Thoughts from Analysts on Health Care Ahead of Vote
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Today's Overall Ratings:
Up: 8 | Down: 12 | New: 30
Rating Summary:
9 Buy, 4 Hold, 0 Sell
Rating Trend:
Up
Today's Overall Ratings:
Up: 8 | Down: 12 | New: 30
Trade AET Now!
Here are some highlights from JPMorgan's report on the healthcare ruling, written by an analyst team lead by Justin Lake.
For starters, here is a list of stocks that will be affected:
Aetna Inc. (NYSE: AET)
AMERIGROUP Corporation (NYSE: AGP)
Cigna Corp. (NYSE: CI)
Centene Corp. (NYSE: CNC)
Coventry Health Care Inc. (NYSE: CVH)
Health Net, Inc. (NYSE: HNT)
Humana Inc. (NYSE: HUM)
Molina Healthcare Inc. (NYSE: MOH)
Unitedhealth Group, Inc. (NYSE: UNH)
WellPoint Inc. (NYSE: WLP)
"Scenario 1: AIA bars the court from making a decision until 2015. In our view, the commentary from the justices during oral arguments left the impression that they are indeed ready to rule in this case and that they are unlikely to leave this decision hanging until 2015. However, should the court feel that the AIA bars them from making a decision until 2015, this would likely be viewed as negative for our managed care universe."
Summary: All stocks seen lower.
"Scenario 2: Mandate is found constitutional. In the argument against the individual mandate, the court can rule that it is constitutional and the ACA will proceed as written, or it can rule that it is unconstitutional and we would look to the severability argument for a resolution. In the case where the mandate is found to be constitutional, we view this as the status quo for the MCOs as they move forward with reform implementation as planned. For the diversified names most levered to reform, we believe this is likely a slight negative given that the potential for the ACA to be struck down is now off the table, partially offset by the positive affirmation of the individual mandate. For the Medicaid pure plays, we view this as a slight positive given the clarity gained on coverage expansion."
Summary:
AET - lower
AGP - higher
CI - flat
CNC - higher
CVH - lower
HNT - flat
HUM - lower
MOH - higher
UNH - lower
WLP - lower
"Scenario 3: Entire ACA is declared unconstitutional. We believe this would be the best case scenario for the diversified managed care companies in our coverage universe. While expansion through the exchanges would be curtailed, the unfavorable insurance provisions and associated cuts would be removed. This favors those plans levered to the individual and small group markets the most (Coventry, WellPoint & Aetna) while also helping the plans more closely tied to Medicare Advantage (Humana and UnitedHealth). This would also be positive for Cigna and HealthNet, although to a lesser degree given that they are less tied to these segments when compared to their competitors. For the Medicaid plans, we believe this is the worst case scenario as coverage expansion for low income Americans would be struck down along with the ACA.”
Summary
AET - higher
AGP - lower
CI - higher
CNC - lower
CVH - higher
HNT - higher
HUM - higher
MOH - lower
UNH - higher
WLP - higher
"Scenario 4: Mandate alone is declared unconstitutional. This would be the worst case scenario for those MCOs that are most levered to the individual and small group markets, in our view, given the potential issues associated with guaranteed issue without a mandate. We believe this scenario would also be negative for UnitedHealth and Health Net, although less so given that they derive only ~10% of earnings from these segments combined versus ~20%+ for WellPoint, Coventry and Aetna. Also to be considered here is that without a mandate, there likely will be fewer enrollees in the exchanges, which would limit the benefit of coverage expansion driving higher membership. For Cigna and Humana, as well as the Medicaid pure players, we believe this scenario is more of a push given that they have immaterial exposure to the individual and small group segments. For the Medicaid levered names, there is likely to be some decline in Medicaid enrollment if the individual mandate is struck down.”
Summary:
AET - lower
AGP - lower
CI - flat
CNC - lower
CVH - lower
HNT - lower
HUM - flat
MOH - lower
UNH - lower
WLP - lower
"Scenario 5: Mandate unconstitutional and other insurance provisions are eliminated. Absent the entire law being struck down, we believe this is the best case scenario for the diversified managed care plans as it would allow health plans to continue to medically underwrite, avoid adverse selection and still benefit from some level of coverage expansion. This scenario favors those
MCOs who derive a larger % of earnings from the individual and small group
markets. The Medicaid levered names should also see some decline in enrollment
under this scenario if the mandate is struck down.”
Summary:
AET - higher
AGP - lower
CI - flat
CNC - lower
CVH - higher
HNT - higher
HUM - flat
MOH - lower
UNH - higher
WLP - higher
"Senario 6: Medicaid expansion declared constitutional. We view this as the status quo scenario as it upholds this portion of the act as written. For those names not particularly levered to Medicaid (Coventry, WellPoint, Humana and Cigna), there should be little impact regardless of the Medicaid outcome. For the MCOs with some exposure (UnitedHealth, Health Net and Aetna), the clarity created from this decision should be somewhat positive, with a much more positive impact to the Medicaid pure play names, in our view.”
Summary:
AET - higher
AGP - higher
CI - flat
CNC - higher
CVH - higher
HNT - higher
HUM - flat
MOH - higher
UNH - higher
WLP - higher
"Scenario 7: Medicaid expansion declared unconstitutional. This would be the worst case scenario for the Medicaid levered names, in our view, as the growth opportunity delivered by Medicaid coverage expansion would be off the table. Given the increased federal funding associated with the expansion, we believe it is unlikely that the states would choose to continue their efforts should this be declared unconstitutional. While this would be a negative for most of the MCO space in general given the focus on Medicaid as a growth opportunity, those with the least amount of earnings exposure to Medicaid would be less impacted. Of
course, we would note that Medicaid coverage expansion is but one of the
significant opportunities in front of the Medicaid group, which would still include
the continued shift by states to managed care from government run programs as
well as the oft-discussed dual eligible opportunity.”
Summary:
AET - lower
AGP - lower
CI - flat
CNC - lower
CVH - lower
HNT - lower
HUM - flat
MOH - lower
UNH - lower
WLP – lower
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For starters, here is a list of stocks that will be affected:
Aetna Inc. (NYSE: AET)
AMERIGROUP Corporation (NYSE: AGP)
Cigna Corp. (NYSE: CI)
Centene Corp. (NYSE: CNC)
Coventry Health Care Inc. (NYSE: CVH)
Health Net, Inc. (NYSE: HNT)
Humana Inc. (NYSE: HUM)
Molina Healthcare Inc. (NYSE: MOH)
Unitedhealth Group, Inc. (NYSE: UNH)
WellPoint Inc. (NYSE: WLP)
"Scenario 1: AIA bars the court from making a decision until 2015. In our view, the commentary from the justices during oral arguments left the impression that they are indeed ready to rule in this case and that they are unlikely to leave this decision hanging until 2015. However, should the court feel that the AIA bars them from making a decision until 2015, this would likely be viewed as negative for our managed care universe."
Summary: All stocks seen lower.
"Scenario 2: Mandate is found constitutional. In the argument against the individual mandate, the court can rule that it is constitutional and the ACA will proceed as written, or it can rule that it is unconstitutional and we would look to the severability argument for a resolution. In the case where the mandate is found to be constitutional, we view this as the status quo for the MCOs as they move forward with reform implementation as planned. For the diversified names most levered to reform, we believe this is likely a slight negative given that the potential for the ACA to be struck down is now off the table, partially offset by the positive affirmation of the individual mandate. For the Medicaid pure plays, we view this as a slight positive given the clarity gained on coverage expansion."
Summary:
AET - lower
AGP - higher
CI - flat
CNC - higher
CVH - lower
HNT - flat
HUM - lower
MOH - higher
UNH - lower
WLP - lower
"Scenario 3: Entire ACA is declared unconstitutional. We believe this would be the best case scenario for the diversified managed care companies in our coverage universe. While expansion through the exchanges would be curtailed, the unfavorable insurance provisions and associated cuts would be removed. This favors those plans levered to the individual and small group markets the most (Coventry, WellPoint & Aetna) while also helping the plans more closely tied to Medicare Advantage (Humana and UnitedHealth). This would also be positive for Cigna and HealthNet, although to a lesser degree given that they are less tied to these segments when compared to their competitors. For the Medicaid plans, we believe this is the worst case scenario as coverage expansion for low income Americans would be struck down along with the ACA.”
Summary
AET - higher
AGP - lower
CI - higher
CNC - lower
CVH - higher
HNT - higher
HUM - higher
MOH - lower
UNH - higher
WLP - higher
"Scenario 4: Mandate alone is declared unconstitutional. This would be the worst case scenario for those MCOs that are most levered to the individual and small group markets, in our view, given the potential issues associated with guaranteed issue without a mandate. We believe this scenario would also be negative for UnitedHealth and Health Net, although less so given that they derive only ~10% of earnings from these segments combined versus ~20%+ for WellPoint, Coventry and Aetna. Also to be considered here is that without a mandate, there likely will be fewer enrollees in the exchanges, which would limit the benefit of coverage expansion driving higher membership. For Cigna and Humana, as well as the Medicaid pure players, we believe this scenario is more of a push given that they have immaterial exposure to the individual and small group segments. For the Medicaid levered names, there is likely to be some decline in Medicaid enrollment if the individual mandate is struck down.”
Summary:
AET - lower
AGP - lower
CI - flat
CNC - lower
CVH - lower
HNT - lower
HUM - flat
MOH - lower
UNH - lower
WLP - lower
"Scenario 5: Mandate unconstitutional and other insurance provisions are eliminated. Absent the entire law being struck down, we believe this is the best case scenario for the diversified managed care plans as it would allow health plans to continue to medically underwrite, avoid adverse selection and still benefit from some level of coverage expansion. This scenario favors those
MCOs who derive a larger % of earnings from the individual and small group
markets. The Medicaid levered names should also see some decline in enrollment
under this scenario if the mandate is struck down.”
Summary:
AET - higher
AGP - lower
CI - flat
CNC - lower
CVH - higher
HNT - higher
HUM - flat
MOH - lower
UNH - higher
WLP - higher
"Senario 6: Medicaid expansion declared constitutional. We view this as the status quo scenario as it upholds this portion of the act as written. For those names not particularly levered to Medicaid (Coventry, WellPoint, Humana and Cigna), there should be little impact regardless of the Medicaid outcome. For the MCOs with some exposure (UnitedHealth, Health Net and Aetna), the clarity created from this decision should be somewhat positive, with a much more positive impact to the Medicaid pure play names, in our view.”
Summary:
AET - higher
AGP - higher
CI - flat
CNC - higher
CVH - higher
HNT - higher
HUM - flat
MOH - higher
UNH - higher
WLP - higher
"Scenario 7: Medicaid expansion declared unconstitutional. This would be the worst case scenario for the Medicaid levered names, in our view, as the growth opportunity delivered by Medicaid coverage expansion would be off the table. Given the increased federal funding associated with the expansion, we believe it is unlikely that the states would choose to continue their efforts should this be declared unconstitutional. While this would be a negative for most of the MCO space in general given the focus on Medicaid as a growth opportunity, those with the least amount of earnings exposure to Medicaid would be less impacted. Of
course, we would note that Medicaid coverage expansion is but one of the
significant opportunities in front of the Medicaid group, which would still include
the continued shift by states to managed care from government run programs as
well as the oft-discussed dual eligible opportunity.”
Summary:
AET - lower
AGP - lower
CI - flat
CNC - lower
CVH - lower
HNT - lower
HUM - flat
MOH - lower
UNH - lower
WLP – lower
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