The Financial Appeal of an Obamacare Repeal
May 17th 2013 5:20PM
Updated May 17th 2013 6:25PM
It's often said that the definition of insanity is doing the same thing again over and over and expecting different results. Some people probably thought of this line after the U.S. House of Representatives voted to repeal Obamacare yesterday -- for the 37th time (counting defunding attempts.) While no one really expects the Senate to take action, the political reality is that there were different results: Several new freshmen in Congress were given the opportunity to vote for or against the controversial legislation for the first time.
I'll leave it to others to debate the politics of Obamacare, but I am interested in the financial and investing implications of any curtailing of the law. Let me first say that I don't expect a full repeal to happen anytime soon. However, there could be support for a rollback of some Obamacare components. Here are two areas that have at least a shot at reversal and the financial appeal for these repeals to happen.
Cutting some cuts
Obamacare includes significant cuts for hospitals. These cuts particularly impact those hospitals that provide care for poor and uninsured patients. The thought behind these deep cuts was that more uninsured Americans would be covered through the expansion of Medicaid or by private insurance obtained through Obamacare health insurance exchanges.Â
Last year, though, the Supreme Court ruled that the federal government couldn't force states to expand Medicaid as called for in Obamacare. So far, at least 15 states have opted out of expanding the program with a few others leaning toward no expansion. The dynamics have changed since Obamacare was passed, but those cuts are still scheduled to go into effect beginning next year.
President Obama now proposes to delay the cuts by one year. Expect considerable pressure on both parties to enact an even longer delay. The prospect of a push to reduce these cuts in states that don't expand Medicaid also seems likely. It will probably be difficult for politicians to argue persuasively for cuts that were intended to counterbalance financial gains that now won't be realized.
Hospitals in states that don't plan to expand Medicaid will benefit the most if this part of Obamacare is rolled back. For example, the nation's largest hospital chain, HCA Holdings , operates facilities in at least seven states in this group. Around one-quarter of HCA's beds are in Texas, which isn't expanding Medicaid. Another 25% of the company's beds are in Florida, which so far hasn't moved forward with expansion.
Excising the excise tax
Medical device makers howled when Obamacare passed with a new 2.3% excise tax on medical devices. Some lawmakers from both sides of the political spectrum have also been howling lately.Â
In March, the U.S. Senate voted overwhelmingly to repeal the medical device tax with 79 in favor and only 20 against the measure. Interestingly, many senators who originally voted for Obamacare went along with rolling back this part of the legislation. However, the repeal was tucked into the Senate's budget, which is a non-starter in the House of Representatives. There are some realistic scenarios, though, where this medical device excise tax could be booted. Considerable support exists in both political parties to do so.
If any of these scenarios actually unfold, expect many medical device stocks to receive a nice bump. My hunch is that some medical device makers that haven't performed quite as strongly as peers would likely receive the biggest benefit. For example, Medtronic is up around 18% year-to-date -- less than several others in the industry. Medtronic estimated that the tax would eventually cost as much as $175 million per year. That amounts to nearly one-fifth of the company's earnings in the last quarter.
Axing the act
Skeptical about the possibility that any part of Obamacare would ever be undone? If so, consider that President Obama has already signed several bills that limit the reform law. One example is the CLASS Act, which provided payments for long-term care. This original component of Obamacare was repealed as part of the fiscal cliff deal agreed upon by the White House and Congress.
Again, I don't think Obamacare is about to collapse altogether. But the possibility that Washington will take the axe to some parts of the legislation doesn't seem too far-fetched. Investors should find several stocks appealing if Congress keeps repealing.
The article The Financial Appeal of an Obamacare Repeal originally appeared on Fool.com.Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of Medtronic. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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