Health insurer stocks heated up in July.
UnitedHealth Group, Anthem and several other insurers outpaced the broader market in what has been an otherwise choppy year for the industry. The industry is also holding up surprisingly well during the most recent round of corporate earnings. It is showing solid profit growth while companies within the broader S&P 500 are expected to report an overall contraction.
Stocks within the sector spiked on July 11 after President Donald Trump nixed a regulation that would have changed how prescription drug rebates work for Medicare beneficiaries. The rebates are paid from drugmakers to insurance companies and middlemen and changes would have sent them directly to seniors. Yanking the regulation was a win for insurers and pharmacy benefit managers, which run prescription coverage for employers, insurers and other big clients.
UnitedHealth and Anthem, the two largest insurers in the U.S., each beat Wall Street estimates with their second quarter results and raised their profit forecasts for the year. Each reported solid gains in their pharmacy benefit manager operations. UnitedHealth's PBM, OptumRx, added more customers and expanded into specialty services, including the infusion of drugs at patients' homes.
The bumpy ride this year has been partly driven by Democratic presidential candidates and their calls for changes, some drastic, to the health insurance system. Some of those proposals have spooked investors, including Elizabeth Warren's call to completely scrap private insurance.
Analysts, though, have brushed off worries over any actual impact of the plans.
"We continue to view drastic changes to the current health care system as unlikely and instead believe buildout and tweaks are more practical and realistic, if anything at all," wrote Citi analyst Ralph Giacobbe in a note to investors earlier this month.