In part two of this two-part series, Motley Fool analyst Kristine Harjes and contributor Todd Campbell discuss proposals being made by Republican presidential hopefuls Donald Trump, Ted Cruz, and Marco Rubio. What impact will their plans to repeal Obamacare have on healthcare stocks? Find out in this clip from this week's Industry Focus: Healthcare.
What plans do the Democratic front-runners have for healthcare? Click here to find out.
A transcript follows the video.
This podcast was recorded on Feb. 24, 2016.
Kristine Harjes: Let's turn to the other side of the table and talk about some of our Republican candidates. What does Donald Trump want to do?
Todd Campbell: Well, you know all of the Republican candidates have said that they want to repeal Obamacare, get rid of it.
Harjes: Which is not shocking.
Campbell: Yeah, that's not surprising. That's been their long-standing view. They want to go back to more of a free market solution. Trump hasn't gone into a tremendous amount of detail on what he would do. In a 60 Minutes interview last fall -- I encourage all the readers to Google that, you can see the transcript of it -- he indicated that he'd like to repeal it, calls it a catastrophe and a disaster, and then replace it with another program that basically tore down the imaginary lines that prevent insurers from competing across from state to state to state. He also wanted to incorporate hospital care to take care of those who don't have insurance somehow.
He didn't really go into a lot of detail of how he would fund in, what the cost would be, or what Trumpcare would look like.
Harjes: Talk to me a little bit about the interstate competition aspect of this.
Campbell: Yeah. The way it works right now is that every state has their own insurance regulator, and every insurer that wants to participate within that state has to apply to that regulator and follow by the rules of each individual state. The argument against that would be that it prohibits larger patient pools that could spread the risk across more people, and as a result, it inflates the cost of premiums to consumers. Thereby, if you get rid of those state lines, you allow for the interstate competition between insurers, you could get larger patient pools, and theoretically, that would drive down premiums. I'm not sure how that would address, necessarily, high-risk pools, people with existing conditions, that type of thing, but that's the argument.
Harjes: Okay. Is this something that we're seeing the other Republicans agreeing with?
Campbell: Yeah, actually. If you look at Ted Cruz and Marco Rubio, two other, we'll call them frontrunners, on the Republican side, they all say similar things in that they want to get rid of Obamacare, get rid of the restrictions that prevent competing across state lines for pools. There are some subtle differences, however, between Cruz and Rubio that investors and Americans overall should probably be aware of.
Cruz definitely would appear to be more interested in a free market approach to the health insurance industry. Rubio has suggested a refundable and advanceable tax credit that people would be able to use to pay for their health insurance. Both candidates have said, "Hey, let's try and decouple insurance from employers so that you can move from job to job without worrying about losing your insurance." Cruz hasn't said how he would do that, but Rubio has said that these tax credits could do that.
Harjes: Are these tax credits kind of in the form of HSAs? Is that what we're looking at?
Campbell: No, what he's saying is that ... currently, the way it is now, is that you have tax deductions that you can take once the spending on medical eclipses certain levels of your adjusted gross income. That reduces your taxable income, but it doesn't have as big a benefit as a tax credit would be, which actually reduces how much you owe in taxes, dollar for dollar. What he's saying is that it would actually provide a refundable tax credit. That would mean that, theoretically, you could get money in your pocket every year that you could use to help pay for your premiums. He also did say, though, that you could use that money to establish HSAs, if you wanted to. You could use it any way you want to help lower your healthcare costs.
Harjes: Got you. Looking at all these different plans, they're clearly very different from one another. As an investor, what do you do? Is there a way that you can play on any of these trends?
Campbell: In broad terms, yes. I think that obviously the drugmakers would do best under the Republican proposals, in my view, because the Republicans haven't really come out with specific plans to rein in drug pricing. I think insurers would probably be net neutral in a Republican situation because, while they're not making money on Obamacare plans now, they all think that they eventually will, and that those margins will be about 2% to 3% --
Harjes: Or that they'll just drop.
Campbell: Theoretically, you could lose millions of consumers that way.
I think overall, hospitals probably, providers of healthcare services, would do best under all of these plans, because, theoretically, the more people who can get access to care, the better.
Harjes: Yeah. I would expect some volatility, though, at the least.
Campbell: Yeah. I think that we're already seeing that in healthcare stocks since last fall. It could very well be that if you look at ... this is something our investors remember too. If you look at the debate leading up to the elections that preceded Obamacare, healthcare stocks really got punished. There was a lot of misinformation and a lot of people worrying that the healthcare sector would implode if something like this passed. That's not come to fruition. Healthcare was, indeed, one of the best-performing baskets in the market once Obamacare actually launched.
Try not to make any short-term decisions based upon what these presidential candidates are proposing. Look at each individual stock as a business first, and then go from there.
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