Obamacare 6.0 – Six Year Anniversary Update

On March 23rd of this year, the Affordable Care Act dubbed “Obamacare” reached its sixth year as the law of the land. From the laughably long waits to sign up, and the whiz kids from silicon valley who rescued the system, to all the Supreme court proceedings, Obamacare surmounted a fair number of obstacles. There have been heated debates on both sides of the political spectrum. The democrats argue that the ACA is a success. The Republicans vow to repeal it (actually they voted to do just that, but President Obama vetoed their attempt to quash the law)

The positives:

  • Millions of previously uninsured Americans now have health care coverage.
  • Patients with pre-existing conditions can now get insurance; which was nearly impossible before the law was enacted.

The negatives:

  • Many people cannot see the doctor of their choice despite Obama’s repeated claims that Americans can keep their doctors.
  • Insurance premiums for some people have gone through the roof making the “affordable care act” less affordable.
  • Many insurance companies have failed as the risk corridors (which enable the government to compensate insurers that underestimated costs and undercharged their policyholders) paid out much less than insurers expected because the funds were quickly exhausted. Worse still, the risk corridor program is going to expire this year.
  • The number of young people signing up for care, while growing, is still short of expectations. Relatively healthy people coming into the system would help balance out the payments to the more illness-prone elderly population. While penalties are kicking in for those that don’t enroll, younger individuals would rather pay a penalty than the cost of a policy.

At In Sickness and Wealth, we are always trying to analyze which companies will benefit in the long run. While ACA fans might be quick to attribute the new law as being the reason for the rally in the healthcare sector, most market experts would argue to the contrary. Healthcare stocks were strong out-performers long before the ACA was passed. And the stock market has been generally rising since 2010. But with millions of new enrollees, there will be an additional tailwind for healthcare investors. Of course we will watch the “payers” closely as they will have tremendous power in the next several years in determining healthcare spending trends. It is still very early in the game, and the success or failure of the Affordable Care Act will not be judged over 6 years, but many years from now when we have a greater handle on the quality of health care offered as well as costs, reimbursements and general availability of healthcare.

Below are two tables. The first highlights some of the winners over the last few years. The second focuses on some of the laggards.

Company Cumulative Return 6-yrs ending 4/1/16 Annualized Return 6-yrs ending 4/1/16
Regeneron Pharmaceuticals 1444% 57.0%
Allergan 530% 35.9%
Illumina 324% 27.8%
Gilead 310% 26.6%
United Health 293% 25.6%
Cigna 269% 24.3%
Edwards Lifesciences 258% 23.6%
Company Cumulative Return 6-yrs ending 4/1/16 Annualized Return 6-yrs ending 4/1/16
Endo 21.5% 3.3%
Tenet Health 21.8% 3.3%
St. Jude Medical 32.9% 4.8%
Valeant Pharmaceutical 68.7% 9.0%

As this is an election year, there are sure to be fireworks as republicans and democrats slug it out both in the primaries and the general elections. Many republicans want the ACA either repealed or major structural changes made. This could be a risky strategy, as taking away entitlements is never a popular strategy. STAY TUNED.

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