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Three Companies That Could Be Impacted by Health Care Reform


A look at three health insurance companies that could be affected by the Patient Protection and Affordable Care Act.


According to a recent CNN article, approximately 2.5 million more young adults in the United States are now receiving health coverage as a part of President Barack Obama's health care reform, the Patient Protection and Affordable Care Act.

A part of the reform that became effective in September allows these young adults to stay covered under their parents' insurance through age 26.

As the rest of the provisions slowly take effect, more and more health insurance companies will be affected. The number of subscribers will most likely go up, as everyone will be required to buy health insurance.

On the other hand, the health insurance companies might see their profits diminishing, as the new law prevents them from charging higher premiums to clients who have pre-existing conditions. Additionally, the insurers will not be allowed to establish spending caps in the future, which may also have an impact on the companies' bottom lines.

How might these changes affect your investments? Benzinga took a look at three health insurance companies that could be affected by the Patient Protection and Affordable Care Act:

Market Cap $19.6 Billion
P/E Ratio 10.71x

Aflac is a general business holding company, and its principal business is supplemental health and life insurance. The company's shares have been under heavy pressure this year due to its exposure to Japan, and the stock is down 25% year-to date. The past three months have shown more positive signals, though, as the shares have gained 20%.

Any changes to the healthcare law are likely to have a direct impact on Aflac, but it's exposure to Japan is likely to limit the impact.

2. Aetna (AET)
Market Cap $14.4 Billion
P/E Ratio 8.39x

Aetna offers a range of traditional and consumer-directed health insurance products and related services, including medical, pharmacy, dental, behavioral health, group life, and disability plans. The stock has performed very well this year and is up nearly 30% year-to-date.

Aetna also has international operations, so the changes in the American heath care law have a direct but limited impact on the company.

3. Humana (HUM)
Market Cap $14.0 Billion
P/E Ratio 10.92x

Humana provides full-service benefits and wellness solutions, offering an array of health, pharmacy, and supplemental benefit products for employer groups, government benefit programs, and individuals. In 2011, Humana has been the strongest performer out of these three health insurance stocks. Its shares are up over 50% year-to-date.

Humana does not have international operations. Thus, any major changes in the US health care law will most likely have a significant impact on the company.

Overall, investors should keep a close eye on the political debate on the Patient Protection and Affordable Care Act, or "Obamacare," as any changes or delays in the implementation of the law may affect these insurers. The last provisions of the law are set to become effective in 2014, so the upcoming presidential election is likely to play a key role.

The election of a Republican candidate is likely to bring major changes to Obama's health care reform, and most of the GOP candidates have stated they would repeal the health care bill. Alternatively, the re-election of Obama would essentially guarantee that all the changes will become effective as scheduled.


Bullish: Traders who believe that the health care bill, or "Obamacare," is positive for the health insurers might want to consider the following trades:
  • Go long Aflac, Aetna, Humana, or any other health insurer
  • Go long SPDR S&P Insurance ETF (KIE)
  • Also health care providers might benefit. Thus, going long Health Care SPDR ETF (XLV) might be a good idea.
Bearish: Traders who believe that the health care bill is negative for the health insurers may consider alternative positions:
  • Short the health insurers when the bill becomes fully effective.
  • Short iShares Dow Jones US Health Care ETF (IHF), if you believe that the health care providers will suffer.
Editor's Note: This content was originally published on by Tuomo Kallio.

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Twitter: @Benzinga
No positions in stocks mentioned.

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