Bernstein: It's possible some price reform could be achieved for the healthcare marketplaces

? (Anchor) 00:00.070

why has it been such a goodyear for these health insurers lance

Lance Wilkes (Senior Equity Analyst) 00:05.110

you know it's it's been really a year where for certain areas of healthcare in particular areas that have been related to drug spend or real significant turnarounds in business those have performed pretty well so CVS has been a real nice beneficiary in in those spaces i'd say

Lance Wilkes (Senior Equity Analyst) 00:22.670

for the broad space what you're really seeing is maybe a stabilization in some of the health insurers like united healthcare which is a really large large-cap player in this space where they really have been going through a super cycle that's impacted them and pricing really

Lance Wilkes (Senior Equity Analyst) 00:37.830

related to the government programs as you've mentioned before this and i think by the second half of the year you really start started to see some stability names like united healthcare up about twenty five percent you know since august since they reported this year when

? (Anchor) 00:53.550

you're looking at next year how much and and i'll just say i cover insurance as well not health insurance but everything else and i have pointed out this year that when a company like travelers has an earnings call in a quarter and posts record profits it's a big potential PR

? (Anchor) 01:11.310

problem because people are paying premiums that they feel in many cases are unaffordable and they don't they don't dice where the profits are coming from are they coming from investments in in assets or they coming from premiums in this case in property insurance it's much of it

? (Anchor) 01:31.720

is coming from the investments tell me about the profits in health insurance and whether that works in a similar way to undermine the rates they're trying to charge yeah

Lance Wilkes (Senior Equity Analyst) 01:42.190

that's a really interesting point and and i think property insurance is actually a great backdrop for understanding what's going through health what's happening in health insurance right now because in health insurance you've got this policy pressure because costs have been

Lance Wilkes (Senior Equity Analyst) 01:55.310

rising so much and and and then that's coupled with really what's been a rate shock to these companies and what you're seeing in the government side on most of these businesses is record low margins negative margins at an industry level in the medicare and medicaid programs as

Lance Wilkes (Senior Equity Analyst) 02:15.350

for the elderly and and a broad safety net program and so consequently when you're talking about like a united healthcare margins are about half of what they would ordinarily be and actually lower than that if you're just talking about their insurance sector and when you look at

Lance Wilkes (Senior Equity Analyst) 02:30.750

the other large cap names like elephants which is a big blue cross organization same sort of thing so when they're being called in to see president trump right now this is not the worst time to be called in it is the as just as you said it's the worst time to be called in when

Lance Wilkes (Senior Equity Analyst) 02:45.470

you're at record profits really right now you're at an industry level record lows and actually negative margins in in some sectors and so you're probably in a better position to be explaining maybe the solutions that you can provide i don't know that you're in a great position

Lance Wilkes (Senior Equity Analyst) 03:01.390

to fight back on on the concerns that they're legitimate the consumers have but i think this is a a setup for what would be a traditional insurance cycle saying again harkening back to what you just spoke about on the property insurance side OK

? (Anchor) 03:14.470

so when the president says he would like to see these managed care organizations cutting their prices by fifty to seventy percent is that anywhere in the realm of possible

Lance Wilkes (Senior Equity Analyst) 03:27.350

so this is one of those places where when you look at all of the business and you know three hundred three hundred and thirty million people who are covered with health insurance across the country i would say no there's nothing like that that's going to happen and in fact you

Lance Wilkes (Senior Equity Analyst) 03:43.310

really need to see prices increase that the insurance companies are charging in in a number of areas but when you're talking about the narrow topic that the president 's talking about there and what he's really talking about is the political topic of the day which is the

Lance Wilkes (Senior Equity Analyst) 03:58.830

marketplace or obamacare which is really the form of individual insurance that roughly twenty four million people have today for that product what you're talking about is a product that was reformed by president obama and when it was reformed it became much more comprehensive it

Lance Wilkes (Senior Equity Analyst) 04:17.550

covers much more and consequently costs much more and so what what the president 's really talking about has been a republican proposal since twenty seventeen has been to shrink what is covered in that to make it more like a employer health insurance like catastrophic care or

Lance Wilkes (Senior Equity Analyst) 04:34.790

something like that he would he would consequently cover less and so it cost less and so that that is something that could be accomplished couldn't be accomplished just by the health insurers you're really talking about some sort of congressional reform to change the

Lance Wilkes (Senior Equity Analyst) 04:47.990

characteristic of the product though OK

? (Anchor) 04:50.790

so if that goes through if there's some sort of attempt for these managed care organizations to tackle costs how would that affect their stock price what should investors be watching for yeah and

Lance Wilkes (Senior Equity Analyst) 05:04.380

i think that's that's one of the great opportunities here because these health insurers when you're talking on this particular topic you're talking about a lot of policy uncertainty but you're really talking about a product line that's going to be zero percent of CVS business

Lance Wilkes (Senior Equity Analyst) 05:21.900

next year as they exit this business you're talking about a business that's going to be one percent of united healthcare 's business next year as they shrink by two thirds in this business this is a very small set of the overall health insurance market the more important aspect

Lance Wilkes (Senior Equity Analyst) 05:37.900

investors need to be looking at is this traditional insurance cycle is taking place here and it's really a super cycle and what you're seeing just like i mentioned with those companies a withdrawal of competition a withdrawal of capital that's going to lead to firming of prices

Lance Wilkes (Senior Equity Analyst) 05:51.780

improvements in margin and right now this is an industry that normally isn't cyclical and so consequently margins are down around fifty percent but multiples are also down multiples are not anticipating a recovery in margins which might be you know more traditional way that a

Lance Wilkes (Senior Equity Analyst) 06:08.660

cyclical business would react to industry dynamic like this