The president elect has announced that he intends to repeal the Affordable Care Act known as Obamacare on his first day in office. Of course it would take congress to repeal a law but the point is that Obamacare as we know it is going away. What will repealing Obamacare do to health care stocks? CNBC reports that health care stocks tumble even as the market hits a record.
While the major U.S. stock indexes hit all-time highs Tuesday, health care stocks traded lower on disappointing earnings and gave back some of a post-election relief rally that had lifted the sector.
“Medtronic certainly had a pretty tough quarter and [is] driving down medical devices” stocks, said Mike Bailey, director of research and chair of FBB Capital Partners, which has a “very small” position in the stock.
He attributed Tuesday’s decline in health stocks broadly to a pullback after recent gains, and some uncertainty on the effect of President-elect Donald Trump’s health care policies.
Because the industry believed that Trump would reduce oversight of drug prices, these stocks had done well after the election. But when Trump verified that he would work to repeal the Affordable Care Act the stocks have fallen. If this threat comes to fruition what will repealing Obamacare do to health stocks and is it time for you to sell?
The Fly in the Ointment
There are two very popular aspects of Obamacare. These are guaranteed issue and community rating. These features of the Affordable Care Act require insurance companies to sell insurance to people even if they are sick and don’t let them jack up the premium for the sick person. The problem for Republicans is that people will not be happy if these two features go away. The problem for the system is that young and healthy people don’t bother with buying insurance because they can always get coverage when they get sick. So they don’t pay premiums and help offset the cost of sick people. Obamacare offers the two attractive features and requires people to get insurance or pay a penalty. The fact of the matter is that for a system that promises universal affordable health care you cannot eat your cake and have it too. The three features need to go together or health care companies will go bankrupt and there will be no one to provide health insurance. The Chicago Tribune says the repeal would look even worse than what we have now.
Can Republicans pass a bill repealing President Barack Obama’s health-care plan lock, stock and barrel? Technically, yes. They have control of the House and the Senate. Democrats in the Senate could filibuster, but I doubt the filibuster survives Trump’s term in any event, so I don’t see this as a permanent obstacle.
There’s still a wee bit of a problem, however, which is that they have to get Republicans to vote for a repeal.
I have no doubt that Republicans would like to vote for something they can call “repealing Obamacare.”
But really repealing Obamacare will make a lot of voters angry and just keeping the attractive parts will bankrupt the system. This is what repealing Obamacare will do to health care stocks.