Health Plans Transforming Themselves

As the chart below shows, the five largest health plans have thrived since President Obama signed the Patient Protection and Affordable Care Act into law, outperforming the S&P 500 by between ten and sixty percent. Beginning a few years ago, commercial plans began diversifying away from their core underwriting and ASO franchises. In recent months and to market cheer, they've accelerated these efforts, in order to combat eroding margins and the full impact of health reform.

The Wall Street Journal discusses this strategy in detail here.

Some questions to consider:

• Are health plans more than making up for lost margins and creating more powerful businesses?
• Do their diversification efforts materially disrupt the balance-of-power with providers? If so, is consolidation the only response providers have?
• Could a different player—a smaller-sized insurer, for example—execute an alternative strategy and roll up out-of-favor underwriting and ASO operations?
• What happens if the U.S. Supreme Court strikes down the individual mandate, or the health reform law fails to reach full impact? 
• What's the likelihood of underwriting competition going the other direction and intensifying?

Click on chart to expand

Source: Google Finance