Beyond the effects that the Affordable Care Act will have on your personal finances, Obamacare has already had a big impact on companies throughout the health care industry. Let’s take a look at the winners and losers so far under Obamacare as it currently stands.
Big winners: Hospitals
Undeniably, the biggest winners under Obamacare are hospitals. The main reason why shares of hospital operators HCA Holdings,Health Management Associates, and Tenet Healthcare have done so well over the past year is that the massive exposure they have to doubtful accounts related to uninsured patients will largely disappear under Obamacare. Instead, costs for the previously uninsured will be moved off their books and added to the burden that health insurers and their customers bear.
What’s unclear is what hospitals will do with their newfound profits. Some hospital stocks could return those profits to shareholders in the form of dividends or share buybacks. Yet many will likely invest in new equipment to help them compete against their rivals.
The uncertain impact on health insurers
Obamacare will have mixed effects on health insurance companies. On one hand, the law limits insurers’ profits and requires them to spend 80% of premium revenue on health care services, squeezing potential margins. For large-group insurers, that figure is 85% of premium revenue. Moreover, the policies that they’ll be required to offer are in many cases of higher quality than their current offerings, and it’s uncertain whether they’ll be able to charge enough in premiums to offset the added costs from those better policies.
On the other hand, the individual mandate will push millions of new customers onto the rolls of health insurer policyholders. In particular, Medicaid will be a big component of coverage for current uninsured Americans, boosting prospects for WellPoint, UnitedHealth, and other companies that have a big presence in the Medicaid insurance segment. Also, insurers will maintain their pricing power, as well as their leverage with government regulators in establishing important provisions like reimbursement rates for Medicare and Medicaid.
How Big Pharma will fare
As with insurers, Obamacare is a mixed bag for pharmaceutical companies. The law requires companies to provide larger rebates to Medicaid, which could cost as much as $20 billion over the next decade. In addition, excise taxes and coverage for the portion of drug costs that Medicare previously didn’t cover — known colloquially as the “doughnut hole” — will cost the industry tens of billions of dollars in the next 10 years.
Still, the news isn’t all bad for drug companies. So far, they’ve retained most of their pricing power for their drugs and avoided what could have been costly measures like allowing importation of drugs from lower-cost countries. Moreover, if greater numbers of covered Americans lead to more pharmaceutical use, the gains could offset the costs.
Big losers: Medical device makers
Medical device makers will take the biggest hit from Obamacare, thanks to the 2.3% excise tax on their device sales. Given that the tax is imposed on revenue rather than profits, the provision will act as a barrier to entry to new players in the industry, even as big players pay the bulk of the tax.
Industry giants Medtronic and Stryker have already seen the impact of Obamacare and will continue to deal with headwinds to their business. But the worst hit will come from currently unprofitable companies like MAKO Surgical, which can hardly afford to deal with bigger losses stemming from the tax.
Other investing plays
Obamacare will have collateral impacts on many other industries with ties to health care. Pharmacy benefit manager Express Scripts and its peers should gain from the need for health-insurance exchanges and private insurers to control costs. Companies that focus on electronic health records, including Cerner andQuality Systems, should also get a lot more business as it becomes increasingly important for various parties to be able to exchange information efficiently.
We hope you’ve enjoyed this special report on Obamacare. By understanding how its provisions affect your insurance coverage, your taxes, and your investments, you’ll have the knowledge to handle your personal finances in the best way possible while positioning your portfolio to reap the rewards of the program both now and well into the future.