Senate Healthcare Bill: A History
With President Donald Trump and the Senate GOP trying to repeal and replace Obamacare, you can bet the best healthcare stocks are on the move. But in order to understand which healthcare stocks are worth watching, we need to take a closer look at the Senate healthcare bill.
The Senate bill is known as the Better Care Reconciliation Act of 2017. This is slightly different from the House bill that passed last month, which was called the American Health Care Act of 2017.
Obamacare was fundamentally a program to get uninsured Americans some sort of healthcare plan. In order to make that happen, the bill set up statewide “exchanges” where people could comparison shop, and it, rather contentiously, mandated that everyone get a plan.
In 2009 and 2010, Republican lawmakers swore they would stop Obamacare. But it passed. Then they promised to bring it down with lawsuits. Not so fast, replied the Supreme Court. In a five-to-four verdict, the high court ruled that the individual mandate was constitutional.
And so “repeal and replace” became the default position of the GOP.
It was a pipe dream while Barack Obama lived at 1600 Pennsylvania Avenue, but then the 2016 election took place. Donald Trump took the White House. Republicans held onto both chambers of Congress. Now it was time to act on their promises.
The House first tried to pass a bill in March. It failed horrendously once angry voters showed up in town hall meetings, upset that the representatives they elected were trying to take away their healthcare. The bill died, and the President declared that it was “time to move on” to other items on his agenda. But apparently this was a zombie bill, because it returned two months later.
The House bill passed in May, leaving the Senate in an extraordinary position. Congress’s upper chamber could now carry the “repeal and replace” the last mile, because of course President Trump would sign the bill. A veto threat vanished the same day Obama left the White House.
But what did the Senate come up with?
The details are sketchy. Here’s the broad sweep, or as much as I can make out from the Congressional Budget Office’s score. It says that between 2017 and 2026, the BCRA will:
- cut the deficit by $321.0 billion,
- knock 22 million off their insurance programs,
- slash Medicaid by $772.0 billion,
- reduce subsidies by $408.0 billion, and
- provide $541.0 billion in tax cuts to high-income Americans.
What does this tell us? It says that the Trump administration is cutting back on programs for the poor and sickly, which goes against the entire point of an individual mandate.
The whole point was to make sure that insurance companies would have the right balance of young, healthy people to old, sickly people. Otherwise the young people might decide to wait until they had an illness to opt in (because the law also states that insurance companies cannot discriminate against pre-existing conditions). If healthy people waited till they fell sick, and only old, sickly people were in the mix, then insurance companies would be forced to raise premiums.
It is called the “death spiral” for a reason. Premiums surge, driving more people out of the programs, which forces premiums to go up even more, etc.
It’s a vicious cycle that helps no one.
Best Healthcare Stocks to Watch Today
That being said, some healthcare stocks might fare better than others.
For instance, insurance companies that were left as sole providers in rural parts of the country retained price control in spite of the ACA’s mandate. They raised premiums at will, which isn’t perhaps the best thing to hear if you’re a patient, but it sure is if you’re an investor.
Imagine that power fortified by an eradication of the ACA. It would come as a godsend to the best healthcare stocks. What remaining power there was outside their sphere of influence would immediately be pulled within their circle. No wonder some of them soared as the deal progressed through the Senate.
Here’s a list of the ones that soared right after the news broke.
HCA Healthcare Inc
Universal Health Services, Inc.
Bristol-Myers Squibb Co
Eli Lilly and Co
Gilead Sciences, Inc.
It’s obvious that healthcare stocks today care more about profits than patient care, but that is to be expected. Their fiduciary responsibility lies with their shareholders. Investors acknowledge this relationship by rewarding them as the Senate threatens to repeal and replace Obamacare with a barebones alternative. It is not a prescription for better care.
That said, the Senate healthcare bill is most certainly a recipe for higher premiums, which translates into higher profits at the nation’s insurance providers. Pharmaceutical companies aren’t looking too bad either, so investing in them might help diversify the portfolio a bit.
It should be noted that Senate Majority Leader Mitch McConnell says the bill will not come to a vote before Congress breaks for the July 4 recess. Nevertheless, I don’t expect the GOP to give up on passing this bill.