Senate Releases AHCA Draft Bill, Healthcare Stocks Surge

The Senate recently released the draft version of the healthcare bill that would repeal and replace the Affordable Care Act (ACA) designed by former president Barack Obama. The Republicans long have been trying to undo Obamacare. Trump, on his taking his seat at White House, made it his top priority to devise a new and improved healthcare law — American Health Care Act (AHCA).

After many adjustments to the AHCA provisions, the House bill went to Senate, which has now released its own modified version.

Health Insurers Take the Bill in Their Stride `

Health insurers welcomed the Senate Bill that suggested a repeal of the Health Insurance Fee (HIF). Insurers were supposed to pay HIF annually based on net written premiums.

Insurers are also relieved as funding cuts to Medicaid will be made gradually. Per the Senate draft bill, all the 31 states that opted for Medicaid expansion will keep on receiving federal funding aid till 2023, albeit at a lower rate from 2021. The bill calls for curtailing federal support for Medicaid expansion in 2024, which then might cause states to end Medicaid expansion. But that is still far-fetched and insurers can take it easy for now.

Moreover, Obamacare banned insurers from charging more than three times to older customers than their youngest ones. Under the draft bill, insurers have the liberty to charge older customers five times as much as younger ones.

Also, insurers struggling in the individual insurance market on public exchanges lauded the Senate bill’s allotment of $15 billion each in 2018 and 2019 and $10 billion each in 2020 and 2021 to stabilize the market.

Insurers have also got some flexibility on a pre-existing condition in Obamacare that denied coverage to people with pre-existing diseases and higher prices on these policies. The Senate bill has kept this provision but has made it friendlier for insurers by limiting coverage and eliminating benefits requirements on such policies.

Essential health benefits requirement under Obamacare will also be put to end by 2020. The benefits included hospitalization, prescription drugs, maternity care and mental health treatment, which insurers were supposed to cover under ACA.

Despite significant regulatory uncertainty since the election of Trump last November, the Zacks categorized Medical-HMO industry has gained 34%, outperforming the increase of nearly 14% for the S&P 500.

All in all, the draft bill was well received by healthcare companies, as evident by share price gains for hospital companies like HCA Holdings Inc. (NYSE:HCA) , Tenet Healthcare Corp. (NYSE:THC) and Community Health Systems Inc. (NYSE:CYH) . The cheer also spread among health insurers, UnitedHealth Group Inc. (NYSE:UNH) , Anthem Inc. (NYSE:ANTM) , Humana Inc. (NYSE:HUM) , Aetna Inc. (NYSE:AET) , Cigna Corp. (NYSE:CI) , Centene Corp. (NYSE:CNC) and Molina Healthcare Inc. (NYSE:MOH) that hit their respective 52-week highs.

Long-Term Effects

Though the bill will have short-term benefits, it can be precarious for the industry over the long term. Former CEO of Molina Healthcare commented that the Senate version of the bill is heartless. Though providing relief in the short term, its effects will be painful later on. Funding cuts to Medicaid would destroy the plan, which is most relied upon by low-income Americans. The bill would also provide more wealth to the rich while taking away care from the poor. It is also feared to inflate the uninsured population and pinch pockets.

The Fate of Bill Still Remains Clogged

The likelihood of the bill to get converted into a law is still unknown. It received friction from four Republican senators. Also, Democrats don’t seem to be providing any support to the bill and find it “even meaner”. The fate of the bill will be decided next week. Till then, healthcare stocks may enjoy their ride.

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