If you're trying to figure out which health insurers can actually grow without tripping over regulatory landmines, Bank of America Securities has some thoughts. The firm just laid out a fairly blunt assessment of managed care stocks: cost pressures are climbing, swing factors are hard to predict, and Medicare looks riskier than Medicaid right now. Oh, and reported earnings might not tell you what companies are really earning.
Not exactly a confidence-inspiring setup. But here's the thing—BofA still sees meaningful long-term upside, arguing that most managed care organizations are earning well below what they're capable of once things settle down.
Why Cigna Stands Out
Among the pack, analyst Kevin Fischbeck sees Cigna Group (CI) as offering something cleaner than its peers: solid exposure to commercial health insurance, which is basically the only segment performing consistently well right now, paired with a scaled pharmaceutical platform.
Here's where it gets interesting. Through its pharmacy benefit manager and specialty pharmacy businesses, Cigna is effectively riding the wave of rising drug spending—think obesity therapies, biosimilars, gene and cell therapies—without having to place risky bets on any single product. It's like owning the casino instead of playing the tables.
Sure, 2026 is shaping up as a reset year for the pharmacy benefit manager model. But after that? BofA expects Cigna to deliver 10% to 15% annual EPS growth, supported by a roughly 12% free cash flow yield and materially less government exposure than competitors.
The valuation looks compressed too. At 8.1 times 2027 earnings, Cigna trades below its historical range of 10x to 12x. The revamped pharmacy benefit manager structure should reduce regulatory concerns, potentially pushing the multiple back toward the higher end of that range.
Other Picks and Concerns
BofA is also bullish on Alignment Healthcare, Inc. (ALHC), expecting the company to keep capturing market share profitably with member growth above 20%, helped by favorable Star ratings in 2026.
For UnitedHealth Group Inc. (UNH), the outlook is conditional. BofA sees UnitedHealth as well-positioned over the next several years, but only if the Medicare Advantage rate environment stays supportive. The firm is watching closely for the 2027 Medicare Advantage rate proposal, due February 18, to see whether additional coding changes will hit—things like V29 adjustments, elimination of home risk assessments, and greater reliance on encounter data.
If regulators signal stability instead of more changes, UnitedHealth could meaningfully expand margins in 2027. That's because the roughly $6 billion headwind (about $5.25 per share) from V28 coding changes expected in 2026 would roll off.
Medicaid Headwinds Persist
Things look tougher for Medicaid-focused players like Centene Inc. (CNC) and Molina Healthcare Inc. (MOH). Ongoing Medicaid enrollment declines continue to reshape the risk pool, making it harder for states to set rates accurately and limiting margin expansion for insurers focused on that segment.
Fischbeck wrote on Tuesday that accurately pricing exchange risk for 2026 remains highly uncertain given shifting membership trends and evolving risk pools. Translation: nobody really knows how this plays out yet. As a result, the market probably won't reward solid execution until at least the second quarter of 2026, when there's more visibility.
The broader takeaway? In a sector where government policy can swing earnings by billions, having less government exposure—like Cigna—starts to look pretty attractive. Commercial insurance might not be the most exciting growth story, but when everything else is clouded by regulatory uncertainty, boring and predictable suddenly sounds pretty good.