3 Healthcare Stocks to Buy as Medicare Goes Private


  • Here are three healthcare stocks to buy now. 
  • UnitedHealth Group (UNH): It’s got 29% of the Medicare Advantage market. 
  • Humana (HUM): It’s got the top market share in nine states. 
  • Elevance Health (ELV): Its Medicare business has the highest operating margin of the three. 
Healthcare Stocks to Buy - 3 Healthcare Stocks to Buy as Medicare Goes Private

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While it’s never a bad time to look for healthcare stocks to buy, the privatization of Medicare has created some very prosperous businesses. As a result, it’s not necessarily great for consumers.

According to The Guardian, private insurers account for approximately 50% of the $68 billion Medicare beneficiaries in America:

“Their dominance of this space has grown rapidly over the past two decades – at the expense of patient care, according to healthcare activists and patients, as corporations often deny medical care directed by doctors.”

Medicare Advantage private insurers are known to deny medical coverage as a way to keep the monthly premiums low. Unfortunately, often at the expense of quality patient care. 

Like investing in cigarette companies, if you don’t have a problem with how they make their money, they can be good investments, especially if you’re an income investor. 

So, if you’re in this camp, here are three healthcare stocks to buy who are making money from Medicare’s transition to private insurers. 

UnitedHealth Group (UNH)

The UnitedHealth (UNH) headquarters in Minnetonka, Minnesota.
Source: Ken Wolter / Shutterstock.com

According to KFF, the San Franscisco-based organization founded in 1991 to provide unbiased healthcare information to Americans, estimates that UnitedHealth Group (NYSE:UNH) had 29% market share in the Medicare Advantage market in 2023 with 8.9 million enrolled. That’s almost the same amount as the second and third-largest players combined. 

In the first quarter of 2024, the company’s Medicaid & Retirement (M&R) segment, which includes Medicare Advantage, generated 47.1% of UnitedHealth’s overall revenue. In Q1, the segment saw revenues increase 8% to $35.49 billion. Assuming a 5.8% operating margin — the operating margin in 2023 for all of UnitedHealthcare — the M&R segment of UnitedHealth’s business earned $2.06 billion on an operating basis. 

That’s no small amount of profit. Annualized at $8.24 billion, it would have operating profits equal to or greater than the revenue of approximately one-third of the components in the S&P 500.

The M&R segment would make for a very big company within the index were it independent. It’s that important to UNH stock.  

Humana (HUM)

A Humana (HUM) office building
Source: Shutterstock.com

Humana (NYSE:HUM) is the second-largest Medicare Advantage firm with 18% market share from 5.5 million enrolled. It has the largest Medicare Advantage market share in nine states including Florida at 31%.   

In late April, Humana reported Q1 2024 results that included raising its Medicare Advantage growth in 2024 by 50,000, to 150,000, 2.8% higher than in 2023. 

In Q1 2024, its revenue from individual and group Medicare Advantage customer premiums was $24.44 billion, up 13.3% from $21.57 billion a year earlier. It accounted for 82% of its revenue in the quarter. Its operating margin was 4.2% in the first quarter, 160 basis points lower than UNH. 

Humana’s even more thankful for the privatization push. 

As part of its Q1 2024 results, it affirmed its 2024 adjusted earnings per share of $16.00, down significantly from $26.09 in 2023. That’s based on higher Medicare Advantage medical costs throughout 2024.

Trading around 22.3x the 2024 estimate, its shares are valued slightly higher than its 5-year average of 18.3x

Elevance Health (ELV)

a photo of a stethoscope laying atop medical papers
Source: Shutterstock

Elevance Health (NYSE:ELV) has the highest Medicare Advantage market share in Ohio at 25%. In Q1 2024, its Medicare Advantage membership was 2.02 million, about 4% of its total membership of 46.24 million. Its total Medicare membership was 2.91 million. 

Elevance’s overall revenue was $42.58 billion, 1.0% higheer than a year earlier. Its operating income was $2.94 billion, 12.2% higher than Q1 2023. That’s a 6.9% operating margin, 70 basis points higher than a year earlier. 

Its Medicare business is one of four operating segments. It belongs to the Health Benefits segment, whose revenue was flat to last year, accounting for 87% overall. The segment’s operating income increased 6.4% to $2.29 billion. Its operating margin increased 30 basis points to 6.1%. 

The company said in April that it expects its adjusted EPS in 2024 to be $37.20 or higher. It currently trades at 14.3x its projected earnings, slightly higher than its five-year average

It’s got the best operating margin of the three. 

On the date of publication, Will Ashworth did not have (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.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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