A man wears a face mask while pushing his shopping cart in Alhambra, California, on February 27, 2020. Frederic J. Brown | AFP | Getty Images

This week's market sell-off over coronavirus fears hit health insurance and hospital stocks especially hard. The S&P 500 Managed Health Care sector had its worst weekly loss since Feb. 2009, falling more than 15% for the week. Shares of UnitedHealth Group snapped a six-session losing streak on Friday, but ended the week down nearly 17% from its historic high on Feb. 19. Shares of pharmacy and insurance giant CVS Health and Medicaid insurer Centene fell into bear market territory this week, down more than 23% from their highs, while hospital operator Tenet Healthcare fell 23% for the week. Part of investors' worries surround the uncertainty over the potential impact of a widespread Covid-19 outbreak in the United States. For insurers, it will almost certainly result in higher costs as Americans who get sick seek medical care.

Too soon to calculate coronavirus costs

While health officials say it's now a matter of when we'll see a major outbreak, analysts say it's still too soon to calculate how a major outbreak could impact health care earnings. Given the pattern of infection in China, many say an outbreak here could be comparable to a severe flu season, with elevated emergency room use and hospitalizations for older patients with underlying medical conditions. Piper Sandler analyst Sarah James said she's not modeling for coronavirus in her company estimates yet. At this point, this week's sell-off in hospitals and health insurer stocks has been overdone. "The care that people are getting, who have (coronavirus now) is on military bases, and not being run through their health insurance," James said, adding that if the Covid-19 were to become as widespread as a bad flu, "it's not really that impactful for earnings." During a strong flu season, higher emergency room use and hospitalizations can lead to an increase of 10 to 20 basis points in increased medical care spending, said J.P. Morgan analyst Gary Taylor. Yet, he said, that fractional increase doesn't materially impact the bottom line.

"When you look at all the respiratory diseases that we've seen globally in the last 50 years, and ask 'have we ever seen one of those be materially impactful to total U.S. health care spending?'… the answer is no," said Taylor. In 2009, the widespread outbreak of the H1N1 swine flu virus sickened nearly 89 million Americans — hitting young and middle-aged adults and children especially hard — resulting in 274,000 people being hospitalized with respiratory conditions. By comparison, a typical flu season results in about 400,000 hospitalizations. Similarly, for hospitals, the increased admissions of elderly patients on Medicare that could result from a coronavirus outbreak would likely be offset by the postponement of elective surgery, which tends to involve higher-margin procedures for health systems.

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