Obamacare could eventually be replaced by Medicare for All, and that’s bad news for big health insurers, the biggest beneficiaries of the program.
Medicare for All, a healthcare system operated by the government, has been gaining traction recently on both ends of the political spectrum. And that raises the prospect that such a system will become a reality one day.
A government run health system could end the party for health care insurers. Under Obamacare, they have been collecting higher premiums from subscribers who have little control over what medical services they buy and at what price.
That’s why shares of big healthcare insurers soared under the Obama Administration—see table.
|Company||5-year gains||Revenues||Operating Margin||Gross Profit (ttm)|
|Cigna Corporation (CI)||225.12%||$39.67B||8.97%||$15.18B|
|Aetna, Inc. (AET)||185.33||$63.15B||8.73||$16.8B|
|UnitedHealth Group, Inc. (UNH)||203.22||$184.84B||6.99||$67.5B|
Source: Finance.yahoo.com 3/9/2017
“Obamacare was deliberately designed to operate via private health insurers” says Ted Bauman, senior research analyst and economist at Banyan Hill Publishing. “That’s why it was good for their stocks — it created a mandatory mass-market for them. By contrast, a true “Medicare for All” framework in the United States would completely upend the healthcare sector and cause massive disruption to healthcare stocks.”
Bauman sees the potential for health insurance companies being“reduced to providing high-end boutique top-up policies for households that could afford them.” The result? “They would effectively be shut out of the mass insurance market, since that’s what Medicare is, after all. They would be a shell of their former selves. This would be devastating to their share prices.”
Jesse Cohen, U.S Markets Analyst at global financial platform Investing.com, agrees.“While it’s a long-shot to become law despite the backing of some contenders for the Democratic presidential nomination, Medicare for All can potentially be a major disruptor for the healthcare and insurance sectors. The proposal has the power to upend company stock prices, especially those of hospitals and health insurers. Names like Anthem, Cigna, HCA Healthcare and Community Health Systems look set to suffer the most.”
Investors have begun to take notice, sending the shares of these companies sharply lower in recent days. Cigna shares are down 21.53% for the year, and UnitedHealth Group 10.65%, compared to a 16.56 gain of the S&P 500.
And the sell-off could spread to other sectors.
Like pharmaceuticals, which have also been benefiting under Obamacare. “Under the current Medicare system, Congress forbids the government to negotiate drug prices,” explains Bauman. “But it’s inconceivable that a Medicare for all program would adopt this approach, which is based purely on lobbying influence by big Pharma. In order to make Medicare for All program work, the government would have to play hardball with pharmaceutical companies, forcing down their prices significantly.”
While it’s still unclear if Medicare for All will eventually replace Obamacare, one thing is clear: regulatory uncertainty will haunt health care stocks for months, even years.