The Insurers We're Stuck With
Michael Homerick@homerick
+4.1%
since Sep 12
The idea
I don't love managed care insurers, but they're too embedded in how America pays for healthcare to be replaced anytime soon, and their recent pain came from medical costs outrunning premiums. I'm betting on a multi-year repricing cycle, so I'm heaviest in the large diversified insurers best positioned to reprice and endure, with a smaller stake in government-focused names for extra upside. Around that core I hold businesses that make care cheaper to deliver and administer. I'm keeping meaningful cash aside to build the position gradually rather than all at once.
What it owns
- The largest insurers have the scale and pricing power to raise premiums closer to medical costs over several years. · UnitedHealth GroupIt owns Optum, which gives it data on where medical costs are actually rising, letting it reprice premiums faster than rivals., Elevance HealthIt runs Blue Cross plans across multiple states with membership that is expensive to replace, anchoring the take's view that dominant insurers persist., Cigna GroupIt leans on employer coverage, the steadiest corner of managed care during cost spikes, and Evernorth adds pharmacy income independent of premiums., CVS HealthAetna mispriced Medicare Advantage heavily, making CVS the giant with the most room to recover if repricing works over the next several years.33%
- Insurers steer patients away from hospitals toward surgery centers, home care, and independent labs, so those businesses grow as insurers cut costs. · Quest DiagnosticsIt runs tests at a fraction of hospital lab costs, and insurers actively steer patients its way to cut claims., Tenet HealthcareIt is moving away from hospitals and into surgery centers, the exact shift from expensive to cheaper care that this take expects insurers to push., Encompass HealthIt operates rehab hospitals that cost insurers far less than acute care beds, winning as insurers keep steering recovery to cheaper settings., Labcorp HoldingsIt operates one of the two large independent labs, and insurers save money every time a test moves from hospitals to its network., Option Care HealthIt delivers IV drugs at home for a fraction of hospital prices, so every insurer cutting margins has incentive to send it more patients., Surgery PartnersIt operates only outpatient surgery centers, the purest version of the shift to cheaper settings embedded in this take., Addus HomeCareIt provides home care aides funded mostly by Medicaid, keeping people out of nursing homes that cost states significantly more.23%
- Employers facing rising healthcare costs depend on firms that design, broker, and manage their employee health benefits. · HealthEquityIt runs health savings accounts that employers shift workers into through high-deductible plans, a trend independent of how insurer margins recover., Willis Towers WatsonIt advises companies on benefit design as costs climb, so the cost pain driving this take is its primary demand driver., Arthur J. GallagherIt gets paid to help employers buy and manage health coverage, and rising premiums actually raise the fees it collects., ProgynyIt sells fertility coverage that employers add to compete for workers, needing client count to keep growing to justify its position.13%
- Companies that automate claims processing and paperwork win as insurers work to operate with lower overhead. · Waystar HoldingIt sells software that gets claims paid with fewer denials and less back-office labor, a cost the whole system wants eliminated., DoximityIt saves doctors time on referrals and scheduling, and earns revenue from drugmakers and health systems for reaching them., Evolent HealthIt is hired by insurers specifically to bring down specialty care costs, making it a direct bet that plans will pay for outside cost reduction.9%
- Government-focused insurers have fallen further and could see larger recoveries, adding upside without changing the take's direction. · HumanaIt is nearly a pure bet on Medicare Advantage being repriced after seniors used far more care than plans expected., CenteneIt is the largest Medicaid insurer, and states are already raising rates as they see costs run hot, making repricing visible within the take's horizon., Molina HealthcareIt runs Medicaid plans cheaply, so when state rates reset higher the improvement flows directly to profit.7%
- Cash15%