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
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 Inc. (NYSE:AET)’s stock jumped 35% since he uttered those words.
Rivals UnitedHealth Group Inc. (NYSE:UNH) and WellPoint, Inc. (NYSE:WLP) are both up more than 30% since February 2012. CIGNA Corporation (NYSE:CI) rose a whopping 72%. Of the largest publicly traded U.S. health insurers, only Humana Inc (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 Group Inc. (NYSE:UNH)’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 Group Inc. (NYSE:UNH) acquired a big California physicians group in 2011. Humana Inc (NYSE:HUM) 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 Inc. (NYSE:AET) bought Coventry Health Care to get more government business. CIGNA Corporation (NYSE:CI) bought HealthSpring and WellPoint, Inc. (NYSE:WLP) 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 Group Inc. (NYSE:UNH) 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 Group Inc. (NYSE:UNH) 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.
The article The Coming Health Insurance Apocalypse? originally appeared on Fool.com and is written by Keith Speights.
Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends and owns shares of WellPoint. It owns shares of UnitedHealth Group.
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