What's Up With HMOs?

What's up with HMOs? Recent misses, including today's miss by Health Net , follows other misses by Aetna , Coventry , and Humana .

Two major issues:

1) healthcare utilization is rising: after several years with fewer doctor visits, that trend is reversing. The Medical Loss Ratio (MLR) — the amount the HMOs are paying out as a percentage of the money they take in — has been rising.

2) the Supreme Court is set to rule on the Affordable Care Act on or about June 25. If they uphold the main provisions of the law, roughly 30 million more people will go into managed care — a plus for HMOs. But if it is struck down, many will remain uninsured, and they will miss the added growth opportunity.

Since hitting an historic high on April 3, the Morgan Stanley Healthcare Payors Index (HMO), a basket of managed care stocks, is down 16 percent.

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