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Can Obamacare Brave the Tax Cuts Challenge? 4 Hospital Picks

Swarup Gupta

Despite numerous setbacks on the legislative front, the Trump administration continues to press forward with its attempts to amend U.S. tax laws. Earlier this week, House Republicans laid the foundation for a vote on Thursday which may be decisive for the prospects of the new tax Bill.

Meanwhile, late on Wednesday, the legislation’s proponents in the Senate released a version which would do away with a crucial element of the Affordable Care Act (ACA). If such a law does indeed come into effect, it would effectively cripple Obamacare by hiking premiums and making the entire prospect unviable for insurers.

However, the passage of such a draft is far from assured at this point. Meanwhile, a rapidly ageing population ensures that the demand for healthcare services will continue to remain high in the near future. This is why investing in hospital stocks continues to be a lucrative proposition.

Senate Republicans Look to Abolish Individual Mandate

As of date, Republicans have failed to repeal Obamacare and made tenous progress on tax cuts. But the new Senate version seeks to secure victory, albeit partial, on both fronts. This would mean that Republicans would enter mid-term election year with greater confidence, despite their previous reverses.

But the need to repeal the individual mandate stems from fairly simple reasoning. The Senate Republicans’ original tax cuts proposals would have increased the budget deficit beyond a decade. This would go against Senate rules which Republican lawmakers want to utilize in order to pass the tax legislation with only a simple majority.

However, the inclusion of the clause which aims to do away with Obamacare’s individual mandate would result in $300 billion of savings for the federal government over the next decade, per the Congressional Budget Office (CBO). This would enable Republicans to push through tax cuts without violating any legislative procedures.

Repeal of Mandate Could Cripple Obamacare

The November edition of the Kaiser Health Tracking Poll has found that most respondents would like to do away with the ACA stipulation that all U.S. citizens must have purchase health insurance or pay a fine. However, a large portion of the same respondents are not in favor of such a move after learning about its impact in the near future.

According to the CBO, nearly four million people would lose their insurance cover within the first year of the mandate. This figure would increase to 13 million uninsured individuals by 2027. Additionally, premiums would rise by 10% over the majority of the years of this decade.

More importantly, the exit of young and healthier individuals would make the situation extremely tough for insurers. Hospitals would also suffer since the large number of uninsured individuals would lead to a lower number of paying customers which would erode their profits.

Senate Draft Likely to Meet with Significant Opposition

Several Senate Republicans have already voiced their disapproval for such a plan. Senator Susan Collins of Maine cautioned party members to stay away from the healthcare muddle, saying that the repeal of the individual mandate “complicates tax reform.” Senator Ron Johnson, a Republican from Wisconsin has also opposed the new plan. However, his opposition stems from the belief that it doesn’t do enough for businesses.

Republicans hold a wafer thin majority in the Senate and can do without at most two party members if they intend to push through the legislation without any support from the Democrats. Not that such support would be easily forthcoming with some Democrats already opposing the proposal to repeal Obamacare’s individual mandate

Our Choices

Senate Republicans have made an ambitious move by combining their two key legislative goals. By attempting to repeal the individual Obamacare mandate while pushing through tax cuts, they would effectively cripple the ACA.

But such an outcome seems unlikely at this point, which is why hospital stocks continue to be a profitable proposition. However, picking winning stocks may be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score. 

We have narrowed down our search to the following stocks based on a good Zacks Rank and VGM Score.

WellCare Health Plans, Inc. WCG offers government-sponsored managed care services.

WellCare has a VGM Score of A. The company has expected earnings growth of 35.7 for the current year. The Zacks Consensus Estimate for the current year has improved by 20.6% over the last 30 days. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Centene Corporation CNC is a well-diversified, multi-national healthcare company that primarily provides a set of services to the government sponsored healthcare programs.

Centene has a Zacks Rank #2 (Buy) and a VGM Score of A. The company has expected earnings growth of 12.4% for the current year. The Zacks Consensus Estimate for the current year has improved by 1.2% over the last 30 days.

The Joint Corp. JYNT is a healthcare franchisor of chiropractic clinics. The Company's plans include: Single Visit, Premium Wellness Plan and Wellness Plan. It also provides a family wellness plan.

Joint Corp has a Zacks Rank #2 and a VGM Score of B. The company has expected earnings growth of 70.7% for the current year. The Zacks Consensus Estimate for the current year has improved by 10% over the last 30days.

Triple-S Management Corporation GTS is an independent licensee of the Blue Cross Blue Shield Association. Triple-S also offers its services in Costa Rica as Blue Cross Blue Shield of Costa Rica. This enables its members to access the U.S. Blue Card network.

Triple-S Management has a Zacks Rank #1 and a VGM Score of A. The company has expected earnings growth of more than 100% for the current year The Zacks Consensus Estimate for the current year has improved by 43% over the last 30 days.

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WellCare Health Plans, Inc. (WCG) : Free Stock Analysis Report
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