Are These 3 Healthcare Insurers Worth The Risk? – Humana Inc (HUM), Aetna Inc. (AET), UnitedHealth Group Inc. (UNH)

UnitedHealth Group Inc. fights back

UnitedHealth Group Inc. (NYSE:UNH) informed the Obama administration that lower payments for Medicare Advantage plans are based on the assumption that doctors’ would reduce their fees. Insurers are requesting that the Obama administration backtrack on a 2.2% reimbursement reduction for Medicare Advantage plans in 2014. They fear that lower reimbursements will not be met by an assumed 30% cut in physician fees. This 30% cut is widely viewed as a vestige of outdated legislation, and it is thought that it would be corrected before taking effect.  This would leave 13.1 million people who enrolled in Medicare Advantage plans with today’s costs, but less reimbursement.

Complaints about a 2.2% drop in reimbursement may be overwhelmed by complaints about overpayment. According to government auditors, health insurers that offered private plans in the U.S. Medicare program for the elderly and disabled were overpaid by approximately $5.1 billion over the past three years. UnitedHealth Group Inc. (NYSE:UNH) has covered the care of about a quarter of Medicare’s 49 million beneficiaries who have signed for Medicare Advantage plans. While this bodes well for UnitedHealth Group in the short-term, it could create negative sentiment and leave a big void in the company’s balance sheet in the future if the government tries to recover the money that was overpaid. UnitedHealth Group Inc. (NYSE:UNH) also looks cheap with a price to earnings ratio of 10.15, a price to book ratio of 1.75, and a debt to equity ratio of 0.54. However, investors should be wary of the growing tension between the Government Accountability Office, an arm of Congress that conducts investigations, and healthcare insurers like UnitedHealth Group Inc. (NYSE:UNH).

Yes, many health insurance companies are cheap, but they are cheap primarily because the portfolios they create from premiums to pay out benefits are stymied in a low interest rate environment. These companies collect premiums but can’t earn much interest on them. What this means is that investors are not getting much of a discount for going into healthcare providers and health insurance providers. Of the stocks I discussed above, Humana Inc (NYSE:HUM) is the best pick in the healthcare insurance arena. It is cheaply priced based on valuation, and it is in the best position financially to deal with new healthcare laws.

The article Are These 3 Healthcare Insurers Worth The Risk? originally appeared on Fool.com and is written by Bill Edson

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