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T3 Watchlist: Aetna (AET) Earnings Shine Light On Health Care Plan Stocks

 April 30, 2011 05:22 PM

Add Aetna Inc. (NYSE:AET) to the list of rival health care insurers UnitedHealth Group Inc (NYSE:UNH), WellPoint Inc (NYSE:WLP) and Humana Inc (NYSE:HUM) that are seeing windfall profits this earnings season ahead of federal health care reform.

Over the last month the health care group, using the Health Care Select Sector SPDR ETF (NYSE:XLV), has outperformed the SPDR S&P 500 (NYSE:SPY), the PowerShares QQQ Trust (NASDAQ:QQQ) and the iShares Russell 2000 Index (NYSE:IWM).  See performance chart below.

The Health Care Select Sector SPDR ETF (NYSE:XLV) is comprised mostly of large health care plan stocks like Aetna  Inc. (NYSE:AET) and major drug stocks.  However, it is the smaller cap health care plan stocks like AMERIGROUP Corp. (NYSE:AGP) posting the out-sized gains.

A quick look at the group's annual and quarterly reports, suggest that American consumers are maintaining their insurance plans, but avoiding additional costs associated with receiving actual care due to increasing co-pay and other fees.

Fee increases are basically making it cost prohibitive for policyholders to seek preventative care in this slow recovering economy. dealing with high unemployment and rising commodity prices. For individuals and families dealing with high unemployment and rising commodity prices as they count every dollar, health insurance plans have now become "break in case of emergency" policies, similar to car and home insurance.

This trend allowed health care insurers as a group to raise their full-year profit forecasts, start dividends or significantly raise payouts in the past week. Health insurers' stocks are trading at multi-year highs.

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