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Obamacare: Biggest Winners and Losers

Posts by Ian Wyatt

No single issue is more divisive than President Barack Obama’s health care initiative.

The Affordable Health Care Act for America – better known as “Obamacare” – is the biggest change to our health care system since the launch of Medicare and Medicaid in 1965. And it’s at the heart of the current government shutdown . . .

Regardless of whether you support Obamacare, the transformation of health care presents both profit opportunities and potential pitfalls.

At its most basic level, Obamacare aims to bring health insurance to every American.  The nonpartisan Congressional Budget Office has estimated that uninsured Americans will decline 60% by 2019. And that means 32 million additional Americans will be insured and more likely to seek health care.

One big winner from more insured Americans are the hospitals. 

That’s because hospitals operate as for-profit businesses that provide a public health service.  Because of the public service component, hospitals are required to provide care to any individual, regardless of whether they have insurance or can afford the care.

That can saddle hospitals with huge losses. In 2011 for example, hospitals provided $41 billion of services for which they were not paid.

If Obamacare ever is implemented, more Americans will have health insurance than ever before.  And than means that newly insured people are likely to visit the doctor more frequently. That may translate into fewer emergency room visits. But it also means that if they do show up in the E.R., their insurance will pay the bill.

As a result, routine medical care revenues should grow.  And the bad debt incurred by hospitals will similarly decline. That could boost both top-line revenues and profit margins for health care providers. 

That’s just one of the reasons that health care stocks have been performing well. The iShares U.S. Healthcare ETF (NYSE: IYH) is a fund that tracks 114 big health care stocks. It’s up 24% year-to-date, easily beating the 13% gain for the S&P 500.

But ETFs like this often are heavily invested in big pharmaceutical companies. For example, the IYH has 27% of its portfolio invested in the three biggest pharma stocks. If you’re looking to invest directly in the health care service providers, you’re far better off picking individual stocks.

It’s no surprise that hospital stocks have been strong performers this year.  For example, HCA Holdings (NYSE: HCA) is up 46% and Tenet Healthcare (NYSE: TCH) is up 38%. And that outperformance is likely to continue if Obamacare is actually implemented in 2014.

So who are the losers in all of this?  Sadly, it’s the Americans who already have insurance that get the short end of the stick.

Here in Vermont, the cost of individually purchased insurance for a 40-year-old male will rise by 104%. And in the 13 states plus Washington, D.C. – where health exchange rates have been published – the average increase is 24%.

At Wyatt Investment Research, we provide health insurance for our employees.  Come 2014, we’ll be participating in the Vermont health exchange.  Like most states that are implementing a health exchange, there have been numerous delays and considerable amounts of misinformation here in Vermont. 

While the exact numbers haven’t yet been made available, one thing is clear: premiums will be up at least 10% and deductibles will be considerably higher. That will impact the pocket of either employers or employees.

I know I can’t stop Obamacare . . .nor can I change the facts about rising health insurance costs.  But I know that there will be winners in the next several years as more Americans begin relying on health care services.

And with the tailwinds of Obamacare and an aging population of baby boomers a reality, it’s time to buy health care stocks. 

I want to hear from you.  What do you think of Obamacare? How are you investing your portfolio to profit from the health care sector?  What are your favorite health care stocks?  Please send me an email – I’ll be sharing your ideas in an upcoming Reader Mailbag issue of Daily Profit.

My email address is editorial@dailyprofit.com. You can expect more on this in the weeks ahead . . .