As the COVID-19 pandemic continues to wreak havoc on different business sectors, the health insurance industry is too not left unscathed by its adverse impact. Health insurance companies have been witnessing a drop in premium volumes as the unemployment level rose. A low-interest rate environment is affecting insurers’ profitability as well.

Further, a slowdown in global business and a decrease in Commercial business dented the margins of the companies.

Nevertheless, the health insurance industry is poised well for growth on the back of an aging American population. As situation is improving, the companies are expected to bounce back on the back of rising enrollment and top-line growth, increasing contribution from complementary businesses, product modifications, improved services, expansion of international operations, better claims handling, medical cost management, technological investment and upgrade, mergers and acquisitions, and healthy balance sheets.

The industry is continuously evolving with cross-industry M&A activity that is reshaping business profiles and reducing the number of players, which gives insurers greater power to negotiate with hospital and drug companies. For example, Centene Corporation (CNC - Free Report) acquired WellCare (in January 2020). The consolidated entity now has a wider scale and diversification with more than 12 million Medicaid and around 5 million Medicare members. In total, it has around 22 million members across 50 US states.

The companies in this industry could gain this year from a more gradual resumption of discretionary and elective care.

Moreover, Bernie Sanders’ exit from the presidential race has been a mojo for health insurers. Sanders’ policies haven’t been positive for health insurance stocks. He favored Medicare-For-All and intended to abolish private insurance, which were detrimental to health insurers’ interest.
 
In fact, now the presidential campaign narrows down to Joe Biden and the ruling President Trump. Both incidentally argued that proposals, such as Medicare-For-All are too costly, which is undoubtedly a win-win scenario for health insurers.

 
It is also believed that a decline in Medical Loss Ratio (MLR) will provide some cushion to the companies’ performances. It is the ratio of premium spent on claims. Since the hospital’s elective procedures and surgeries are put on hold, this will positively impact the MLR of health insurers in the form of lower claim outgo. We expect that a decline in MLR will aid insurers’ margins.

Companies like Athem Inc. (ANTM - Free Report) have taken initiatives to enhance their Telehealth services. Per the company's last earnings call, it witnessed more than 170,000 downloads of the app and a 250% surge in virtual care engagements. Given the current scenario, demand for virtual care services is here to stay.

The industry currently carries a Zacks Industry Rank #83, which places it in the top 33% of 254 Zacks industries.

The Medical HMO industry has grown 19.8% in a year’s time, outperforming the S&P 500 composite’s increase of 11.1%.

Stocks on the Watchlist

Let us take a look at the stocks that should remain in focus right now.

Here we pick top three healthcare bets that have an impressive VGM Score and a positive earnings estimate. The companies hold potential to retain a purple patch going forward. 

UnitedHealth Group Incorporated (UNH - Free Report) has been benefiting from higher segmental contributions. It has a Zacks Rank #3 (Hold) and a VGM Score of B. For 2020’s earnings, the Zacks Consesnus Estimate is pegged at $16.24, reflecting an upside of 7.5%. In a year’s time, the stock has rallied nearly 28.9%, outperforming its industry’s growth of 19.8%.

Anthem is well-poised for growth on the back of its rising membership and a solid 2020 outlook. It has a Zacks Rank of 3 and a VGM Score of A. For 2020, its earnings estimate stands at $22.23, suggesting an upside of 14.4%. In a year’s time, it has gained 6.4%, underperforming its industry’s growth of 19.8%.

Molina Healthcare, Inc. (MOH - Free Report) has a Zacks Rank of 3 and a VGM Score of A. The company's promising top line and a strong capital position are impressive. The company reaffirmed its initial guidance despite the COVID-19 effect. For 2020, its earnings estimate stands at $12, implying a hike of 3.72% from the figure reported for 2019. In a year’s time, the stock has surged nearly 28.1%, outperforming its industry’s growth of 19.8%.

Humana Inc. (HUM - Free Report) retained its 2020 guidance amid the current market volatility. The company is well-poised for growth on the back of its strategic initiatives and solid Medicare business. It has a Zacks Rank #2 (Buy) and a VGM Score of A. Its earnings estimate stands at $18.55, hinting at an upside of 3.81%. The stock has soared 64.1% in a year’s time, outperforming its industry’s increase of 19.8%.