HII recently launched an even lower priced set of policies to thwart that competitive threat. Coverages were reduced in response to the insurance companies' "skinny" offerings. The main difference is a cap on daily hospital payments at $3,000 instead of the local "customary" rate. Prices are about $80 a month for a healthy 30 year old man. That's about half of what the insurance companies are offering today with their introductory pricing, and 25% of what a comparable exchange plan will cost down the road.
The latest initiative is likely to re-establish HII's sales momentum. Margins are expected to be similar to the company's existing offerings. Solid gains are likely this year and in 2014 as healthy consumers opt for the company's low cost policies. With the new law, moreover, if a customer does come down with a catastrophic disease he can move to the exchange and buy a guaranteed issue plan. That removes the one big negative that used to impact HII's business in the past.
There are two principal long term risks. The first is that HII and the rest of the short term medical industry become too successful and the Government outlaws their business. The other is a change in pricing by the Government so healthy people pay a number more consistent with their risk, like every other kind of insurance. Neither appears likely to happen. Even simple corrections to the law aren't being made due to political factors. Major changes lie far in the future. And it's likely that short term medical plans will prove to be a positive element in the overall scheme by getting more people covered.
Growth could be explosive as the new insurance environment takes effect. In 2-3 years revenues could reach $175 million to produce income of $2.00 a share. Applying a P/E multiple of 20x suggests a target price of $40 a share, potential appreciation of 300% from the current quote.
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