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The bull market, which is about to become the longest running in recent history, has produced healthy returns for investors. The is up well over 300 percent over the last nine years, but health insurance stocks have logged even more impressive gains. The S&P Managed Care sector, made up of the largest insurers, has gained more than 1,100 percent during the market's bull run. That's more than twice as much as the gains in the biotech sector. The iShares Nasdaq Biotech Index ETF is up about 500 percent during the period. Yet, in March 2009, when the stock market hit bottom, health insurance stocks hardly seemed like a sure bet. In the lead up to the passage of the Affordable Care Act, the threat of a single-payer plan and new Obamacare regulations weighed on insurers. "The perception was that the Affordable Care Act was going to be bad for health insurers," explained Wells Fargo analyst Peter Costa, "and insurance stocks were really very broken." "In April of 2009 they were at the deepest discount to the market that they'd been since the 1990s ... (trading) at a 50 percent discount to the S& P 500 forward price earnings multiple," said Matt Borsch, health-care analyst at BMO Capital. Nine years later, two of the biggest health-care winners have seen large growth in part because of Obamacare.

The Medicaid boom

Medicaid expansion under the ACA has resulted in nearly 15 million people gaining coverage under the government health program for the poor and disabled. At the same time, over the last decade, states have increasingly turned to insurers to manage their Medicaid programs. Medicaid insurer WellCare Health Plan's shares have gained more than 4,000 percent since March 2009, while its membership has nearly doubled to 4.3 million, and its annual revenues have nearly tripled from $6.9 billion to an estimated $18.7 billion this year. WellCare shares continue to outperform. The stock is up 46 percent year to date, trading just below analysts' mean price target of $296 per share. The high analyst target of $325 per share would imply another 10 percent gain over the next 12 months. Rival Centene's shares have gained nearly 1,800 percent over the last nine years. Its membership has grown through a series of acquisitions from 1.4 million in 2009 to 12.3 million in its most recent quarter, and annual revenues have ballooned from $3.4 billion to an estimated $59.8 billion this year. Centene is up 42 percent year to date, trading near record highs; the high analyst price target of $160 on the stock implies another 11 percent gain over the next 12 months. At the same time that the Medicaid business has expanded, the Medicare has seen big growth over the last decade as more baby boomers have aged into the government health plan for seniors. For the major health insurers that has meant that their government business has grown faster than the commercial employer and individual insurance plan business. Government plans now account for more than 50 percent of the industry's insurance revenues.

More diverse businesses

Government plans have been one of the growth drivers for the nation's largest insurer, UnitedHealth Group, which is up 19 percent year to date, and has seen shares gain nearly 1400 percent over the last nine years. United's health plan membership has grown from 32 million to nearly 50 million over the last nine years; its Medicaid and Medicare membership has more than doubled, during the period. But new business segments outside of health insurance have a played big role in growing the health-care giant's annual revenues from $87 billion in 2009 to an estimated $225 billion this year. The health services and products under the Optum division have become a key driver of top-line growth. "They diversified and started gaining non-insurance businesses," said Deep Banerjee, health-care credit analyst at Standard & Poor's. United's Optum unit now accounts for 20 percent of revenues, and includes data analytic services, pharmacy benefit management, physician practices and outpatient surgical centers. Banerjee notes that revenues from the services businesses are not subject to the ACA regulatory caps, which require insurers to spend at least 80 percent of premium revenues on medical care. That makes them more profitable. "As the non-regulated cash flows have increased (for insurers) ... the investment community has taken a more of a liking to them," said Banerjee. United's success has been part of the impetus behind the increasing number of vertical health insurer deals. More health plans have acquired health-care providers and services in order to have greater control over medical costs in their health plans. Pharmacy benefit giant CVS Health's $69 billion deal for Aetna and Cigna's $54 billion deal to buy pharmacy benefit firm Express Scripts are both predicated on trying to driving cost efficiencies by having greater control over a wider range of members' care. For both mergers, diversification of revenues could serve as a bulwark against potential new regulation of pharmacy benefit rules as the Trump administration has pledged new reforms for curbing high drug costs.

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