Family health

Average family health insurance premium soars in era of Affordable Care Act – April 19, 2022

It’s no secret – health insurance premiums have only moved in one direction over time. Over the past twelve years, family premiums for employer-sponsored coverage have jumped nearly 60% according to the Kaiser Family Foundation Employer Health Benefits Survey conducted last year. About 155 million people in the United States depend on employer-sponsored coverage.

The rate of premium growth has exceeded wages over the same period. Employers and employees spent an average of $22,221 in 2021 on family health insurance according to the Kaiser report. Workers have contributed an average of about $6,000 this year, with employers covering the rest. In 2010, the average amount spent between employers and employees was approximately $13,900. The average premium for family health insurance has increased nearly 60% since the Affordable Care Act (ACA) was enacted.

The outlook becomes much worse when taking into account non-employer health insurance premiums. Since the ACA was enacted in 2010, the average family health insurance premium in the United States has more than tripled. While most non-employer bonuses are now subsidized by taxpayers, the rate of increase is quite alarming.

In our current investment environment, it is well known that health insurance premiums have skyrocketed. Now we need to decipher which tools to use to best counter these higher costs.

The main beneficiaries of higher premiums have undoubtedly been health insurers. The actions of these insurers are the tools we can use to achieve our investment objective of neutralizing rising health care costs. As we can see below, the two stocks we will analyze today have significantly outperformed the S&P 500 since the ACA was enacted:

Image source: Zacks Investment Research

These two companies are both part of the Zacks Medical – HMOs industry group, which currently ranks in the top 33% out of approximately 250 industries. Investing in stocks within major industry groups can provide a constant ‘tailwind’ to our investment success. Also note the characteristics favorable to this industry:

Zacks Investment Research
Image source: Zacks Investment Research

UnitedHealth Group, Inc. (A H Free report)

UnitedHealth Group operates as a diversified healthcare company in the United States. The company offers a broad range of healthcare products and services, including health maintenance organizations (HMOs), preferred provider organizations (PPOs), and managed fee-for-service programs. Founded in 1977 and headquartered in Minnetonka, MN, UNH offers a full range of health benefit programs for individuals, employers, military, retirees, as well as Medicare and Medicaid beneficiaries.

UNH has the largest and most diverse membership base in the managed care market, giving the company a significant competitive advantage. The company has acquired a number of competing healthcare providers over the years and has also expanded its prescription drug business through OptumRx through the acquisition of Catamaran in 2015.

UNH’s revenue has grown steadily, with the business recording a CAGR of 5.1% in the five-year period ending in 2020. Last year, revenue grew 12% for reach $287.6 billion. For 2022, UNH projects revenues in the range of $317 billion to $320 billion, the midpoint of which indicates a 10.7% increase over last year. We expect double-digit growth to continue in the years to come.

Zacks Investment Research
Image source: Zacks Investment Research

UNH has beaten earnings in every quarter for the past five consecutive years. The health insurer recently reported first-quarter EPS of $5.49 last week, a surprise +1.67% from the consensus estimate of $5.40. UNH released a four-quarter average earnings surprise of +3.73%, supporting the stock’s 39.6% rise over the past year.

UnitedHealth Group Incorporated Award and EPS Surprise

UnitedHealth Group Incorporated Award and EPS Surprise

UnitedHealth Group is a Zacks #2 (Buy) stock and has recently seen positive earnings estimate revisions. Analysts raised their full-year EPS estimates by +0.1% last week. The Zacks consensus estimate for 2022 EPS is now $21.72, translating to 14.2% growth over last year.

Anthem, Inc. (ANTM Free report)

Anthem operates as a national health benefits company, offering a range of network-based managed care plans to large and small groups, individuals, as well as the Medicaid and Medicare markets. ANTM also offers pharmaceutical, dental, vision, life and disability insurance benefits. Founded in 1944 and based in Indianapolis, IN, Anthem serves more than 44 million medical members through its affiliate health plans.

Anthem has significantly improved its revenue over the past few years, recording a CAGR of 9% from 2015 to 2020 on the heels of higher memberships and premium rate increases. Last year, revenue of $136.9 billion was up 13.4% year over year. Given ANTM’s strong Medicaid and Medicare businesses, we expect the revenue growth trend to continue through 2022.

Zacks Investment Research
Image source: Zacks Investment Research

ANTM has exceeded earnings estimates in each of the past four quarters, delivering an average earnings surprise of +5.15% over that period. ANTM recently reported Q4 EPS of $5.14 in January, a surprise of +0.59% from the consensus estimate. ANTM shares have outperformed the market over the past year with a return of 37.3%.

Anthem, Inc. Awards and EPS Surprise

Anthem, Inc. Awards and EPS Surprise

ANTM is expected to publish its first quarter results tomorrow April 20and. Zacks’ consensus EPS estimate is $7.81, which would represent an increase of 11.41% over the same quarter a year earlier.