Insurance stocks are plunging nearly across the board today. This appears to be true whether we’re talking about sector leaders like Humana (NYSE:HUM), UnitedHealth (NYSE:UNH), Elevance Health (NYSE:ELV) and Cigna (NYSE:CI) or other smaller names in the space. In the case of the four aforementioned stocks, today’s respective declines of 12%, 7%, 7% and 3% at the time of this writing are absolutely massive, given these stocks’ market capitalizations.
Yesterday’s commentary from Tim Noel — UnitedHealth’s CEO of Medicare and Retirement — at Goldman Sachs’ (NYSE:GS) Global Healthcare Conference appears to be driving this sentiment. Reportedly, Noel suggested that the removal of mask mandates and associated pandemic-related fears may mean that “more seniors are just more comfortable accessing services for things that they might have pushed off a bit like knees and hips.”
For health insurers, this means that claims are on the rise — and may continue to be on the rise for some time. Additionally, as the U.S. population ages, it’s expected that health insurers may see their revenues decline on a relative basis. That’s partly due to many former employees aging into retirement and paying Medicare premiums that are generally far lower than those in commercial or group product lines.
Let’s dive into what to make of today’s move — and whether this commentary is really as dire as the market thinks.
Insurance Stocks Plunge on Stark Commentary
Sometimes, underlying issues with companies or given sectors can be ignored, so long as respected figures don’t say something aloud. Such appears to be the case with today’s sector-specific move among healthcare stocks.
Of course, following this commentary, analysts were quick to jump aboard the “caution train,” putting out notes and commentary suggesting that investors plug these risk factors into their models. However, as I mentioned in a previous article, these demographic shifts have been underway for some time. Accordingly, it’s always a wonder to me why investors and analysts weren’t adjusting their models sooner for these kinds of risks.
I can certainly see a two- to five-year window in which a massive number of Medicare patients seek delayed care, driving up costs, while an aging workforce shifts into the Medicare program. Thus, I do think many models perhaps haven’t shifted quickly enough to account for this move. Additionally, perhaps these stocks have become overvalued to some extent.
Will the medical cost ratio deteriorate for most insurers over the near- to medium-term? Probably. But that shouldn’t come as news for investors. This is the same group of stocks that many have clung to for safety in difficult times. I imagine that will also be the case moving forward. Thus, perhaps today’s move is actually a buy-the-dip opportunity.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
