Ever since the Supreme Court upheld the Patient Protection and Affordable Care Act (nearly in its entirety) last June, we've been examining nearly every facet of the transformative health reform law.
Known also as Obamacare, the PPACA offers a lot of promise to improve the transparency of the health care system, expedite the process of obtaining health insurance, and greatly expanding the number of individuals who have health insurance. As we've also conjectured, it has some potential downfalls, which may include failing to reduce insurance premium prices and placing a larger burden on the middle class.
As the implementation date grows nearer for Obamacare, a set of surprising new repercussions that few saw coming are beginning to rear their head. While not devastating, the following possibilities do have the potential to negatively impact your health care, the health of your portfolio, and the economy as a whole.
1. Hospitals are cutting back on capital expenditures.
The hospital sector has been revered as the biggest winner of all under the new health care reform -- and it's not hard to understand why. The two largest hospital operators in the U.S., HCA Holdings (NYSE:HCA) and Tenet Healthcare (NYSE:THC), both lost a significant sum of their revenue to doubtful accounts last year by treating patients who were unable to pay their bill. For HCA, this figure totaled close to $3.8 billion, while it was a more subdued $785 million for Tenet. The individual mandate portion of the PPACA, which requires everyone to carry health insurance, should go a long way to eliminating a good chunk of this doubtful provision.
However, leading up to the implementation of Obamacare, hospitals have a lot of questions to face. Specifically, what happens if uninsured people aren't given the proper training on how to purchase health insurance through the new state-run exchanges, or what happens if the state-run exchanges have technical glitches? The answer to that question is that doubtful accounts may fall by a much smaller sum than expected.
One of my hypotheses until now had been that Obamacare's positive effect on reducing doubtful provisions could allow hospital operators to purchase state-of-the-art equipment that would improve patient care and provide differentiation from other hospitals (i.e., a comparative advantage). We actually may be seeing the opposite of this occurring, with hospitals holstering their spending until a few quarters after the implementation of the PPACA to get a better sense of how many people actually purchased health insurance versus those who are simply choosing to take the end-of-the-year penalty.
This, I proposed earlier this week, could be the reasoning behind weaker sales of the Intuitive Surgical's (NASDAQ:ISRG) da Vinci robotic surgical system. The robotic soft tissue surgical device tends to be costlier than standard laparoscopic procedures, but can reduce hospital stays compared to traditional surgery, possibly making it a cheaper overall option for some people. The device itself, though, costs well beyond $1.5 million, which is a cost that many hospitals would rather not endure with so many question marks still surrounding Obamacare. All told, Intuitive sold just 143 of its devices in the U.S. this quarter compared to 150 last year.
2. Insurance companies are being stingier with their approved procedures/medications.
In contrast to the hospital sector, few industries were expected to be hit harder from Obamacare than the insurance industry.
A year ago, the insurance sector was viewed as a rather opaque marketplace where insurers could raise their premiums at will to cover the costs of medical care. Under the new Obamacare, insurers will be required to spend at least 80% of their premium collected on medical care for their members or return the difference. The obvious beneficiary here should be the plan members, who will either receive much needed medical care or get reimbursed.
What we may actually be seeing is the same gun-shy approach to approving medical procedures and medications among insurers as we've seen in the hospital sector. Yet again, the culprit appears to be the uncertainty surrounding whether a large number of currently uninsured people will remain uninsured. WellPoint made a $4.5 billion bet by purchasing AMERIGROUP last year that it would gain a significant number of currently uninsured low income individuals under the proposed Medicaid expansion. If these people don't sign up for health insurance, then WellPoint's purchase will have been for naught.
In order to do their best to conserve cash leading up into the full implementation of the bill, I wouldn't be surprised to see insurers denying or declining to pick up the tab on what they deem overpriced procedures. Not to pick on Intuitive Surgical again, but the company did mention, "a trend by payers toward encouraging conservative management and treatment in outpatient settings." Another potential victim here is Dendreon (OTC:DNDNQ), whose cellular immunotherapy known as Provenge that's used to treat advanced prostate cancer costs $93,000 annually. By comparison, Johnson & Johnson's Zytiga costs just $5,500 per month ($66,000 annually) and would be the better cost-effective choice for insurers, potentially leaving Provenge out in the cold.
3. The push to part-time employment is a lot bigger than we thought.
It hasn't been a secret that a select few businesses were going to use the scope of the PPACA to their advantage and kick their current and new hires below the 30-hour threshold defined as full-time employment. What's surprising is that many those "few businesses" are turning out to be America's largest employers.
Under the PPACA, businesses of 50 or more employees (defined as medium or large businesses) are required to supply health care options to their employees. While they aren't required to subsidize the cost of their employee's health care premiums, they do run the risk of being fined from $2,000 to $3,000 per employee for each instance of premium costs totaling more than 9.5% of an employee's income. As you can see, for the nation's largest companies that don't already have universal health benefits in place (e.g., Costco), this could be a costly dilemma.
Despite a survey conducted by the Federal Reserve Bank of Minneapolis in March that indicated only 4% of respondents had altered their hiring habits to part-time or cut workers' hours in response to the coming implementation of Obamacare, the repercussions on take-home income and health care availability are huge if this 4% represents any of the U.S.'s largest employers.
Take Wal-Mart (NYSE:WMT), for example, which in 2011 told future employees who work less than 24 per week on average that they'd no longer qualify for health care. In addition, it removed spouses from its insurance plan coverage for those who worked 24 to 33 hours on average per week. You might be thinking, "OK, so this is just Wal-Mart being Wal-Mart!" But remember, prior to Obamacare being passed, Wal-Mart did hire full-time employees. And, most importantly, it is still the No. 1 retail employer in the U.S. with 2.2 million employees!
Don't be fooled by the relatively small number of employers that are cutting hours. Instead, note the size of the employers that say they are cutting hours and you'll understand better why that's a big concern with regard to consumer spending growth and the unemployment picture.