Zacks Industry Outlook Highlights: Cigna, Aetna, UnitedHealth Group, Humana and WellPoint

 Zacks Industry Outlook Highlights: Cigna, Aetna, UnitedHealth Group, Humana
                                and WellPoint

PR Newswire

CHICAGO, March 12, 2014

CHICAGO, March 12, 2014 /PRNewswire/ --Today, Zacks Equity Research discusses
the Health Insurance, including Cigna Corp. (NYSE:CI-Free Report), Aetna Inc.
(NYSE:AET-Free Report), UnitedHealth Group Inc. (NYSE:UNH-Free Report), Humana
Inc. (NYSE:HUM-Free Report) and WellPoint Inc. (NYSE:WLP-Free Report).

Zacks Investment Research, Inc., www.zacks.com

Industry: Health Insurance

Link: http://www.zacks.com/commentary/31654/

2014 stands as a year of transition for all the insurers. So far, the carriers
have handled the impact of implementation (from 2010-2014) of some of the less
onerous provisions of the reform (relating to MLR requirements, ban on denial
of coverage due to pre-existing ailment, dependent coverage up to the age of
26, annual rate review) relatively well.

For the moment, however, the biggest question is how the most arduous
provisions of the law (relating to insurance exchanges, individual mandate,
ICD-10 requirements, pre-existing conditions, Medicaid expansion, an annual
insurance industry assessment of $8 billion in 2014 with increasing annual
amounts thereafter) will affect the industry. Some of these have already come
into effect in 2014 and the rest will be realized in the course of the year.
Investor sentiment toward the reform implementation in 2014 and beyond will be
the driving factor for managed care stocks.

While the individual mandate provision will bring into loop approximately 32
million uninsured people, the gain in revenues due to increasing industry
enrollment is expected to be offset to a large extent by the costs incurred by
the insurers to realign their businesses to comply with the new rules (ICD-10
coding) and deal with other challenges.

Several provisions in the Health Reform -- excise tax on medical devices,
annual fees on prescription drug manufacturers, enhanced coverage requirements
and the prohibition of pre-existing condition exclusions -- will likely
increase insurers' medical costs.

Moreover, the annual insurance industry assessment ($8 billion to be levied on
the insurance industry in 2014, increasing to $14.3 billion by 2018 with
increasing annual amounts thereafter), which is not deductible for income tax
purposes, and the temporary reinsurer fee ($25 billion to be levied on all
commercial lines of business including insured and self-funded arrangements,
over a three-year period starting in 2014), will increase insurer operating
costs.

In the meantime, rules of the road remain uncertain. Insurers do not know what
exactly will be expected of them, what changes they will be forced to
implement, or what expenses they might have to incur to meet new data and
regulatory demands. Carriers may see potentially game-changing developments
threatening their ability to achieve top- and bottom-line growth.

However, insurers are being proactive, trying very hard not just to survive
but to prosper amid such changing circumstances.

U.S. Insurers Aim for Global Markets

With organic growth remaining challenged at home, carriers in the health
insurance sector are flocking the international markets, which specifically
appear attractive on account of lesser regulations, higher margins and lower
competition. Additionally, pressure on social healthcare systems along with
increasing wealth and education in emerging markets are leading to higher
demands for health insurance and financial security. This provides carriers
with a vast market opportunity.

Companies like Cigna Corp. (NYSE:CI-Free Report) and Aetna Inc. (NYSE:AET-Free
Report), which have active presence overseas, believe that their international
business is a positive differentiator and a key driver of higher-than-peer
growth rates. Both companies intend to penetrate deeper mainly in the emerging
economies of Asia and the Middle East.

UnitedHealth Group Inc. (NYSE:UNH-Free Report) is another instance. The
company already has a presence in Australia, the Middle East and UK. In Oct
2012, it expanded its portfolio with the purchase of a controlling stake in
AmilParticipacoes, Brazil's biggest health insurer and hospital operator, for
$4.9 billion. The deal will give it access to a fast-growing market bolstered
by a rising middle class.

This acquisition attests the fact that insurers are desperately seeking to
graze international pastures. The company already has a significant presence
in Portugal, India and the Middle East through joint ventures.

Though the U.S. health insurance industry currently has little international
presence, insurers are fast catching up. We expect to see more international
deals going forward.

Insurers Diversifying to Provide Health Services

Leading U.S. health plans are now realizing that their core business is
necessary but not sufficient. Players are increasingly feeling that their
business models need to change significantly to position them suitably in the
transforming health insurance industry. No longer seeing commercial medical
membership as an option for substantial growth, they are thus diversifying
into health services businesses such as technology, health-care delivery,
physician management, workplace wellness and financial services that are "much
less regulated" than insurance plans.

Sensing the tough industry environment, one of the largest health insurers in
the country, UnitedHealth Group, espoused the strategy to grow its health
services business, branded as Optum, in 2011. The company maintains that its
future growth would come from offering services that are much less regulated
than health insurance plans.

Major companies have been making acquisitions aimed at growing their health
services businesses. Aetna acquired Medicity, a business that helps hospitals
share patient information. Humana Inc. (NYSE:HUM-Free Report) acquired
Concentra, a Texas-based urgent- and occupational-care provider with clinics
in 40 states. WellPoint Inc. (NYSE:WLP-Free Report) also started diversifying
more heavily into consumer-oriented and health IT businesses in 2011 and is
continuing with the strategy. At Aetna, Chief Executive Mark Bertolini is
implementing strategies that will see the insurer get more deeply into
health-information technology and run the back-end operations of the new
accountable-care organizations, or ACOs.

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