Potential Healthcare Policy Changes Create Opportunities for MCOs, Caregivers

Potential healthcare policy changes look set to expand U.S. insurance rolls through existing programs like the individual exchanges and Medicaid. That expansion provides opportunities for managed-care organizations and caregivers, which should largely offset (even override, in some cases) the potential U.S. corporate tax rate increase needed to pay for various U.S. government initiatives. We have confirmed our moat ratings and adjusted our fair value estimates for these effects, with relatively mild changes for the MCOs and much larger increases for some caregivers related to the latter's more significant margin expansion prospects and leverage that magnified that effect on residual equity values. This view follows our previous research on potential policy changes that highlighted the public option as the key downside risk for these sectors. With the public option not being considered in potential policy changes, we think the policy landscape is rife with opportunity rather than risk for MCOs and caregivers.