Could These Drugs Rain on the Obamacare Parade?

Obamacare has been like a parade for several big health insurers. But could they end up soaking wet because of a new wave of high-cost drugs?

May 25, 2014 at 1:25PM

Obamacare's biggest fans just might be the health insurance industry. Several of the major insurers have enjoyed nice stock gains since the Oct. 1, 2013 start date for the health insurance exchanges established by the Affordable Care Act.

But could the health insurers' Obamacare parade get rained on soon? Some potentially dark clouds loom ahead – not from health reform itself, but instead from a new generation of medications.

You might expect insurers to be almost giddy these days. WellPoint (NYSE:ANTM), for example, has seen its stock jump 23% since the exchanges launched. Humana (NYSE:HUM) experienced an even larger increase, with shares climbing 27% during the same period.

WellPoint stands out as the health insurer most closely linked with Obamacare. The company participated in the exchanges in every state where it operates. CEO Joe Swedish recently stated that WellPoint expects to add over 600,000 new members from public exchanges. The large insurer also experienced solid growth in its Medicaid business, in part due to the expansion of the program kicked off by health reform.

Likewise, Humana CEO Bruce Broussard thinks that his company will grow enrollment by as much as 500,000 members this year. In Humana's first-quarter earnings call, he noted that the company believes that its exchange enrollment is "skewed to a slightly younger population than the industry as a whole", a trend that helps the bottom line.

Chance of rain?
Both WellPoint and Humana, however, see a potential problem area: the cost of hepatitis C drugs. Joe Swedish said that WellPoint will spend around $100 million more on hep C medications in 2014 – twice what the company forked out last year.Bruce Broussard stated that hep C drugs would cost Humana $0.40 to $0.50 per share in added expense in 2014. 

On Tuesday, the health insurance industry's major trade group, America's Health Insurance Plans, or AHIP, singled out hepatitis C drug Sovaldi as a big reason those expenses are climbing. The drug, developed by Gilead Sciences (NASDAQ:GILD), costs $84,000 per 12-week treatment.


Source: Gilead Sciences 

AHIP hit Gilead hard in an online statement, alleging that the drugmaker priced Sovaldi "at an astronomical level that is not sustainable for consumers, innovation, or society". Sovaldi gained regulatory approval in the U.S. in December and racked up over $2 billion in sales during its first full quarter on the market. That impressive figure seems likely to get even better if Gilead wins approval as expected later this year for an all-oral combo featuring Sovaldi and another of its drugs, ledipasvir.

Sunny forecasts
There are at least a couple of reasons to suspect that the health insurers' forecast is sunnier than AHIP lets on, though. First, competition is coming.

AbbVie (NYSE:ABBV) submitted its FDA application a month ago for a three-drug hep C combo. The pharmaceutical company scored positive results from late-stage clinical studies. Many observers expect AbbVie to be brought to market soon after Gilead's combo.

Merck (NYSE:MRK) also has a strong contender with its hep C regimen including two drugs, MK-5172 and MK-8742. It will take longer for Merck to compete, however. The drugmaker recently announced phase 2 study results and probably won't make it to market until 2016.

It's still too early to know how AbbVie and Merck might price their drugs. Insurers have reason to hope that the competition will help keep hep C costs from spiraling out of control.

The second positive for the health insurance industry when it comes to these drug costs comes from the flip side of the coin. Sure – Sovaldi costs a lot. But it and the other drugs on the way also could prevent the need for liver transplants in many hep C patients. A liver transplant costs around $600,000. Insurers should experience some reduced medical costs along the way from the new generation of hepatitis medications.

All parades eventually end, and the Obamacare parade won't be an exception. Health insurers thinking that hep C drug costs might rain on their parade, though, will probably find the weather to be better than feared.


Put some sunshine in your pocketbook
Give me five minutes and I'll show how you could own the best stock for 2014. Every year, The Motley Fool's chief investment officer hand-picks 1 stock with outstanding potential. But it's not just any run-of-the-mill company. It's a stock perfectly positioned to cash in on one of the upcoming year's most lucrative trends. Last year his pick skyrocketed 134%. And previous top picks have gained upwards of 908%, 1,252% and 1,303% over the subsequent years! Believe me, you don't want to miss what could be his biggest winner yet! Just click here to download your free copy of "The Motley Fool's Top Stock for 2014" today.

Keith Speights owns shares of Gilead Sciences. The Motley Fool recommends Gilead Sciences and WellPoint. The Motley Fool owns shares of Gilead Sciences and WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers