We recently compiled a list of the Top 10 Health Insurance Stocks To Buy. In this article, we are going to take a look at where Elevance Health, Inc. (NYSE:ELV) stands against the other health insurance stocks.
The health insurance industry is constantly changing, driven by a movement towards consumer-driven healthcare, in which people actively control their own health and healthcare costs. In that sense, Fortune Business Insights projects that the global healthcare insurance market is estimated to be worth $2.14 trillion in 2024 and will grow from $2.32 trillion in 2025 to roughly $4.45 trillion by 2032, reflecting a 9.7% CAGR over the forecast period.
AI in Health Insurance
According to McKinsey, health insurers might benefit significantly from completely incorporating AI and automation into their business operations. The firm believes that for every $10 billion in revenue, insurers could save $150 million to $300 million in administrative costs and $380 million to $970 million in medical expenses. In addition, these technologies may create an additional $260 million to $1.24 billion in income.
That said, concerns regarding AI’s expanding role in health insurance, particularly around claim denials, have escalated in recent months, especially in light of the death of UnitedHealthcare CEO Brian Thompson. These concerns had previously pushed the Biden administration to establish optional operational agreements with insurers, payers, and providers in 2023. In 2024, an executive order was issued to create criteria and safeguards for AI implementation. However, in January of this year, the Trump administration revoked Biden’s AI mandate, proposing that a new action plan be developed by the middle of the year.
Commenting on the rising implementation of AI in health insurance, law firm Maynard Nexsen stated:
“The AI landscape continues to develop, and the regulations appear to be loosening — at least at the federal level. These changes have led to uncertainty among organizations using AI technology.”
Medicaid Concerns
Medicaid, the nation’s largest health insurance program, which covers more than 70 million people, could be slashed under House Republican proposals. Lawmakers are proposing cutbacks of up to $2.3 trillion over the next decade to help fund border security and extend President Trump’s 2017 tax cuts. As the government works to decrease federal debt while maintaining expenditure commitments, Medicaid remains a key priority. To further expand on the implications of such a move, it should be noted that the Affordable Care Act (ACA) has considerably expanded the program’s scope and expense, making it the principal provider of comprehensive health and long-term care for one in every five Americans and accounting for approximately $1 out of every $5 spent on healthcare.
Furthermore, House Republicans just passed a budget by a slim margin, requiring the Energy and Commerce Committee, in charge of federal healthcare, to reduce $880 billion in expenditures. The reductions are designed to help support Trump’s tax cuts, mass deportations, and defense spending.
Our Methodology
For our list of the best health insurance stocks to buy, we started with a list of stocks pulled from ETFs, stock screeners, and web rankings. We then utilized Insider Monkey’s Q4 2024 database to discover the top ten stocks held by hedge funds. The list is organized in ascending order of hedge fund sentiment around each stock.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A medical professional working at a computer, utilizing the company’s digital solutions to improve care quality for consumers.
Elevance Health, Inc. (NYSE:ELV)
Number of Hedge Fund Holders: 73
Elevance Health, Inc. (NYSE:ELV), formerly known as Anthem, Inc., is a major health benefits provider in the United States. Anthem Blue Cross, Blue Shield, Wellpoint, and Carelon are among the names under which the firm provides a variety of services, including medical, pharmaceutical, dental, long-term care, disability, and behavioral health insurance.
On February 19, Sarah James of Cantor Fitzgerald confirmed Elevance Health, Inc.’s (NYSE:ELV) Overweight rating and price target of $485. James analyzed the company’s financial performance and its possible susceptibility to changes in Medicaid policy. According to the analyst, Elevance Health, Inc. (NYSE:ELV) operates in 26 states, with Medicaid extended in 18 of them. This expansion covers about 2,055,000 people, or 23% of Elevance’s Medicaid book. However, the potential danger posed by trigger legislation in some states might have an impact on the company’s financial viability, as a drop in Medicaid funding may result in a reversal of expansion benefits.
Artisan Select Equity Fund stated the following regarding Elevance Health, Inc. (NYSE:ELV) in its Q4 2024 investor letter:
“Elevance Health, Inc. (NYSE:ELV) took a couple of blows this quarter. First, it warned that its Medicaid earnings would come in below expectations this year. The Medicaid business has been in the spotlight as a result of COVID-19. Medicaid rolls filled up during the pandemic, but then rolls started to come down as enrollees lost eligibility when the economy began to normalize. This has made estimating the severity and health trends of the remaining population difficult. So far this year, cost trends have been much worse than expected and are out of line with Elevance’s approved rate structure. Margins in the Medicaid business, therefore, will be down this year, and overall profits are likely to be flat. We believe this is a temporary situation. State Medicaid programs are legally required to pay actuarially sound rates to the providers of Medicaid services, such as Elevance. Rates are expected, therefore, to moveupwardoverthenext12to18months,restoring Elevance’s margins to a more normal level.
The second issue for Elevance is investor sentiment. A mentally deranged young man murdered top executive of United Healthcare, the largest health insurer in the country. This led to an Internet frenzy of vicious, inaccurate and, frankly, deplorable criticisms of health insurance companies and their executives. Negative and controversial headlines tend to hurt share prices. This was true of Elevance’s stock in the aftermath of this heinous crime. The share price has fallen to extremely attractive levels, trading currently at about 11X earnings. We added to our position during this weakness.”
Overall ELV ranks 4th on our list of the top health insurance stocks to buy. While we acknowledge the potential of ELV as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ELV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
