THC: Full Conifer ownership regained, $1.9B in payments secured, and 2025 EBITDA at guidance high

By David Wainer

For the past few years, as Americans poured back into doctors' offices and operating rooms, U.S. healthcare split into clear winners and losers.

Hospitals and other providers — businesses that make money on volume — thrived. Insurers, which bear the risk of paying for that care, didn't.

The stock market reflected this divide with brutal clarity. Since early 2020, shares of hospital operator Tenet Healthcare have quintupled while HCA Healthcare has more than tripled. Shares of the nation's largest health insurers such as UnitedHealth Group and Centene, meanwhile, have languished.

That gap now looks poised to narrow.

For the past five years, U.S. hospitals have enjoyed a "Goldilocks" environment. First, the pandemic-era safety net: The Biden administration's emergency funding supercharged Medicaid and the Affordable Care Act exchanges, adding coverage to millions of people and slashing the national uninsured rate. Second, a tight labor market meant millions of Americans moved into high-margin, employer-sponsored insurance, leaving stingier government plans behind.

Hospitals are still enjoying boom times, and analysts expect industry leader HCA to post strong earnings growth in the years ahead. But the stock's current valuation — about 16 times forward earnings, roughly 20% above its 10-year average — may already reflect that optimism. That comes as medium- and long-term headwinds are mounting.

Last year, Trump's tax legislation included a reduction to federal healthcare outlays by roughly $1 trillion over the next decade, with most cuts hitting Medicaid. Enhanced ACA premium subsidies that helped drive pandemic--era enrollment have expired.

Without an extension, marketplace enrollment could start to fall. (Republicans and Democrats have cited progress toward a compromise, though that still doesn't solve long-term questions about the ACA.) The One Big Beautiful Bill also tightened state financing rules that many hospitals used to augment low Medicaid reimbursement with those changes phasing in over the coming years.

A cooling labor market is another looming challenge. Unemployment has risen from roughly 4% in early 2025 to 4.4% in the latest reading. If that keeps creeping up, it raises the risk of higher bad debt, says Leerink analyst Whit Mayo.

"We're starting to see credit card, auto loan, and mortgage delinquencies tick up," he says. "It's not huge, but it's a sign of a weaker consumer. When uninsured patients can't pay their bills, hospitals face higher bad debt."

For insurers — whose stocks badly underperformed last year, save for CVS Health — the worst may be behind them, particularly in Medicare Advantage.

While policy risks remain, one key driver has improved sharply: government payment rates for Medicare Advantage. Last year, the Trump administration announced a boost in Medicare Advantage rates of more than 5% for 2026.

That was well above what the departing Biden administration had proposed. Initial government proposals for 2027 are expected to be released this month, and analysts are bullish.

With insurer profit margins currently depressed, a rebound is less a question of if than when.

Bernstein analyst Lance Wilkes notes that margins for government programs — Medicare Advantage, Medicaid and Marketplace plans — are down roughly 50% or more from historic levels. Low profitability has prompted some insurers to pull back, thinning competition. As government rates rise and competitive pressures ease, the sector is positioned to recover. That is a potential boon for valuations.

There are multiple ways to play a Medicare rebound, but two stand out.

UnitedHealth Group is the industry leader whose stock took a beating last year mainly because of its Medicare business. The shares lost a third of their value.

The company's forward earnings multiple of around 18.6 looks reasonable though not cheap. But keep in mind that the earnings denominator is historically depressed. If the company's profitability bounces back this year, much like what happened with CVS last year, the stock will respond positively.

But UnitedHealth isn't necessarily out of the political crosshairs: A Senate committee investigating the company said it deployed aggressive tactics to collect payment-boosting diagnoses for its Medicare Advantage members.

Leerink's Mayo says new management is doing a thorough cleanup, divesting assets the company bought over the years that no longer make sense to hold. The company has also retrenched in Medicare, getting out of unprofitable areas.

Another way to bet on Medicare is by investing in upstart Alignment Healthcare. The smaller insurer's tech-driven care model has a proven record of lowering medical costs, even in a volatile Medicare Advantage market, Mayo notes. The key test for the company over the long term is whether it can expand beyond its core market of California.

After years of favoring providers over payers, the economics of U.S. healthcare may finally be turning.

Write to David Wainer at david.wainer@wsj.com

(12:45 GMT) Tenet Healthcare Price Target Raised to $257.00/Share From $238.00 by Guggenheim