In a reversal of a decision by CMS (Centers for Medicare and Medicaid Services) from February, the agency actually reversed the original 2.3% reimbursement cut for 2014 to an increase of 3.3% for health insurers. Health insurer stocks are up 5-10% on the news this morning. This decision will upset the Obama administration as prices are increasing just as Obamacare fully begins in 2014. Approximately 160 lawmakers wrote letter to the CMS to persuade the agency to change its original decision as health insurance lobby made it clear that some of the big insurers would have to pull out of some of the Medicare markets due to the cuts. This change by the CMS is a fairly big decision as it is signaling that draconian cuts to health care companies that are dependent on Medicare should have to worry less about severe cuts for at least for a year or two.
This news primarily affected the stocks of health insurers like Wellpoint (WLP), Humana (HUM), United Health (UNH), Universal American (UAM), and Cigna (CI). Given the low dividend yield in most of the health insurers, RIM clients do not currently own any pure play health insurers. However, we do have holdings in other related health care plays that are benefitting including distributor AmerisourceBergen (ABC), health care REITs Omega Healthcare (OHI) and Health Care REIT (HCN), Universal Health Realty income (UHT), HCP (HCP), National Health Investors (NHI), pharma companies Pfizer (PFE), Bristol Myers (BMY), Johnson & Johnson (JNJ), medical product company Medtronic (MDT), etc...