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Stock Strategist Industry Reports

Healthcare Policy Changes Could Result in Opportunities

Expanded insurance rolls would be good news for the managed-care organizations and service providers we cover.

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Potential healthcare policy changes look set to expand U.S. insurance rolls through existing programs like the individual exchanges and Medicaid. That expansion provides opportunities for managed-care organizations and caregivers, which should largely offset (and even override, in some cases) the potential U.S. corporate tax rate increase needed to pay for various government initiatives. We have adjusted our fair value estimates for these effects, with relatively mild changes for the MCOs and much larger increases for some caregivers related to the latter’s more significant margin expansion opportunities and leverage that magnifies that effect on residual equity values. Our September 2020 research on potential healthcare policy changes highlighted the public option as the key downside risk for these sectors. Now, with the public option not being considered, we think the policy landscape is rife with opportunity rather than risk for MCOs and caregivers.

Julie Utterback does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.