Paul Ryan Makes Medicare Sexy Again; Some Stocks to Consider

The selection of Paul Ryan as Republican Mitt Romney’s running mate has already focused a great deal of attention on Medicare — both presidential campaigns are trading barbs over the government healthcare program. Ryan has proposed a litany of changes to the program to curb costs. Among other changes, Ryan’s plan would cap Medicare spending and offer seniors a fixed amount of money with which to buy private insurance. Romney has said he supports parts of Ryan’s plan, but will present his own plan.

President Obama’s deputy campaign manager Stephanie Cutter said on Sunday that Ryan’s plan would signal “the end of Medicare as we know it. It would increase costs on seniors and throw them into the private market.”

The increased attention, and possible Romney-Ryan White House could bode well for managed care companies with large Medicare businesses.

The choice of Ryan “is most positive for Medicare Managed Care stocks in our view should this Romney-Ryan ticket end up winning the White House in 2012,” wrote Bernstein analyst Ana Gupta.

It could take awhile for changes to kick in, because the Republican candidates have said that seniors who already receive Medicare benefits and those close to getting them won’t be affected. But the eventual tailwind could be huge, Gupta argues.

“We forecast that such a premium support policy shift [giving seniors money and letting them choose a private plan] for Medicare would be very positive for private plans � in particular for the strong top line tailwinds from higher penetration of Medicare Advantage which we expect could get to as much as 75-100% by 2030. The Ryan-Wyden plan does not include any changes for those 55 and above, and therefore real change will only occur in 2022, though stocks should respond ahead of any real fundamental change.

We also expect that the investor fears around margin headwinds to Medicare Advantage would subside dramatically under a Romney-Ryan controlled Executive Branch with a much more Managed Care friendly Center for Medicare and Medicaid services (CMS). We believe that this should offer multiple expansion to names levered to this program.”

Gupta likes Humana (HUM), UnitedHealth Group (UNH) and Cigna (CI) in particular “given their substantial exposure to Medicare Advantage though at this point our entire coverage has meaningful exposure to the product.”