With the astronomical costs of healthcare these days, nearly everyone has health insurance, whether from a governmental agency or private insurance company. Because these insurance companies offer such a necessary product, they are considered resistant to recession. Investing in these Companies is reported to be profitable mainly because the insurance companies control pricing and services within the industry. This means that these companies control what services patients receive and how much the healthcare providers are paid for them. As you look across different industries, this is an unusual amount of control over both consumers and providers.
Profits on these companies vary because of a variety of issues. Membership levels at private health insurance companies will rise and fall opposite unemployment levels. As unemployment rises, fewer people sign up for health insurance through private companies. However, there is more shifting and change in governmental programs, such as Medicaid and Medicare. Also, in tough economic times, insurance companies will tend to raise the consumer contribution toward healthcare. This can make people visit doctors and hospitals less, affecting profit margins. However, investing in these companies from the private sector is thought to be a stable, and profitable, investment option because the nature of the business is to group millions of people together, evening out the per capita expenses.
Once an investor has decided on investing in these companies, the question becomes: Which ones are the best investment vehicles? When researching what companies to invest in, investors should keep in mind that many of these companies are not only doing business in health insurance. They have added different lines of products, such as life insurance, dental insurance, vision insurance, and more. This high level of diversification can skew the profitability and risks of the actual health insurance company.
Assessing risk is also an important step in investing in these companies. There are two basic types of these companies, those who provide a full service and those who provide an insurance administrative service (ASO) for private companies who are funding the actual underwriting. ASO companies tend to be steadily profitable while full service insurance companies are considered more of a risk. Investors should consider companies’ revenues, expenses, reserves, and history of investor shares, among other issues. Though the process of investing in this sector does have risks, it is usually an extraordinarily profitable industry sector. Billions in stock dividends get paid out each year to savvy investors in the private health insurance sector.
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