The Charles Schwab Corp. says that health care stocks will increase due to Obamacare now that the U.S. Supreme Court decided to uphold the law. So how will health care stocks climb from the implementation of the health care reform law?
We might see some mergers taking place especially if this involves Medicare and Medicaid. Recently, WellPoint Inc. bought the Amerigroup Corp. for $4.5 billion and paid in cash. The day WellPoint announced the merger, stocks of Amerigroup increased by 38 percent. WellPoint is a huge, managed care company while Amerigroup is the largest, private Medicaid managed care firm.
As we all know, Medicaid is not a huge money-maker for insurance companies. So why did WellPoint suddenly buy the largest Medicaid company in the country when Medicaid and Medicare only offer small profits?
By 2014, the health care reform law’s Medicaid expansion will kick in. The federal government expects approximately 20 million people to become eligible for Medicaid in 2014. This means, insurance companies offering Medicaid will also experience increased profits with the influx of Medicaid and Medicare enrollees.
According to The Huffington Post, WellPoint will get even bigger than they did with the Amerigroup merger. They will gain more than two million Medicaid members as a result of the merger.
Although the Supreme Court gave the states the privilege to opt out of Medicare expansion without paying a penalty, with the huge incentives and funding that the federal government plans to give states who do decide to expand their Medicaid, resisting this offer would be difficult. Aside from the billions of dollars in federal grants, the administration will pay 100 percent of the cost for the first two years, then 90 percent for the succeeding years until 2020. That’s definitely a win-win situation for most states.