Today’s the day all U.S. residents are supposed to be covered by health insurance, per President Obama’s Affordable Care Act (also widely referred to as “Obamacare.”
Well, it was supposed to be, anyway.
Due to yet another last-minute enrollment extension, however, the new deadline is now mid-April. Still, it’s not too soon to start dissecting how the actual advent of Obamacare will affect stocks.
And what exactly will the impact of the ACA be on the market? Here are the biggest changes to expect:
#1: Staffing Agencies Will Thrive Under Obamacare
Hiring permanent employees is seen as risky enough in a wobbly economic environment, but when the added financial burden of providing health benefits for employees is thrown into the mix – against the backdrop of a complicated law, no less — some employers might reach the point of exasperation.
Their best solution is outsourcing the HR functions to a staffing agency, aka a “temp agency,” whose workers are rarely as temporary as the moniker would suggest. Staffing agencies have the resources and willingness to become experts on Obamacare, freeing up their client companies to focus on their business.
Kelly Services is a go-to resource for longer-term temps who would otherwise be subject to Obamacare’s mandates. Perhaps more importantly, it has the size and scale to effectively be the Obamacare go-between….. it’s the nation’s second-biggest employer, and can leverage that dominance in securing new contracts as employers get more and more fed up with the ACA.
As for Robert Half, it’s specialty is professional-level staffing, particularly finance and accounting professionals, and some law-related workers… people who are also more apt to be placed in long-term, full-time roles and also due for ACA-mandated insurance. It also has done a great job at positioning itself as a solutions provider for the era of Obamacare with its “Patient Protection and Afforddable Care Act” guide for employers being one example.
#2: Generic Drugmakers Will Go From Good to Great
Not that they were struggling to begin with, but now that healthcare costs are poised to rise not just for individuals, but for caregivers and insurers, all the stops are going to be pulled out in an effort to contain care costs as much as possible.
An even-stronger demand for cheaper, generic drugs is apt to materialize as a result.
The irony is that demand for generic drugs has already grown to the point where prices for some key generics have already soared, in some cases to nearly the same price as the original, non-generic version. The price of cholesterol-reducing Pravastatin, for instance, jumped roughly 1,000% in 2013 as earlier phases of Obamacare took hold.
While generic drug prices will likely stabilize somewhere below prices of non-generic versions, the proverbial cat is out of the bag — generic drug companies like Mylan (MYL) and Teva Pharmaceutical (TEVA) are perfectly positioned.
#3: The Housing Market Will Cool Considerably Under Obamacare
To give credit where it’s due, Ethan Roberts first made the detailed argument. But the gist of his premise is simply that because of the higher costs of healthcare (one way or another) under the Affordable Care Act, people are now being forced to choose between spending to own a home, or spending on healthcare/insurance.
It’s not just higher premiums or higher deductibles (or both) that are going to reduce the amount of income available to spend on home ownership, however. Incomes are dropping too, as hours worked per week are apt to keep slipping from the standard full-time 40 hours to less than 30 per week; employees who work less than 30 hours per week aren’t required to be covered by employer health plans.
#4: Hospitals Will Either Soar or Stumble … Nothing in Between
The impact of Obamacare on hospitals — not HMOs, but hospitals themselves — has been hotly debated. Some argue that the Affordable Care Act will prove beneficial to hospitals because more patients will now have insurance coverage, and since they have insurance, they’re more apt to visit and incur care that leads to reimbursement from an insurer.
The counterargument is, the ACA reimbursement schedule for hospital care is so stingy, it’s going to be tough for a hospital to turn an actual profit. The dividing line is quality of care — hospitals that can provide quality care and in a sense (ironically) reduce volume stand to fare better than facilities that offer poor service or aren’t cost-efficient.
So how does Obamacare distinguish between high-quality and low-quality care? A section of the ACA known as the Readmissions Reductions Program is one such way. The program tracks reasons for patient entries into healthcare facilities, and if a patient was discharged less than a month earlier and is returning for the same reason, stiff penalties could apply. Patient satisfaction surveys will also play a role in how – or if — a hospital is reimbursed.
Point being, hospitals that are thorough, conscientious and cost-effective will find Obamacare to be something of a blessing.
There are few publicly traded, pure-play hospital stocks left that can dependably dole out quality care. HCA Holdings (HCA) and Community Health Systems (CYH) are two hospital names investors can probably trust.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.