Top-Notch Health Insurance Shares to Invest in by 2025
Investing in companies that provide essential services, such as health insurance, can be a smart move for building wealth. Health insurance is a crucial necessity for many Americans, making these stocks a potential goldmine. So, what are the top health insurance stocks to keep an eye on in 2025, and what should you know before diving in? Keep reading to find out!
Top Health Insurance Stocks
1. UnitedHealth Group (UNH)
UnitedHealth Group, the world's largest health insurer, offers various health plans for employers and individuals. Its UnitedHealthcare business unit is a significant player in Medicare Advantage, Medicare supplemental plans, and Medicaid markets. The company's Optum segment, which provides information and technology-enabled health services, is the primary growth driver for UnitedHealth Group.
Recent acquisitions, like Change Healthcare in October 2022, have contributed to the company's growth. However, some pushback on UnitedHealth's dealmaking activity may impede further growth, such as the U.S. Department of Justice trying to block its purchase of Amedisys.
2. Elevance Health (formerly Anthem, Inc.)
Elevance Health, a significant competitor to UnitedHealth Group, operates Blue Cross and/or Blue Shield plans in 14 states but is licensed to sell health insurance throughout the country. The health benefits segment generates about 88% of Elevance's total revenue, but Carelon Services, its fastest-growing unit, focuses on healthcare services like behavioral health, health and wellness programs, integrated care delivery, palliative care, and utilization management.
3. CVS Health
CVS Health, often known as a pharmacy retailer, also owns CVS Caremark, one of the largest pharmacy benefits managers (PBMs) in the country. Its Aetna acquisition makes it a top health insurer as well.
CVS Health's healthcare benefits segment, which consists mainly of Aetna, generates over one-third of the company's total revenue and experiences rapid growth, mainly from its Medicare and commercial insurance products.
4. Centene
Centene focuses primarily on the Medicaid market, serving participants in programs like the Children's Health Insurance Program and Temporary Assistance for Needy Families. The company generates around 65% of its total revenue from Medicaid plans, making it a solid investment choice for investors.
What to Look For in Health Insurance Stocks
When it comes to health insurance stocks, there are certain key metrics to consider:
- Revenue mix: Understanding a company's revenue mix helps you gauge its growth potential and weaknesses. Look for companies with diversified revenue sources.
- Medical care ratio (MCR): A high MCR implies that a significant portion of a company's premium revenue goes towards medical costs, which might impact profitability.
- Diversification beyond health insurance: Pay close attention to health insurers that have ventured into other sectors, as they can impact the company's future growth and associated risks.
Risks for Health Insurance Companies
Investing in health insurance companies involves several risks, including:
- Regulatory changes: The health insurance industry is heavily regulated at the federal and state levels, and changes in regulations may affect the profitability of insurance companies.
- Reimbursement pressure: Health insurers must secure approval for insurance premiums from state regulators, which can impact profits if they disapprove of higher costs. Medicaid and Medicare programs also set reimbursement rates, which may impact profits.
- Unforeseen medical costs: Medical costs can exceed expectations, especially in the case of pandemics or other health crises.
Opportunities for Health Insurers
Despite the risks, health insurers are poised for growth due to various opportunities, such as:
- Aging population: The increased need for Medicare Advantage and supplemental plans, caused by an aging population, presents a significant growth opportunity for healthcare companies.
- Government support: The Trump administration's continued support for Medicare Advantage plans may further boost profits for participating insurers.
Conclusion
Investing in health insurance stocks can be a smart move with rewards for those willing to take on the associated risks. By understanding key factors like revenue mix, medical care ratios, and opportunities present in the market, investors can make informed decisions about which stocks to invest in.
Based on the current market trends and the discussed top health insurance stocks, it would be prudent for investors to consider diversifying their finance portfolio by investing in these companies. By examining the financial health of these companies, such as their revenue mix and medical care ratios, investors can make informed decisions regarding where to allocate their money in the investing sphere.
Moreover, given the opportunities for health insurers, such as the growth potential due to an aging population and government support for Medicare Advantage plans, investors may find these stocks to be promising long-term investments for their money management strategies.
