Right time to invest in health insurance stocks?

The insurance industry is on the threshold of stability and growth, despite clear signs of stress. Most players are reassessing their business model from product, pricing, risk management, distribution, claims and fraud management to a realistic pace of growth. The industry is also witnessing consolidation.

For decades, the industry has sought private sector engagement in meeting ever increasing national healthcare needs. These include the foundation of Medicare Advantage, the launch of Medicare Part D drug benefits, the formation of accountable care organizations (ACOs), steady migration of Medicaid to managed care, the expansion of benefit coverage to the uninsured under online exchanges, expanded Medicaid programs and the improvement in healthcare.gov and many state-based exchanges.

Let’s discuss some of the opportunities offered by the changing industry landscape:

A bigger pool of people coming into the insurance system because of the ACA rule that every individual must have access to insurance. The Congressional Budget Office (CBO) has estimated that by 2020, approximately 24 million people will purchase coverage through the new federal and state health insurance exchanges established by the ACA — a substantial addition to the market.

As per research by The Urban Institute's Health Reform Monitoring Survey (HRMS), 7.3 million adults gained coverage in the first open-enrollment period which ended on Mar 31, 2014.

WellPoint Inc. (WLP), a publicly traded insurer which recorded the maximum enrollment in the new health-care market, raised its 2014 earnings guidance after having benefited from the overhaul. Another insurer UnitedHealth Group Inc. (UNH) stated that it will expand its Obamacare exchanges to two dozen in 2015 from five this year.

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