Friday, April 25, 2008

What Good Has Private Medicare Done for Shareholders?

Wall Street seems to have lost faith in publicly traded HMOs.

When the Medicare Modernization Act was passed in late 2003, it was seen as a major boon to the health plan business. Without a doubt the revenue and profits that have accrued from the privatization of Medicare have been more than substantial.

But what good has Medicare privatization done for shareholders?


The first week of January 2005, just as Medicare Advantage enrollment first went into high gear, United Health, the biggest player in private Medicare, saw its stock price close at $43.62. The first week of January 2006, as the first seniors were signed up for the new Part D drug program, United's stock price was at $62.90. Yesterday, United's stock price closed at $33.59.

Wellpoint was at $57.90 in January 2005, $78.93 in January 2006, and closed at $49.00 yesterday.

Universal American, a senior specialist who has made a disproportionate play in this space, was at $14.80 in January 2005, $15.39 in January 2006, and closed at $10.01 yesterday.

Humana, arguably the company most leveraged in private Medicare, was at $29.42 in January 2005, $57.08 in January 2006, and closed at $43.06 yesterday. Humana and Universal have been particularly hard hit by Part D pricing problems involving anti-selection issues but have pointed out their Part D blocks are overall operating as planned.

Aetna was at $30.99 in January 2005, $46.90 in January 2006, and closed at $42.26 yesterday.

Historically, these managed care companies are at all time high profit levels--it's not like their results have suddenly bombed and the business is coming off its rails.

The problems these companies have had, such as they are, are not limited to the senior business. There are also concerns about growth and profitability in the commercial market every bit as big. But the Wall Street analysts all said the private Medicare business was supposed to be a growth and profit diversification to the normally cyclical employer health insurance market.

Listening to the research reports the privatization of Medicare was the second coming.

The bottom line is the bottom line.

Where are the great valuations the private Medicare business was supposed to create?

Recent related posts:

Wall Street Continues to Be Disappointed in Managed Care--Just Where Did They Think It Was Headed in the First Place?

Health Plan Stock Prices Hard Hit Recently--Then There is John McCain

Today's HMO Carnage on Wall Street
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