Health Care Stocks Stumble On Trump's Executive Order

President Trump has come up with an executive order to dismantle the health care reform act following the failure of the Graham-Cassidy bill, which was a last ditch effort in achieving the objective.

What Does the Executive Order Say?

One of the most disturbing proposals is putting an end to cost sharing reduction (CSR) payments that help low-income Americans pay for health insurance. Health insurers and hospitals have long pleaded the President to maintain the subsidies so that health insurers can function on the exchanges. Without these subsidies it would be uneconomical for insurers to sell policies on exchanges.

Other than CSR, the plan also proposes loosening standards with respect to pre-existing conditions.

Insurers Unsure

Cutting of cost-sharing subsidies that were directly paid to health insurers has prompted players to take another look at their participation on public exchanges. Already a number of players like UnitedHealth Group Inc (NYSE:UNH)., Aetna Inc. (NYSE:AET) , Anthem Inc. (NYSE:ANTM) have exited these exchanges after suffering huge losses.

Meanwhile, shares of some of the players having substantial presence on public exchanges such as Centene Corp. (NYSE:CNC) lost 3.3% and Molina Healthcare Inc. (NYSE:MOH) was down 3.4% in the trading session following the announcement.

Hospitals Too Sick to Suffer More?

Trump’s executive order has sent jitters across the hospital sector that has been weighed down by a weak business environment. Players overall are suffering from weak business volumes in the form of low patient admissions and fewer patient visits. Also, an increase in uncompensated care and charity care have eaten into their bottom line.

The same is evident from comments by one of the leading industry players, HCA Healthcare Inc. which during second-quarter earnings, said that its uncompensated care including bad debt and charity care are rising faster this year than in the last. It is seeing roughly 4% to 5% growth in uninsured admissions, “which is a little higher than the last half of 2016 and first quarter.”

Another large for-profit hospital operator, Tenet Healthcare (NYSE:THC) said uncompensated care costs that dropped from 2015 to 2016 are now on the rise. In its hospitals, volumes have been softer than anticipated and an increase in uninsured revenues has resulted in upward pressure on uncompensated care expense.

Players are all the more jittery since axing of cost-sharing reductions would directly lead to a rise in uninsured patients, translating into unpaid hospital bills.

Industry’s Performance

Despite the uncertainty, the industry has performed strongly as evident by a rise of 80.6% in a year’s time compared with a gain of 20.8% for the S&P 500.

What Lies Next

Turbulences like this have been common in the health care space for the past one year or so from the time efforts are being made to pull back Obamacare. The ultimate implementation of the executive order will however bring real changes in the industry.

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