U.S. health insurers are not worth the long-term investment risk in the wake of the new healthcare reform law, according to brokerage Edward Jones.
Edward Jones downgraded the ratings on the stocks of the three health insurers it covers -- UnitedHealth Group Inc, WellPoint Inc and Aetna Inc -- to sell from hold late on Friday. Those companies are the three largest U.S. health insurers.
As of the end of the month, the brokerage will no longer cover the companies.
We are concerned that market structure changes, profit limitations and rebates, and ever-present political/regulatory pressures will negatively impact future profit growth and more than offset the anticipated influx of newly insured members, Edward Jones analyst Aaron Vaughn wrote in a report.
The brokerage, whose clients are long-term individual investors, recommends instead looking at other healthcare stocks, such as pharmaceutical companies, Vaughn said.
The recommendation represents one of the most negative calls against investing in the health insurance industry since the new law passed earlier this year.
The law paves the way for more than 30 million uninsured Americans to receive coverage over the next several years, while imposing new regulations and fees on health insurance companies.
While 2010 looks like a strong year for the health insurers, the new reforms that kick in beginning next year and continue to 2014 and beyond cause massive uncertainty, Vaughn said in an interview.
It's going to be a dramatically different environment from today and no one can really say what that environment is going to be, he said.
The risk/return for the industry overall is not attractive for individual investors, and that's who we're focused on for the long term, Vaughn said. We're worried about mom and dad having this in their portfolio.
(Reporting by Lewis Krauskopf, editing by Maureen Bavdek)