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Aaron Levitt Sep 12, 2016
Given our growing global population, investing in healthcare stocks remains a popular theme. Simply put, more people means an increased demand for more medicine, therapies and healthcare. That powerful demographic trend continues to propel earnings at many of the major healthcare stocks. It’s also propelled stock prices. The HealthCare SPDR ETF (XLV) has surged over the last few years. The large-cap sector proxy is up a staggering 124% over the last five years.
But despite that performance and long-term potential, there are still some hiccups for the healthcare sector. In this case, we’re talking about the U.S. presidential election.
As one of the biggest homes to healthcare stocks and biggest drivers of global healthcare demand, Trump’s victory could sway the fate of the healthcare sector.
While Donald Trump hasn’t actually outlined any real sort of healthcare policy, he has stated some big ideas for the healthcare industry in the United States (and what was Clinton’s plan? Check it out here). If he acts on those sorts of big ideas, it could significantly impact healthcare.
If there was one constant in Donald Trump’s campaign on healthcare, it was repealing the Patient Protection and Affordable Care Act (ACA). Dubbed Obamacare, the enforceable mandate requires an expansion of healthcare coverage and insurance for Americans. The law is seen as unconstitutional by many Republican lawmakers, and Trump has vowed to repeal and fight the law from day one. The bulk of his healthcare plans involve more individual choices and letting Americans take 100% control of their healthcare needs.
Nonetheless, Trump has vowed to take care of the poor when it comes to their healthcare needs and fight rising healthcare costs. However, neither of these promises has been put into stone via actual campaign policies.
In viewing Obamacare as an abomination, Trump’s replacement plan allows individuals to buy health insurance across any state. Right now, the current ACA only allows for individuals to purchase plans created for their own states. Trump’s plan would eliminate that provision.
However, if Trump is successful in repealing Obamacare, the Committee for a Responsible Federal Budget estimates around 22 million people would lose their healthcare coverage – but only around a million would then use Trump’s plan to purchase health insurance. That would certainly put a thorn in the side of UnitedHealth Group, Inc. (UNH ). UNH and other health insurers have benefited from expanded coverage by individuals and those on Medicaid/Medicare. Losing over 20-million customers certainly wouldn’t be great for revenues.
Less coverage could also be a problem for HCA Holdings Inc. (HCA ). The hospital administrator/owner, which operates plenty of facilities in the poorer south, has been able to feast on rising Medicare/Medicaid revenues from the Federal Government. While Trump has planned to take care of the poor, the removal of Obamacare would directly hurt many of these newly insured individuals and could cause them to lose coverage. That would hurt HCA’s hospital operations in the Southern states and its revenues.
A main part of Trump’s plan is pushing healthcare costs and choices onto the individual. And that includes allowing access for anyone to open up a Health Savings Accounts (HSAs). HSAs allow individuals to save potentially tax-free money for their healthcare costs to use at a later date. Wealthy individuals have started to use the plan as an estate and tax-saving tool, as many asset managers have gotten into the HSA game.
Under Trump’s plan, the ease of opening an HSA will be greatly increased and that could be a boon to companies like BlackRock (BLK ) or T. Rowe Price (TROW ). Technically not healthcare stocks, these investment managers will benefit under expanded HSAs plan as higher assets under management equal more fee income. In the end, Trump’s plan could help drive their bottom lines.
A surprisingly liberal idea from Trump has been his stance on rising drug prices. Unlike his rivals, Trump hasn’t actually condemned the so-called ‘price gouging’ among drug developers. But he has offered the idea of allowing Americans the ability to buy drugs from wherever they choose. By removing the barriers to entry, it should allow consumers access to imported’, and lower-cost drugs from overseas. This should increase completion and, ultimately, reduce costs for individuals.
Under that scenario, the generic drug manufacturers like Teva Pharmaceutical Industries Ltd (ADR) Liquid error: internal and Perrigo Company (PRGO ) could see their profits and revenues rise, as more individuals choose cheaper alternatives for their healthcare needs.
Also under Trump’s plan, regular pharmaceutical firms could also benefit. Stocks like AbbVie Inc (ABBV ) and Mylan Liquid error: internal have come under fire for their life-saving high-cost drugs. However, under Trump’s plan, these firms and their still on-patent medicines could be safe, which would help them boost prices and continue to reap large revenues from the sector.
While Trump’s healthcare plans are vague, the central theme is removing and repealing Obamacare. The law has been a main driver of healthcare stock returns over the last few years. Removing the total number of insured could negatively impact several sub-sectors of the industry. However, additional generic drug and individual choice options could benefit many Americans.
Find out here what would have happened if Clinton had won instead.