Healthcare Reform: Who Suffers?

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Healthcare Reform: Who Suffers?

September 28
19:01 2017

Yet another attempt is underway to repeal and replace Obamacare. This one, called the Graham-Cassidy bill, aims to give states money to deal with the issue, while peeling back Obamacare’s coverage mandates and winding down its Medicaid expansion.

So it seems only right to look at how hospital stocks and health insurers leveraged to Medicaid might fare if the legislation becomes law.

The Wall Street Journal reports that the latest push to repeal the Affordable Care Act has gained momentum in the Senate, but still faces big challenges.

Leerink’s Ana Gupte and John Sourbeer see “improved odds” of passage by the Sept. 30 reconciliation deadline. In that event, the pair sees greater earnings downside for companies levered to Obamacare in the near term than the previous House and Senate repeal-and-replace efforts.

Gupte and Sourbeer offer these details regarding the hows, the whys and the which ones.

Specifically, the bill proposes flat funding for Exchanges and Medicaid expansion through a block grant of $136 B in 2020, unchanged from the current ACA baseline in 2017. We expect that this contemplates an absolute reduction in funding in 2018 and 2019 to smooth the transition while any HIX related stabilization could be limited. The bill is more benign in the medium term 2020 to 2026 than previous Repeal and Replace proposals AHCA and BCRA with a mid-single-digit funding CAGR from $136 B to $200 B in block grants by 2026. Further, the funding is designed to drive a more level playing field between current expansion and non-expansion States. Medicaid HMOs CNC (MP) and MOH (OP) in particular that are levered to the ACA across both Exchanges and Medicaid expansion are likely to be impacted to the downside even in the near term 2018-2019. Hospitals are also likely to face downside but to a lesser extent. Diversified MCOs are more defensive particularly HUM (OP) and CI (OP), though we see the exposure as manageable even for AET (MP), UNH (OP), and ANTM (OP). Further, we expect that the bill may potentially be able to fund a delay or repeal of the Obamacare Health Insurer Provider Fee through tax reform if it should successfully pass legislation. Key upcoming catalysts include a Senate Finance Committee hearing on Sept. 25th with a floor vote before month-end through reconciliation.

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