"Obamacare is collapsing."
Those were the words of President Trump in his recent speech before a joint session of Congress. He's not alone in his thinking. Aetna CEO Mark Bertolini said a few weeks ago that the Obamacare exchanges are in a "death spiral."
The passage in 2010 of the Affordable Care Act, nicknamed Obamacare, ushered in a boom period for hospital stocks. Which stocks should benefit from the repeal and replacement of the healthcare legislation? Here's why HealthEquity (HQY 1.46%), UnitedHealth Group (UNH +3.11%), and Molina Healthcare (MOH +3.45%) could be smart picks.
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HealthEquity: Soaring away with HSAs
HealthEquity's share price has more than doubled over the last 12 months. If Obamacare is ultimately repealed, the stock should be poised for even greater growth.
One of the most frequently mentioned components of any plan to replace Obamacare is increased use of health savings accounts (HSAs). HealthEquity provides the integrated HSA platform for 60 health plans, including many of the largest plans in the U.S.
The company currently commands a 14% market share and stands to gain a larger piece of the pie. And the pie itself is sure to grow if the Republican Party replaces Obamacare with something more to its liking.
It's true that HealthEquity stock trades at a sky-high earnings multiple. However, that lofty valuation shouldn't scare investors away. Premium share prices are common for a fast-growing leader in a relatively new industry. If Obamacare is repealed, the odds that HealthEquity shares soar seem pretty good.
UnitedHealth Group: Already moving beyond Obamacare
UnitedHealth Group is one of several large health insurers that have dramatically reduced their participation in the Obamacare exchanges after losing too much money. The company could increase its profits, though, depending on what comes after Obamacare.
The ability to more easily compete across state lines should benefit UnitedHealth. It's the biggest health insurer in the country and operates in all 50 states. That scale should be helpful if competitive bars are lowered.
Removal of the Obamacare requirement that all health plans provide minimum benefits could also enable UnitedHealth to improve its bottom line. Some of the benefits required under Obamacare increased costs for the insurer. The ability to tailor benefits for specific customer needs should be a positive for the company.
UnitedHealth's real growth engine isn't its insurance business, though. The company's Optum business segment provides pharmacy benefits management services, along with technology and consulting services to the healthcare industry. Regardless of what happens with Obamacare, Optum seems likely to continue to perform well.
Molina Healthcare: Think long term
Molina Healthcare might seem like a crazy pick related to a potential repeal of Obamacare. The company not only participates in the Obamacare exchanges, but also prospered under the Medicaid expansion funded by the healthcare act. Unlike HealthEquity and UnitedHealth Group, Molina's stock has suffered due to the real possibility of Obamacare going away.
In the short term, Molina could feel the sting if repeal of Obamacare significantly reduces funding to states that expanded Medicaid. However, I actually think that Molina will benefit from the collapse of Obamacare over the long term.
One idea being floated by the GOP is to give states block grants for funding Medicaid. Each state would be able to run the Medicaid program as it chooses. My view is that this could make Molina's managed Medicaid services even more attractive to states.
Also, Republicans have discussed the possibility of providing tax credits to Americans to purchase health insurance. Molina's expertise with crafting benefit programs for lower-income individuals helped the company fare better than most in the Obamacare exchanges. The company could emerge as a winner if the tax credit idea is included with an Obamacare replacement.
