U.S. Health Care Reform Benefits Certain Sector Stocks Greatly: Which Ones Will Benefit The Most?
December 14, 2009 - The Wall Street Transcript has just published Consumer Health Services Report offering a timely review of the Health Services sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
View Details of This Special Report
Recent Wall Street Transcript Special Reports.
GREGORY K. NERSESSIAN, CFA, is Vice President and Senior Analyst in the equity research department at Credit Suisse, covering the managed care industry. Mr. Nersessian joined Credit Suisse in May 2006 after spending five years at Lehman Brothers, where he covered the managed care industry with primary coverage responsibilities for the Medicaid managed care and disease management industries. Mr. Nersessian received his MBA from the Darden School of Business Administration at the University of Virginia in 2001, prior to which he worked as a Research Analyst for Dreyfus and in the Private Client Asset Management division of Chase Manhattan's Private Bank. Mr. Nersessian graduated from Georgetown University in 1994 and has held a CFA charter since 2005.
TWST: As you look at the industry, are there any companies you see that are positioning themselves well to address the uninsured's needs?
Mr. Nersessian: I think a critical thing to understand is where the uninsured are, what states have a large percentage of uninsured. So for example, if you look at the 45 million uninsured Americans that we talked about, it's actually a very regional phenomenon. The top three states in terms of number of uninsured are California, Texas and Florida, and 16 million out of the 45 million reside in those three states. So you've got an issue where 35% of the uninsured live in 6% of the states, and that is just looking at legal residents. The 8 million or so undocumented residents would be in addition to those numbers, with concentrations in those three states as well. This creates a number of important implications for health care reform because when you're applying federal taxes and federal funding towards an effort to cover the uninsured, it's a redistribution of resources from states with low uninsured to states with high uninsured. And that's a key dynamic, which I think should be explored more than it has been.
From the standpoint of the managed care organizations, the issue is that the legislation under consideration in the Senate now would impose a series of financial assessments on managed care organizations regardless of where they do business and to what extent that they could participate in the expansion of the uninsured. Basically all managed care organizations across the country would be treated uniformly. So the stark reality I think is that many managed care organizations will be asked to contribute to the funding of health insurance reform but won't really stand to benefit because they aren't in states where there's a significant number of uninsured. Essentially if you're not in California, Texas and Florida, you are making your fair share of the contribution to the reform effort, but you really aren't seeing any benefit from coverage expansion. So the first point is that geographically, managed care organizations need to be positioned in the states where there are high numbers of uninsured.
The second thing managed care organizations need to do is to have a significant presence in Medicaid. As we mentioned, a large number of people that will get insurance through reform as it's currently contemplated would get it through Medicaid.
And finally, you need to have the characteristics of a plan that is going to participate effectively in an insurance exchange. You need have broad provider networks, you need to have an effective cost structure both medical costs and administrative costs, and you need to have a good service, a good brand name. Those will be the key differentiators going forward. Of course, this debate is still evolving and things can change, but based on the structure of the bills we have seen so far, those are the strategies we would expect to succeed.
The remainder of this 53 page Consumer Health Services Report can be immediately viewed by purchasing online.
The Wall Street Transcript is a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs and research analysts. This 53 page special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.
The Wall Street Transcript does not endorse the views of any interviewees nor does it make stock recommendations.
For Information on subscribing to The Wall Street Transcript, please call 800/246-7673