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Trump Amending AHCA: Is the Medical Device Space Anxious?

Zacks Equity Research

The buzz over the final shape over Obamacare. or the Affordable Care Act (ACA), is continuing in Capitol Hill. Last month, the lukewarm response to its replacement, The American Health Care Act (AHCA), has forced Republicans to seek new avenues.

In a bid to save its face, the Trump administration is attempting to keep the American Health Care Act (AHCA) viable by proposing a new amendment to the bill. Such an action comes as no surprise since President Trump has always been an outspoken critic of the ACA.

Proposed Amendment

The proposed amendment submitted to the House of Ways and Means Committee consists of the creation of a risk-sharing program as part of the AHCA’s Patient and State Stability Fund (PSSF). The aim is to set aside funds to be used in covering a portion of costs alongside insurers. This would invariably result in bringing down premium costs while accommodating more people under the healthcare umbrella. Earlier, a projection by the Congressional Budget Office (CBO) estimated that in a decade from now, approximately 24 million Americans would lose insurance coverage if AHCA was passed in its original form.

Per the proposed amendment, the government would set aside $15 billion within the PSSF. The Health Department would then carry out the risk sharing program by providing payments to health insurers for individual claims. The sharing of the burden by the government would result in lower premiums allowing the insurance umbrella to cast a wider net. If the amendment is enacted it would be effective from Jan 1, 2018. However, on the flip side, the risk-sharing program does not affect the major provisions of the bill that cut spending and funding for federal healthcare programs.

Backdrop

In place of Obamacare, the Republican proposal called The American Healthcare Act (AHA) meant to bring about far-reaching changes. The alternative proposes radical changes like eliminating taxes mandated under Obamacare. The most controversial topic in the new Republican health draft is the phasing out of the Affordable Care Act’s Medicaid expansion.

The Republican proposal seeks to change the mandatory requirement to purchase insurance with a system of penalties to be imposed by insurers. It also aims to replace subsidies with tax credits that are refundable. Also, the burden will be put more on the state level. Finally, all the taxes levied under Obamacare would be abolished.

Effect on Medical Device Space

The foremost question that arises now is whether Medical Device stocks stand to gain or lose on the developments at Capitol Hill. Supporters for the Republican alternative argue that if the proposed amendment is implemented, more people would be covered as a portion of the cost would be borne by the government.

Earlier, the market was abuzz with concerns that AHCA bill would strip healthcare coverage for millions of poor Americans and non-American inhabitants. Needless to mention, this would have led to shrinking customer base for the MedTech companies post the enactment of ACHA.

On the other hand, the medical device fraternity was happy with the original Trump action plan which had promised cancellation of major healthcare taxes including the two signature taxes of Obamacare, the unpopular Cadillac tax (40% excise tax on high-cost healthcare plans) and the controversial 2.3% MedTech tax.

In such a mixed space, we would advise investors to steer clear of Zacks Rank #5 (Strong Sell) Medical Device stocks like Acadia Healthcare Company Inc. ACHC, Tenet Healthcare Corp. THC, West Pharmaceutical Services Inc. WST, and Irhythm Technologies Inc. IRTC.  

On the other hand, investors ready to profit from Zacks wisdom in the near term could start accumulating Zacks Rank #1 (Strong Buy) and 2 (Buy) stocks like athenahealth, Inc. ATHN, Becton Dickinson and Company BDX and Inogen Inc. INGN within this space. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Each of these stocks show a strong pricing figure and has been able to surpass the Zacks categorized Medical Products industry year to date. While the broader industry has increased almost 8.0% during the aforesaid period, shares of athenahealth, Becton Dickinson and Inogen have gained 9.3%, 11.0% and 14.3%, respectively.

End Note

Regardless of which path you choose, the final version of healthcare legislation to be approved can make or break fortunes. It all boils down to how confident you are over the Medical Devices space over the short term. If Obamacare continues then going long is probably right for you. Then again, if Republicans continue with their face saving gestures the space may not be your ideal option right now.
 

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athenahealth, Inc. (ATHN): Free Stock Analysis Report
 
Inogen, Inc (INGN): Free Stock Analysis Report
 
Tenet Healthcare Corporation (THC): Free Stock Analysis Report
 
Acadia Healthcare Company, Inc. (ACHC): Free Stock Analysis Report
 
Becton, Dickinson and Company (BDX): Free Stock Analysis Report
 
West Pharmaceutical Services, Inc. (WST): Free Stock Analysis Report
 
IRHYTHM TECH (IRTC): Free Stock Analysis Report
 
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