Healthcare Stocks Make a Dumb Move on ‘Trumpcare’

The GOP's Senate bill is bad for healthcare and these stocks in particular

healthcare stocks - Healthcare Stocks Make a Dumb Move on ‘Trumpcare’

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This is not a political column, although I am certain some will read it as one. Healthcare stocks should not have risen Thursday on news of the Senate’s “Trumpcare” draft.

Healthcare Stocks Make a Dumb Move on 'Trumpcare'
Source: Shutterstock

Hospitals, especially, were up. Tenet Healthcare Corp. (NYSE:THC) was up 6.9% on the day; Community Health Systems (NYSE:CYH) was up 5.1%; HCA Healthcare Inc (NYSE:HCA) was up 2.1% and gained another dime per share overnight.

UnitedHealth Group Inc (NYSE:UNH) hit an all-time high, adding almost $3 billion to its market cap. Even drug giant Pfizer Inc. (NYSE:PFE), which hardly ever moves anywhere, is now worth $1 billion more.

This is madness.

Taking money out of an economic sector and placing new burdens on it does not improve the outlook for anyone. That’s what this bill does.

Money Down, Burdens Up

The whole point of the Trumpcare bill is to cut government support for privately run healthcare, and turn the savings into a tax cut.

Hospitals like Tenet were rallying employees against this bill, because they know that.

The Affordable Care Act, which this bill supplants, put hundreds of billions of dollars into the healthcare sector, expanding Medicaid so companies like Centene Corp (NYSE:CNC) could afford to take on the burdens of managed care.

Centene rose almost 3% on the Trumpcare bill news. This may have been the biggest trader own-goal of the lot. Cutting Medicaid turns managed care from a good business into a horrible business.

Managed care, unlike regular insurance, hands companies a yearly payment and gives them responsibility for keeping people well, instead of providing a backstop when people get sick. It saves money, because if people get regular check-ups they are less likely to become sick. Even if they have a chronic condition like diabetes, managed care keeps them out of the hospital.

Don’t the bulls know that this bill guts managed care? You take money out and people won’t want to do the business. That’s why the insurers, like Anthem Inc. (NYSE:ANTM), were pulling out of the Obamacare exchanges — the subsidies were not big enough in their view to make money. The exchanges were becoming a great new market for managed care outfits.

You don’t make bigger profits when the biggest customer gives you less money.

Sicker People Need More Care

When people don’t have insurance, they don’t get check-ups. When people with chronic conditions don’t have insurance, they scrimp on their medication. They get sicker. They go to hospitals. Under rules set in the 1980s, hospital emergency rooms must see these people. That was a big reason the ACA passed — people of means could not get emergency care because this high-cost space was filled with poor people.

Any savings claimed from dropping managed care gets sucked-up by these costs. That’s why employer insurance rates were so high a decade ago, and why hospital bills were so high. They were shifting costs for dealing with poor, sick people onto the paying public.

That’s why U.S. healthcare cost 17% of GDP, while the countries we compete with were paying 11% and less. The bill does nothing about the real drivers of high costs, like the lack of bargaining over drug prices and formularies.

In civilized countries, new drugs must not only prove they work, and that they’re safe, but that they’re affordable. The U.S. has never been civilized in this way.

Bottom Line on the ‘Trumpcare’ Trade

Even with this bill, the U.S. government will be spending more on healthcare than anyone in the world. Veterans get the equivalent of a British single-payer system. Medicare is the equivalent of a German system, where everyone must have coverage. Medicaid was becoming the same.

You think you’re saving money by cutting Medicaid and Medicare? You’re costing money, by gutting the forces that were bending the cost curve down with prevention and managed care.

We knew that 10 years ago. Claiming that some “Ayn Randian” fairy dust isn’t going to make it true tomorrow is madness.

Sell the healthcare stocks.

Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.


Article printed from InvestorPlace Media, https://investorplace.com/2017/06/healthcare-stocks-make-a-dumb-move-on-trumpcare/.

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