Centene Corp Is A Healthy Alternative To NIB Holdings Limited and Medibank Private Ltd

Medibank Private Ltd (ASX: MPL) recently reported a turnaround in its market share and posted a 7.7% rise in its full-year operating profit. 

The growth in market share is a welcome development as Medibank has been losing customers to one of its biggest rivals – NIB Holdings Limited (ASX: NHF) – over the past two years.

An Industry in Transformation

Medibank’s top management, led by its CEO Craig Drummond, is optimistic of the company’s growth trajectory given its dual-brand offering (Medibank Private and AHM). He also mentioned Medibank’s continuing move and transformation into a broader health services company.

Like its other rivals in the competitive healthcare insurance sector, Medibank Private is seeking ways to expand into other health-related areas to augment its health insurance business.

Medibank reported that it expects to complete its $70 million acquisition of a national in-home care business with clinical capability. This means the company is well on its way to expand into direct health care services, a growing trend in the US where health insurance companies work with a network of medical clinics and healthcare professionals.

Another major health insurance provider, NIB Holdings reported a solid profit and dividend payment but signaled a flat guidance for the coming year.

Domestic Health Insurance, Not In The Pink of Health

The Australian insurance industry is dominated by big players including NIB Holdings, Medibank Private, Insurance Australia Group Ltd (ASX: IAG), QBE Insurance Group Ltd (ASX: QBE), Suncorp Group Ltd (ASX: SUN) and Steadfast Group Ltd (ASX: SDF).

It is no secret that the domestic healthcare insurance sector is going through a rough patch as Australians re-think their healthcare coverage.

The latest industry figures showed an estimated 47% of Australians have purchased hospital cover while 55.7% have purchased extra cover.

However, over the past 2 years, membership and subscription to health insurance have been on the decline. In 2016, 15% of people surveyed said they were preparing to cancel their health insurance cover. Nearly half of those cited rising premium costs as the main culprit for pulling out of their healthcare cover.

Consolidation is expected in this industry as more competition is anticipated while members re-asses their level of cover.

In Search of Growth Elsewhere

As the industry anticipates flat growth in the coming years, it is no wonder that major insurers are looking for other growth segments.

For NIB, its eyes are focused on the rapidly growing travel insurance sector.

Earlier this year NIB bought QBE’s travel insurance business for $25 million. NIB expects the consumer business will become a major part of its earnings in the coming years.

According to NIB CEO Mark Fitzgibbon, travel insurance is much closer to health insurance than most imagine given that more than 60% of travel insurance claims are medically related.

He also pointed out that the increasing level of international travel is a megatrend that NIB is closely watching.

At the same time, NIB said they are looking to some US counterparts and how they use big data and advanced technologies to help patients manage their health better. NIB’s top management said they are seriously looking at new technologies for active patient care management, which will form part of their offering.

There is no question that healthcare insurance providers will continue to face tough market conditions as customers of all age groups – from millennials to retirees – rethink and review their health insurance covers.

However, it is also undeniable that we all need a certain level of medical and health cover, even the most basic. This means that the health insurance industry will continue to play a role and will continue to generate ongoing profit in the coming years, albeit in a more challenging environment.

Centene Corp Makes Healthy Growth From Obamacare

As Australian healthcare insurers brace for flatlining growth and an increasingly competitive landscape, a once unknown company in the US is reaping healthy profits from its medical and health-care related services.

Centene Corp (NYSE: CNC) may not be as familiar to most Australians as Medibank or NIB Holdings, but in the US where the cost of healthcare has been a major concern for many residents, this publicly listed Fortune 500 company has more than 12 million members in government-sponsored healthcare programs. This huge membership number is one of the big factors behind Centene’s impressive growth.

Stock Price Tripled in Two Years

Over the past decade, Centene’s stock price has increased by a factor of sixteen, with a tripling in price in just the last two years alone.  Since 2014 annual revenue has climbed from $10.9 billion to more than $40 billion, and net income has swelled more than threefold, despite thin margins according to the company’s financial reports.

A modest corrective dip in the upward trend saw the stock trading around the US$100 level in February this year. Since then, steady gains have seen prices probe all-time highs above the US$140 mark.

A significant factor behind Centene’s growth is the Affordable Care Act (ACA – also known as Obamacare). This gives government subsidies to even the poorest Americans who need medical and health cover. Under the ACA, it is illegal to refuse medical insurance coverage to people with pre-existing physical or mental conditions.

Unlike other health insurers that jumped into the government-backed scheme earlier, Centene took a slow and gradual approach. It focused on a small number of areas first to learn more about the market. In some of the regions in which it operates, other providers have since pulled out, leaving Centene as the sole provider of ACA benefits.  Centene has been richly rewarded and membership numbers continue to grow.

In a recent interview, Centene CEO said his biggest challenge these days is finding office space for the company’s growing staff contingent. The company is still in hiring mode despite having more than 31,000 employees across the US. The CEO said he needs more people to handle new business.

Patient-Care App for Better Patient Care

With a track record of more than a decade in providing healthcare insurance to state-sponsored and employer-sponsored programs, Centene has also had time to develop its own software tool – TruCare – which analyses customer data to generate patient to-do lists. This serves as a preventative healthcare tool that is updated every 24 hours.

According to Centene, this technology has allowed them to identify which patients would need to visit a doctor immediately or would require other preventative care. Centene’s management said the software has helped them to identify those who appear most likely to suffer such costly conditions as diabetes and cardiovascular disease and intervene before small problems become big ones. 

As more and more Americans welcome the benefits of the Obamacare and as Centene continues to reap the benefits of its efficient operations and use of technology, Centene shares look set for more healthy returns in the years to come. Despite possible threats that political maneuvering may put a stop to some aspects of the Obamacare program, Centene Corp is well-placed to grow its membership number and boost its profitability.

If you are looking for alternative healthcare stock in your portfolio and would like to diversify away from the ASX-listed companies, it may be worth considering Centene Corp.

This article was written by Alex Douglas, Managing Director of Monex Securities Australia (AFSL: 363 972), part of the Monex Group Inc.