3 Stocks Benefiting from Boomers Embracing Medicare
Feb 29th 2012 11:01PM
Updated Feb 29th 2012 11:02PM
Getting older is seldom considered a positive thing in this country, and almost everyone has heard an ancient relative lament how "it's hell to get old." We all get there, though, if we're lucky -- and that is what's happening to the baby boomers. More than one industry is taking advantage of this trend, but most notable is the managed-care industry.
Retiring boomers will swell the ranks of Medicare Advantage customers
One such company in the industry isHumana (NYS: HUM) , whose Q4 results revealed an 86% earnings rise since this time last year. That's mighty impressive, and I'll bet you can guess the secret sauce: seniors, and lots of them. Of course, the company also acquired SeniorBridge last fall, a company specializing in elder home care. Currently, Humana is planning to increase its membership in Medicare Advantage programs, which the company sees as essential to its growth.
Cigna (NYS: CI) is another healthcare provider following this model. Last October, they purchased HealthSpring, thus adding to its ranks approximately 340,000 elders already participating in Medicare Advantage plans. Another big managed-care player, WellPoint (NYS: WLP) , acquired California-based CareMore last summer, in an effort to boost its contingent of Medicare Advantage customers. Simply put, the government's senior healthcare plan means big profits. Medicare Advantage, also known as Medicare Part C, allows recipients to purchase their care through private insurers, as well as purchase additional benefits.
The baby-boomer generation, born between 1946 and 1964, is just beginning to become eligible for Medicare benefits. Experts estimate that 70 million of them will enter the system in the next two decades, and managed care companies would like to snag as many as possible for the enhanced plans they offer. According to the Kaiser Family Foundation, Humana is already one of the biggest players in the Medicare Advantage field. For its part, Humana estimates that it will enroll at least 40,000 additional members in the plan in 2012, for a total of nearly 270,000.
Providers received a bit of good news recently, as the federal Centers for Medicare and Medicaid Services foresaw a gain of 2.3% in Medicare Advantage reimbursement rates for next year. Although not official yet, this is much better than the stagnant growth or slight decline that analysts had previously expected.
Given these numbers, it seems to me that these managed-care companies are particularly well positioned to take advantage of the influx of retirees expected to segue into the Medicare healthcare program over the next decade or two. Even the planned cuts to Medicare over the next few years mandated by the healthcare reform law may not be a roadblock to increased profitability, as these entities expand upon the types of health plans they offer under the Medicare Advantage program. Maybe the "graying of America" isn't such hell after all.
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At the time this article was published Fool contributor Amanda Alix owns no shares in the companies mentioned above. Motley Fool newsletter services have recommended buying shares of WellPoint. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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