Benefit

St. Louis-based Centene Corp. and WellCare Health Plans Inc. of Tampa, Florida, two other Medicaid providers, also may benefit from expanding coverage, said Daryn Miller, a analyst at Goldman Sachs Group Inc. in New York.

The Medicaid specialists were among the top performers today on the Standard & Poor’s index of 13 managed-care companies. Centene rose 61 cents, or 3.2 percent, to $19.62 in New York Stock Exchange composite trading at 4:02 p.m. Molina climbed 27 cents, or 1.3 percent, to $21.21, and WellCare rose 17 cents to $26.23. Amerigroup fell 11 cents to $24.69.

Based on past enrollment and earnings, Molina stands to gain the most, said Oppenheimer’s McDonald. For every 1 million people added to Medicaid, the insurer would boost earnings per share by 1.7 percent over projections for next year, he said.

Centene and WellCare each would increase earnings per share by 1.2 percent, and Amerigroup by 1 percent, McDonald said. The estimates assume each enrollee generates $200 a month, with a 3 percent profit margin.

UnitedHealth, of Minnetonka, Minnesota, and WellPoint, of Indianapolis, would see smaller gains, about 0.1 percent apiece, McDonald said. While the companies are No. 1 and 2 in Medicaid enrollment, the program accounts for a relatively small slice of revenue for each, he said.

58.7 Million on Medicaid

Funded jointly by the states and the federal government, Medicaid insured 58.7 million people in 2006, according to the Kaiser Family Foundation, a Menlo Park, California, group that studies health care. Each state runs its own program, subject to federal oversight.

While the system covers poor children under 18 and some parents, eligibility varies by state for other groups, said Rachel Klein, a deputy director at Families USA, a Washington group pushing for broader coverage. That excludes some 17 million low-income Americans, mostly childless adults, she said.

Legislation in the House and Senate would open the program to anyone making less than $14,400 a year or a family of four earning up to $29,300. The limits would take effect in 2013 and rise with changes in federal poverty guidelines.

“It’s a program that’s in place,” Klein said. “It’s efficient. It’s especially designed to meet the needs of low- income people, and I think everybody realizes that.”

Medicaid Market

Congress’ final plan will likely add 5 million to 10 million people nationwide to Medicaid, phased in over several years, said Carlson, the CEO of Virginia Beach, Virginia-based Amerigroup. That would enlarge the “addressable market” for all Medicaid companies by a quarter, he said.

Molina, which provides coverage for 1.4 million people, expects to add as many as 600,000 customers, CEO Molina said in a telephone interview. His father, an emergency-room doctor, founded the health clinics that grew into the Long Beach, California-based company in 1980, after years of treating uninsured patients whose illnesses stemmed from a lack of preventive care, the son said.

The company typically gets $200 per Medicaid patient per month from states and keeps about $4 in profit, the CEO said. At that rate, the extra patients from Obama’s overhaul would raise earnings by $28.8 million a year. The company forecast $56 million in net income this year in an Aug. 4 statement.

The insurer, now in 10 states, is seeking to expand its reach in advance of the legislation, Mario Molina said.

Rolls Growing

“When the states see their Medicaid rolls growing and realize the need to better manage these folks, we think they are going to come to us,” he said in a telephone interview.

A Centene spokeswoman, Deanne Lane, said discussing the potential effects would be premature. Centene “recognizes the importance of health-care reform and supports efforts to provide coverage for all Americans,” she said in an e-mail.

Amy Knapp, a WellCare spokeswoman, did not return calls seeking comment.

Amerigroup has fallen 16 percent in New York trading this year, after cutting earnings estimates in the face of higher- than-expected medical costs. Centene is unchanged, while Molina is up 20 percent. WellCare has soared 104 percent after settling charges of misstating earnings with state and federal regulators, making it the best performer on the S&P managed-care index.

The results reflect bets on the companies’ individual strengths, as well as uncertainty over the fate of Obama’s health-care push, said Goldman Sachs’ Miller.

‘Long-Term Opportunities’

“You talk to portfolio managers and they say, ‘Wow, I definitely see some long-term opportunities here, but I think there’s risk shorter-term,’” he said. “So they’ve been waiting on the sidelines.”

UnitedHealth, WellPoint or Hartford, Connecticut-based Aetna Inc. may look to buy one of the smaller Medicaid providers if the program grows, Miller said. Aetna seems the most likely acquirer, since it has a relatively small Medicaid unit of 977,000 members, he said.

WellCare is the most attractive target, Miller said. Rivals have less of a presence in Florida, its home state, and the company’s Medicare plans for the elderly offer another opportunity for acquirers, he said. Molina, with its concentration in California, seems the least-likely buyout, because the state is slashing Medicaid spending, he said.

WellPoint would consider acquisitions only in states where it doesn’t run its own Medicaid plans, Chief Financial Officer Wayne DeVeydt said in a telephone interview. In general, the company feels it has “better ways to use our money” than buying rivals in the program, he said.

Growing Population

“We do think it’s a space you have to be in and I do think that it will be a growing population over time,” he said.

An Aetna spokesman, Mohit Ghose, declined to comment on company strategy, saying the legislation in Washington was still in flux. Growing Medicaid “very much fits in the overall scheme of where we see the need for reform,” he said by telephone.

Asked about UnitedHealth’s plans, Tyler Mason, a company spokesman, referred to comments by CEO Stephen Hemsley in a Jan. 22 conference call. The company’s Medicaid unit grew last year and is “a significant, dedicated and capable business that leverages the best of the entire UnitedHealth enterprise,” Hemsley told analysts on the call.

To contact the reporter on this story: Alex Nussbaum in New York anussbaum1@bloomberg.net.

Last Updated: September 11, 2009 17:04 EDT