The year 2022 is starting on mixed sentiment. The fresh COVID-19 crisis driven by Omicron is triggering concerns in several parts of the world including the US. The daily case count in US has once again crossed 200,000, prompting measures to contain the spread and stay safe. Amidst all this, Centers for Medicare & Medicaid Services (CMS) recently released encouraging enrollment figures for 2022, which showed the health insurance enrollments are at a historic high of more than 13.6 million for 2022.
From the start of Open Enrollments, over 9.7 million (8.8 million last year) consumers enrolled in Marketplace coverage in the 33 states using HealthCare.gov. And almost 3.9 million (3.4 million last year) consumers selected plans or were automatically re-enrolled in a plan for 2022 health coverage through State-based Marketplaces (SBMs). This, according to Xavier Becerra, Secretary for Health and Human Services at CMS, “shows that the demand and need for affordable health care remains high.”
So, what to expect from America’s top health insurance payers in the upcoming year 2022? DistilINFO looked back on the year gone by and took a deep dive into the financials, business performances and stock performances of the top health insurers to make a projection about their performances in the new year.
2022: Five things to look for in Payers
Despite risks, the top health insurance player needs to offer healthy returns for the stakeholders. During the challenging scenario of 2020 and 2021, UnitedHealth Group Inc. the largest health insurer has yielded 21% growth on the top line and stayed positive on the bottom line, though with a marginal growth over previous year. With an expanded base and its dominant position in the US health insurance market, UnitedHealth Group is well placed to maintain its key financial parameters such as cash-flows, operating expenses, earnings per shares and margins. What will hold the key is profitability as the margins have remained under pressure during the past year. Based on the revenue growth projections and profitability, UnitedHealth is set to shine in 2022.
2. Stock performance
The year 2021 saw Rhode Island-headquartered CVS Health Group racing ahead the top US health insurers making phenomenal 41% gains in stock value during the year. CVS Health has exhibited strong financial and operational performance, which has led investors to flock to the company’s stocks on the bourses. On the financial front too, the company has maintained a modest growth at 8.2% for 9-month period revenues, and earnings growth at 6% for nine-month period of 2021. The street expects CVS Health to maintain its sound financial performance during the next year, as the investors expect CVS Health to scale further up on the stock exchanges.
The year of 2021 saw valuations in the healthcare space scaling up. Health payers in particular have witnessed increased valuations on the back of increased enrollments during the year amidst the COVID-19 pandemic. Analysts expect valuations to scale up further on the back of greater inclination for health insurance coverage. The CMS data, which showed record enrollments for 2022, is the barometer of a growing spread of the market in health payer space. The price-to-earnings (P/E) ratio key parameter to assess the valuations of the publicly listed health insurers. The ratio shows the price of a stock in context of the company’s earnings per share. Among the top six health payers, Cigna and CVS Health are the two most promising players trading at a lower PE multiple of 9.49 and 18 times respectively. Centene, UnitedHealth and Humana are among the costliest stocks trading at the PE multiple of 68.54, 31 and 22 respectively. Anthem has a relatively modest PE multiple of 20.
4. On analysts’ radar
Besides the financials, stock performance and valuations, the stock that has caught the attention of the analysts is the heavyweight UnitedHealth Group Inc as a preferred pick for 2022. In its recent recommendations on top healthcare stocks, The Motley Fool ranked America’s largest health insurer as the top pick for the year. The company also operates one of the biggest Pharmacy Benefit Managers (PBMs). The company’s size, stability, and dividend make UnitedHealth Group one of the most attractive payer stocks on the market, it noted.
5. The risks to keep an eye on
Healthcare sector isn’t isolated from the risks. The health payers space is a highly regulated market having direct influence of the government moves making it vulnerable to any adverse event arising out of modifications in the government’s policies. The recent surge in the COVID-19 cases and the Omicron threat is causing concerns on the possible rise in hospitalizations and subsequently escalated cost outgo for the payers. Besides the rising healthcare costs, the risks involved in the healthcare payers industry is the adoption and integration of technology and digital solutions for administration and clients, an increased patient pay responsibility or high deductible health plans, also there are market-related risks involved such as consolidation of the industry, and need for greater education and awareness for insurance coverage.
As the year 2022 sets in, there are factors requiring investors’ attention while choosing a healthcare company for investments. The assessment carried out by DistilINFO suggests five key parameters to consider while making a bet on a healthcare insurer in the coming year. However, the analysis by DistilINFO is for the information purpose and makes no assurance on returns on investments. We don’t make any recommendations on any stocks. The views expressed relating to the stocks are based on the market assessment, analyst reports and the industry observations. Considering the new wave of infections across parts of the globe and in several pockets of the US, investors are advised to take an informed decision while choosing their pick for 2022.