Insurers and Elderly Care Providers Plummet on Spending Cuts

The major reductions in Medicare payments to nursing home operators and lingering concerning concerns surrounding the liberal Medicaid cuts led healthcare stocks lower today. Especially hard-hit were managed-care companies, which fell sharply alongside the rest of the sector.

Earnings for managed-care companies will have less of an impact on share prices than usual during this uncertain time. Proof of this was the rosy second-quarter earnings report from Medicare-tied Humana Inc. (HUM). The company announced second quarter net income as $460.3 million, or $2.71 a share, compared with $340.1 million, or $2 a share, for the same period a year ago. Revenue was $9.28 billion against last year’s $8.59 billion, a rise of 35 percent. Adjusted earnings were $2.50 a share beating analyst expectations $2.07 a share. Humana, one of the nation’s biggest providers of privately run Medicare Advantage health plans for seniors, was undeterred by the recent decisions, revaluating its full-year earnings outlook to a range of $7.50 to $7.60 a share from $6.70 to $6.90. In spite of the guidance and improvements, the spending cuts proved to be an insurmountable obstacle for insurers and Medicaid related companies today. Humana fell sharply in morning trading.

The losses at Humana; however, were minor in comparison to Amerigroup Corp. (AGP), shares of which have fallen close to 20 percent following reports that Amerigroup would have to return a large accidental infusion of Medicaid reimbursements to the state government of Georgia.

The descent of nursing-home operators, which began Friday started the descent of a number of stocks which are likely to continue to push lower until analysts can better assess the impact this will have on business or companies find a way to make up the difference. Outside Amerigroup and Humana, Wellcare Health Plans Inc. (WCG) also took a hit. Shares are down over 10 percent since Thursday after steadily rising over 58.5 percent over the course of the year. A strong business model and history of success was no match for the cuts. WellCare Health Plans, Inc. provides managed care services for government-sponsored healthcare programs in the United States, meaning their business, which offers Medicaid, Medicare and prescription drug plans is heavily exposed to the cuts.

Other companies that were hard hit by the spending cuts, which equal $900 billion, include United Health Group Inc. (UNH) and Medtronic Inc. (MDT).  WellPoint Inc. (WLP), insurer Aetna Inc. (AET) and Cigna Corp. (CI) were all lower between 4 and 5 percent on the day.