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Another Run at Health Care Reform: Impact on Healthcare

Zacks Equity Research

President Trump is steadily progressing with the promises made during his election campaigns. We would like to remind investors that Trump had strongly voiced his opinion regarding the shortcomings of the Affordable Care Act (ACA) or Obamacare during the campaigns and had claimed to make substantial changes in this regard upon being elected. 

The Republicans are now insistent on getting their healthcare alternative – American Healthcare Act (AHCA) – implemented. Trump claims that AHCA will expand choice, increase access, lower costs, as well as provide better healthcare.     

American Healthcare Act Versus Obamacare

Implemented in 2010, Obamacare provided coverage to nearly 25 million people. Congressional Budget Office estimates that if Obamacare is repealed, about 14 million Americans will be left uninsured next year. The number of uninsured U.S. citizens is likely to shoot up by another 24 million by 2026. According to the report, the federal budget is also likely to decrease by $337 billion by over 10 years.

The best part of the ACHA is that it puts an end to the mandate that required every individual to have health insurance or face penalty. It also relaxes the requirement by businesses to offer coverage to their workers. The plan includes restructuring the Medicaid program by giving the states a block aid instead of the open-ended funding under Obamacare.

Per ACHC, insurers can now sell their products in states that were not there under Obamacare.  The provision for minors to remain on their parents’ plans until age 26 and patients with pre-existing conditions receiving coverage from the Obamacare holds good in ACHC, too. However, the ACHC seems to favor young people from high-income group over those who are old, sick, and poor.

Though the ACHA could not be passed last week, Republicans intend another run at Health Care Reform next week. Trump said, “I know that we're all going to make a deal on health care. That's such an easy one. So I have no doubt that that's going to happen very quickly. I think it will, actually, I think it's going to happen, because we've all been promising – Democrat, Republican – we've all been promising that to the American people."

Impact on Health Insurers

Allowing insurance selling across states will increase competition. Nonetheless, these companies will be able to offer lower cost plans. The flexibility with regard to age will benefit players like UnitedHealth Group Inc. UNH, Anthem Inc. ANTM and Humana Inc. HUM, which had a bitter experience with individual exchanges in the past.

On the other hand, insurers that focus on Medicaid, such as Molina Healthcare MOH, Centene Corporation CNC, WellCare Health Plans WCG to name a few, are likely to be adversely affected by the new Act. This is because ACHC will cut Medicaid funding by allocating funds to each state before letting them be will be on their own, without recourse to federal funds in case of a  shortfall. This will take away their flexibility.

It is highly probable that the state governments might cut benefits under Medicaid, impose premiums or eliminate subsidies in order to manage their funds. This, in turn, will make Medicaid unattractive and drive people away.

The ACHC also raises concerns for hospital stocks like Universal Health Services (UHS), Tenet Healthcare THC, HCA Holdings HCA, Community Health Systems CHY, LifePoint Health LPNT. This is because these hospitals will have more uninsured patients under ACHC, who may be unable to settle the huge hospital bills.

Given all the factors discussed above, we wait to see how ‘repealing and replacing’ the Obamacare with ACHC proceeds.

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Humana Inc. (HUM): Free Stock Analysis Report
Molina Healthcare Inc (MOH): Free Stock Analysis Report
UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report
WellCare Health Plans, Inc. (WCG): Free Stock Analysis Report
Anthem, Inc. (ANTM): Free Stock Analysis Report
Centene Corporation (CNC): Free Stock Analysis Report
Tenet Healthcare Corporation (THC): Free Stock Analysis Report
LifePoint Health, Inc. (LPNT): Free Stock Analysis Report
HCA Holdings, Inc. (HCA): Free Stock Analysis Report
CALAMOS C&H IF (CHY): ETF Research Reports
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