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Market Realist Healthcare Weekly Review: May 22–26, 2017

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Market Realist Healthcare Weekly Review: May 22–26, 2017 PART 1 OF 7

Healthcare Sector Updates for May 22–26, 2017

CBO releases its score on AHCA

The Congressional Budget Office (or CBO) and the Joint Committee on Taxation (or JCT) released the revised score on the American Health Care Act (or AHCA) on May 24, 2017. The AHCA was passed by the US House of Representatives on May 4, 2017, to repeal and replace the Affordable Care Act (or ACA) and is awaiting approval from the U.S. Senate.

If the AHCA is passed by the Senate, the CBO estimates that ~23 million people could become uninsured by 2026. This could result in higher bad debt expenses for companies such as HCA Healthcare (HCA) and Universal Health Services (UHS).

The AHCA is expected to cut revenues by $992 billion and direct spending by ~$1.1 trillion, resulting in a net reduction of $119 billion in the federal deficit during a ten-year period from 2017–2026. The CBO has projected that Medicaid spending could fall $880 billion in the next ten years.

This may have an unfavorable impact on health insurance companies such as Centene (CNC) and WellCare Health Plans (WCG), which have higher exposure to the Medicaid business.

CMS approves direct insurance enrollment

On May 17, 2017, the Center for Medicare and Medicaid Services (or CMS) announced that changes could simplify the process of selecting health plans on health insurance exchanges. In accordance with the new process, in the upcoming open enrollment period, consumers could sign up directly for coverage through third-party websites.

This is a substantial change from the way the process has worked to date when consumers applying through an intermediary website were redirected to the Healthcare.gov website. The process was confusing, and many customers were unable to complete the procedure.

The CMS has also offered to help small businesses in the Federally-Facilitated Small Business Health Options Program (or FF-SHOP) program to find affordable healthcare coverage for their employees by reducing the involvement of the federal government in the process and allowing more flexibility for health insurance companies to offer plans.

Effective implementation of these newly introduced changes can help boost the Health Care Select Sector SPDR ETF (XLV).

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