What
If Both Obamacare and Trumpcare Collapse? 2 Potential Paths for Healthcare in
the U.S., by Motley Fool, 7/11/17
Obamacare
is on the verge of collapse -- at least according to some in Washington. It's
easy to see why they think that's the case. Major insurers, including UnitedHealth Group (NYSE: UNH), have pulled out of most Obamacare
exchanges after losing billions of dollars. Aetna(NYSE: AET) is one large insurer that has totally
withdrawn from Obamacare exchanges.
On
the other hand, Trumpcare could be on the verge of collapse, as well. Sen. John
McCain (R-Arizona) stated over the weekend that the Senate GOP healthcare bill
endorsed by President Trump is "probably going to be dead."
So
what's next for the U.S. healthcare system? Those on the left are pushing for
one solution, while those on the right want another. Here are two potential
paths for the nation's healthcare -- and the vastly different scenarios for
investors if each becomes reality.
Single-payer system
Former
presidential candidate Sen. Bernie Sanders (I-Vt.) believes that "the only
long-term solution to America's healthcare crisis is a single-payer
national healthcare program." Sanders, a socialist who caucuses with
Democrats in the U.S. Senate, promotes what he calls "Medicare for
all," -- a universal healthcare system where all Americans would receive
full health insurance through Medicare. While there are other alternatives for
a single-payer system in the U.S., Sanders' plan includes most of the goals of
the political left.
Under
this plan, Medicare would pay all of Americans' healthcare expenses. There
would be no co-pays and no deductibles. The federal government would negotiate
all pricing with healthcare providers and drugmakers.
Proponents
maintain that a single-payer system such as this would lower the overall cost
of healthcare. They point to other countries with government-funded healthcare
with significantly lower healthcare spending levels per capita.
Sen.
Sanders states that his proposed plan would cost $1.38 trillion annually. This
would be funded through tax increases. Employers would pay an additional 6.2%
tax. Most Americans, regardless of income level, would pay a 2.2% higher tax.
Income taxes for the wealthy (annual income of $250,000 or more) would be
raised significantly and tax deductions limited. Also, capital gains and
dividends would be taxed at ordinary income tax rates.
Free market system
Not
everyone agrees that the U.S. should shift to a socialist type of healthcare
system. Conservatives and Libertarians argue for an approach that relies more
on free market competition and lower regulations. One such approach has been
proposed by another former presidential candidate, Sen. Rand Paul (R-Ky.), a
conservative ophthalmologist who describes himself as
"libertarianish."
Sen. Paul's plan is to totally repeal Obamacare and replace it with several
key changes that give individuals more flexibility in purchasing health
insurance. All Americans would receive the same tax deduction for health insurance
regardless of whether they obtain insurance through their employers or buy it
themselves. Health savings accounts (HSAs) would be encouraged through tax
credits and eliminating maximum contribution limits. HSAs could also be used to
pay for health insurance premiums, prescription drugs, and over-the-counter
drugs.
Individuals
would be allowed to pool together to purchase insurance like employers
currently do. These pools could include non-profit organizations, such as
churches, civic groups, and trade associations, as well as other entities
formed solely for the purpose of buying insurance. Small businesses would be
able to pool together across state lines to purchase health insurance as well.
Insurers would also be allowed to sell policies licensed in one state to any
other state.
It's
not known exactly how much Sen. Paul's healthcare plan would cost, although it
would certainly be far less than the $1.38 trillion cost for Sen. Sander's
plan. The advantages of the plan, according to Rep. Dave Brat (R-Va.), are that
it moves the U.S. in "the right direction toward patient-centered
healthcare, lower costs, bigger pools to insure everyone and cover preexisting
conditions." Brat stated that so far Paul's plan is "the most free
market approach to healthcare that will truly bend down the cost
curve."
Impact on investors
These
are obviously starkly different plans with arguments for and against each one.
How would investors be impacted if something similar to Sen. Sander's
single-payer system became law?
Shareholders
of health insurance stocks would likely feel the most pain. It's possible that
private insurers could offer Medicare Advantage plans as they do now. However,
membership in these plans made up only 7.5% of UnitedHealth's total enrollment
in 2016 and only 5.9% of Aetna's total enrollment last year. Health insurer
stocks would plunge if a single-payer system was implemented. Biotech
and pharmaceutical stocks would also no doubt suffer. We've already seen
negative effects on these stocks from President Trump's statements earlier
this year that he wanted to allow Medicare and Medicaid to negotiate
prices with drugmakers.
There's
also a good chance that many other stocks would take a beating under Sen.
Sanders' plan. Raising U.S. corporate taxes (which already rank among the
highest in the world) probably wouldn't be seen as a good thing. Furthermore,
increasing taxes on capital gains and dividends could cause investors to sell
off stocks to avoid paying higher taxes before the single-payer system took
effect.
How
would investors be affected by Sen. Paul's plan? Health insurance stocks would
likely soar. Companies like UnitedHealth Group and Aetna, which have retreated
from the individual markets under Obamacare, would probably jump back in. HealthEquity(NASDAQ: HQY), which provides a technology platform
for consumers to manage HSAs, would no doubt surge even more than it has over
the last year.
Stocks
of companies that rely heavily on the Medicaid expansion under Obamacare, on
the other hand, would likely drop. How the stocks of drugmakers and of other
industries would be impacted is hard to predict. It depends on the details that
a final plan would include.
Reality check
Now
for a reality check. The likelihood of the U.S. going to a single-payer system
at this point isn't high. The Washington Post even ran an editorial that stated that "single-payer healthcare would have an
astonishingly high price tag" and that Americans probably wouldn't be
willing to accept the negatives, including accepting "different standards
of access and comfort." The odds of Sen. Rand Paul's plan being
implemented also seem low. He first floated his proposal in January. It hasn't
gained too much momentum since then.
For
now, the most likely scenarios are probably either a modified version of
Trumpcare or making changes to sustain Obamacare. Americans, including
investors, will have to keep waiting to find out how they'll be impacted by whatever
comes next.
Comments
I
disagree. The Repeal First plan Trump endorses is the right decision. This
sides with Rand Paul’s free market solution. With a full repeal, States should
be able to do what they want to do and insurance companies should be able to
sell what they can sell.
Lowering
healthcare costs is the elephant in the room. It requires reducing government
subsidies.
Norb
Leahy, Dunwoody GA Tea Party Leader
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