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 Aetna (NYSE:AET) is one large insurer that has totally withdrawn from Obamacare exchanges.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.
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.
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.
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