The Coming Health Insurance Apocalypse?

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Good-bye, health insurers -- and good riddance. That's essentially the message from the majority leader of the U.S. Senate. Last Friday, Sen. Harry Reid (D-Nev.) stated that he hoped to replace the Affordable Care Act, commonly known as Obamacare, with a single-payer system. Would this system eliminate the need for health insurance companies? "Absolutely, yes," replied Sen. Reid.

Could an apocalypse be in store for America's health insurers? It's at least possible, but don't expect the $630 billion industry to go down without a fight.

Greatly exaggerated
Some observers, including industry insiders, predicted that Obamacare by itself would lead to the demise of insurers. In February 2012, Aetna (NYSE: AET  ) CEO Mark Bertolini said, "The end of insurance companies, the way we've run the business in the past, is here."

While Bertolini hit the mark about insurers changing the way they run their businesses, the notion that the end of insurance companies had arrived was greatly exaggerated. Consider that Aetna's stock jumped 35% since he uttered those words.

Rivals UnitedHealth Group (NYSE: UNH  ) and WellPoint (NYSE: ANTM  ) are both up more than 30% since February 2012. Cigna (NYSE: CI  ) rose a whopping 72%. Of the largest publicly traded U.S. health insurers, only Humana (NYSE: HUM  ) has performed poorly during the period -- and its shares still climbed by 3%.

A month prior to Bertolini's statements, Ezekiel Emanuel and Jeffrey Liebman voiced their opinion in a New York Times online article that Obamacare would result in the end of health insurance companies by 2020. Emanuel and Liebman, both former advisors to the Obama administration, predicted that insurers would be replaced by the Accountable Care Organizations, or ACOs, established by Obamacare.

Since their prognostication has a longer time window, we'll have to wait to find out if they're right. However, so far, ACOs aren't having any discernible adverse effects on health insurers. And there have been some bumps in the road for the ACO model. Bloomberg reported earlier this summer that nearly one-third of the organizations participating as "Pioneer" ACOs could soon exit the program.

Surviving an apocalypse
Even if we assume that Sen. Reid's desire for a single-payer universal health-care system becomes reality, that doesn't necessarily mean that health insurers will become extinct. Just look at Israel, which has had a national single-payer system for years.

Israel boasts one of the lowest-cost health-care systems in the world while also claiming high life expectancies. Interestingly, though, around 80% of its citizens still purchase health insurance. Israel Medical Association deputy chairman Dr. Yitzhak Ziv-Ner thinks the fact that so many in the nation buy supplemental insurance "shows the lack of faith the Israelis have in the basic system, which is not enough for them."

Health insurers are already evolving their business models in ways that would help them survive an apocalypse stemming from implementation of a single-payer system. UnitedHealth's fastest growth comes from Optum, its health services business unit. Optum provides a wide array of services, including pharmacy benefits management, data analysis, and disease management.

Several large insurers are also buying health-care providers. For example, UnitedHealth acquired a big California physicians group in 2011. Humana bought Metropolitan Health, which operates a network of physicians focusing on providing care for Medicare beneficiaries, in 2012.

Of course, even with government health-care programs like Medicare and Medicaid, there is plenty of need for private companies. This need explains why there has been what I call a "mad dash for Medicare and Medicaid dollars" by health insurers. Aetna bought Coventry Health Care to get more government business. Cigna bought HealthSpring and WellPoint acquired Amerigroup for the same reason.

Don't be a zombie
The U.S. doesn't have a single-payer system yet. There's no certainty by any stretch that one will ever materialize. Sen. Reid called Obamacare "a step in the right direction" toward a single-payer system, but Obamacare isn't too terribly popular right now. A recent survey found that 53% of Americans view the legislation unfavorably, with 56% favoring a delay of the mandate requiring individuals to purchase insurance.

Adoption of a single-payer system in the U.S. in the foreseeable future seems to be unlikely. However, the possibility exists that the political landscape could change in the future. Investors shouldn't be oblivious to the potential impact of major health-care changes down the road.

Companies that are proactively adapting are the ones most likely to survive and thrive for the long run, regardless of what happens. UnitedHealth stands out in my view as one of these companies. It is successfully growing non-insurance business through Optum. It has expanded outside of the U.S. with the acquisition of Brazil's largest health-care company, Amil Participacoes S.A. UnitedHealth also is actively embracing the ACO model.

I don't think a health insurance apocalypse is on the way. Nevertheless, investors should stay tuned in to what's going on nationally to make sure their investing thesis still holds up. Don't be a zombie.

While we wait to see how predictions of doom for health insurers play out, the current reality is that Obamacare is rewriting the rules for the health-care industry. In the process of doing so, it's creating massive opportunities for investors to get ridiculously rich. How? By investing in a handful of specific health-care stocks. In this free report, our analysts walk you through these opportunities and the companies that are positioned to exploit them. The informational edge contained in it is invaluable, but can only be exploited profitably while the rest of the market remains in the dark. To access this free report instantly, simply click here now.

Read/Post Comments (21) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 12, 2013, at 8:23 PM, Misanthrope666 wrote:

    It won't fly Harry. The health insurance "industry" and big pharma OWN congress.

  • Report this Comment On August 12, 2013, at 8:54 PM, GhostdogWarrior wrote:

    The health insurance bill was written by the top insurance companies' lobbyists with the politicians so I highly doubt they will be dead for long.. just resurrected in a new form with much more insulation from lawsuits and the deep pockets of the taxpayer to bail them out at will.. The only walking dead are the people.

  • Report this Comment On August 12, 2013, at 8:56 PM, rdmcdonald48 wrote:

    Obama doesn't want to put insurers out of business, just the opposite. He want to "nationalize" them. Why? It gives the government the infrastructure it needs and the expertise it needs to manage a national, single payer, system. It also gives the government access to everyone's health records when they force the insurers into the government.

    Don't believe it can happen; just sit back and watch. It's going to take another 20 to 30 years; but it's coming just as sure as the total collapse of this economy as we know it. Detroit was the first "brick in the wall" to fall, the dominoes are in line and when the first one fell, it's just a matter of time.

  • Report this Comment On August 12, 2013, at 8:56 PM, therylmccoy wrote:

    "Good-bye, health insurers -- and good riddance"

    Ha! I love it and could not agree more. Good riddance!

  • Report this Comment On August 12, 2013, at 8:58 PM, Dahun wrote:

    If you like your healthcare and want to keep it; you're screwed.

  • Report this Comment On August 12, 2013, at 9:00 PM, andiconda wrote:

    The faster we destroy he insurance ponzi the healthier we become as a nation,! to war!@

  • Report this Comment On August 12, 2013, at 9:03 PM, andiconda wrote:

    Single payer system all the way! Time to join the rest of the industrialized globe, and take care of your citizens, The private industry has only one purpose, and your health is a bi product of your wallet! Good riddance indeed~

  • Report this Comment On August 12, 2013, at 9:16 PM, KUBLOTNIK wrote:

    you love it ,huh? tom daschle wrote in his book that we will not have the money to care for all the elderly that will need it ( boomers) and that maybe we need a system that ALLOWS the old and infirm to just go quietly away and die. managed care? managed death? as a nurse i can see the disaster coming.we have led such a self-destructive lifestyle in the past 50 years. now we want the politicians to make it so that we don't have to suffer for our stupidity ,ignorance and selfishness. we want the GOVERNMENT to take care of us!!! fools !!! the gov. is not our friend .their only reason for existence is to preserve themselves. they will write rules(20,000 pages so far) to exempt themselves and create a tyranny that will crush healthcare and all who go to them for it. it's called CONTROL. if you want to live that way go to CUBA,VIET NAM,ZIMBABWE .harry reid in the old days would have been called a tory/kingman. GOD preserve us from people like him.

  • Report this Comment On August 12, 2013, at 9:17 PM, marjoe7 wrote:

    Removing the 200 to 400% profit middlemen can only help the majority of U.S. citizens! To mcdonald, the collapse of this economy started in 1980.

  • Report this Comment On August 12, 2013, at 9:20 PM, opaldougau wrote:

    Check out the girl that got bit by the snake and had to shell out $55,000.00 ,,,and I know it gets worse. Just who are these pigs running the show?

  • Report this Comment On August 12, 2013, at 9:26 PM, ChMacQueen wrote:

    You can't have a proper and working longterm universal healthcare system unless the state/federal own the hospitals as well and also doctor's liscences required a small amount of time at the local public hospital. Other then that it will stay extremely expensive and bloated. But further everyone needs to be paying something into it to receive of working age adult. No handouts for 47% who don't achieve.

  • Report this Comment On August 12, 2013, at 9:34 PM, tom474e wrote:

    Single Payer done right will be the end of the middle men, the health insurance companies and there would be no need for supplemental insurance. Go to its a group of physicians for a national health care system.

  • Report this Comment On August 12, 2013, at 9:40 PM, airjackie wrote:

    Everyone forgets 2006 Romneycare started in Mass, and is successful today. Few reporters bothered to read that Universal Health Care Plan was formed by President Nixon in 1974. Few reporters bother to report President Bush used the same plan to for his Universal Health Care in Africa. But some don't want to stop the fraud done in the health care as 60% of money is stolen which is why lawmakers are paid to stop this law.. Florida Gov. Rick Scott holds the US record of Medicaid Fraud of 1.7 billion dollars. No problems in Mass. with Romneycare. Journalist, lawmakers, Judges and others are paid by the Health care companies and insurance companies to stop Obamacare. Stealing from Government programs is more important then the American people. Good news President Bush started his Universal Health Care Plan in Africa is doing great and even gets US aid and donations from US billionaires.

  • Report this Comment On August 12, 2013, at 10:34 PM, Freddbe wrote:

    Single pay healthcare is the only real answer to healthcare. A snake bite cost 55,000 to 730,000 wake up people. We can have an open check book on wars but healthcare we can't afford. What kind of stupid pill you have to take to not see this.

  • Report this Comment On August 13, 2013, at 12:14 AM, hrouldwolf wrote:

    All of these pie-in-the-sky dreamers like Harry Reid continue to ignore the Constitution of the United States. The Constitution REQUIRES that anything taken for public benefit be paid for, in full and in cash. The Supreme Court has already ruled that this includes intangible rights.

    Let's suppose the health insurance industry grosses $630 billion a year as claimed. A six percent profit margin gives them about $38 billion a year in profit. And a P/E ratio of ten [which may also be low] suggests that Congress would have to appropriate $380 billion to buy out the present owners.

    Does Harry Reid think we're going to borrow that added amount from China? or that Helicopter Ben will simply fund it via an added surge of QE?

    All of this pre-supposes that single payor doesn't become mired in politics -- although it seems to have done so in virtually every other nation -- to the point that actual medical CARE delivered declines or is made unavailable because some committee decides your condition isn't worth treating.

    {Please don't insult yourselves by saying that rationing care can't happen -- it is already the case in Britain and Canada and has been for several decades.}

  • Report this Comment On August 13, 2013, at 1:33 AM, syzygysyzygy wrote:

    US has always been behind europe and its health care system is a national disgrace

    It will continue to be a disgrace because capitalists have done superb job of selling a real bill of contaminated goods to the american


  • Report this Comment On August 13, 2013, at 2:03 AM, doctorknowledge wrote:

    i hope and pray every day for the death of health insurance companies. these leeches steal $10,000 / year from me, and i get nothing from them. in a real country, these people would be in prison for stealing. ANYTHING is better than our current system. RIP blue cross / blue shield (actually, i hope you rest in hell, not in peace).

  • Report this Comment On August 13, 2013, at 2:06 AM, doctorknowledge wrote:

    if you like our current health care system, you need to see a doctor (for a mental disorder).

  • Report this Comment On August 13, 2013, at 5:26 PM, TheRealRacc wrote:

    You don't have a country without wars.

  • Report this Comment On August 14, 2013, at 1:20 AM, sliderw wrote:

    The US military is a single-payer system.

  • Report this Comment On October 07, 2013, at 4:06 PM, thidmark wrote:

    Harry Reid should be slathered in potato chip grease and dropped on a fire ant mound.

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