Kelly Evans: The implosion of the health insurers
And it doesn't stop there. This comes on top of the higher-profile problems plaguing the country's biggest insurer, UnitedHealth. Those shares are down 56% from their all-time high last November, which came just a month before executive Brian Thompson was shot and killed. Yesterday, the company confirmed it's cooperating with a federal probe into its Medicare billing practices.
It might be tempting to dismiss UNH's problems as company-specific, but that wouldn't explain why rival Elevance (formerly Anthem) is also down 29% this month, and 50% below its September all-time high. "This is the worst the Healthcare sector has ever traded," lamented Mizuho strategist Jared Holz, noting this could be the third straight year the sector underperforms the S&P 500 by 20% or more. "JOT," he quipped. "Just Own Tech."
So what in the world is going on? Is it just a coincidence that this industry is seeing declines of a magnitude we've rarely seen outside of a financial crisis or market bubble popping? These are hardly overvalued goofball start-ups, memecoins, or overly leveraged financial institutions. They are massive, highly regulated, utility-esque pillars of the U.S. healthcare system.
If there is a common thread, it's basically that more people are using their health insurance now, after delaying usage during the pandemic, which made the companies back then appear more profitable than they really were. Add to that federal investigations into profit centers like Medicare and Medicare Advantage. And one expert I recently spoke with even muses that perhaps hospitals are now using AI to get insurance companies to approve and pay for more patient procedures.
For Medicaid and Obamacare, you also now have the government pulling back on subsidies and support. The GOP's megabill is expected to "significantly reduce" the number of people on Obamacare next year, per The Wall Street Journal. Hence the massive hit to those insurers this month.
Centene shares did reverse higher this morning after the CEO on their earnings call said she believes they will "reprice their marketplace business" for "meaningful margin improvement in 2026." But that, of course, implies price hikes for customers on the other end. And with health insurance costs running nearly triple overall inflation over the past two decades, it's unclear how well that will go over.
And yet, how many options do patients who need health coverage really have to turn elsewhere? It is precisely because of their utility-like nature that investor Bill Smead told us on Wednesday he has begun adding UnitedHealth to his U.S. Value Fund. Chris Grisanti of MAI Capital Management has also been a buyer of that name.
"The government needs these companies to exist," Smead said on Wednesday, which makes it hard to bet a lot more against them from here. And that's probably true. But to put it differently, as my colleague Brian Sullivan quipped--does that also mean the health insurers, to borrow that dreaded phrase, have now become "too big to fail"?
I'll ponder that one while I'm out utilizing their coverage on maternity leave. See you all sometime in roughly mid-November, God willing!
Kelly
Twitter: @KellyCNBC
Instagram: @realkellyevans
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