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Negative Sentiment Will Impact Health Insurance Companies

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Drop in share prices

The healthcare bill’s failure had a negative impact on investor sentiment for health insurance carriers. From March 23, 2017, to March 27, 2017, Cigna (CI), Aetna (AET), UnitedHealth Group (UNH), and Anthem (ANTM) witnessed a fall in share prices of ~2.1%, 1.2%, 0.4%, and 1.9%, respectively.

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Health insurance companies

Unlike the Affordable Care Act, also known as “Obamacare,” which is aimed towards universal coverage, the American Health Care Act, also known as “Trumpcare,” was written for universal access. It implied that people had a choice whether they wanted to be covered by health insurance plans. The new bill would have made it more expensive for people buying health insurance if they suffered from pre-existing conditions. The new bill also planned to restrict coverage for behavioral health and substance abuse services.

If the new bill would have been implemented, it would have allowed health insurance carriers to offer health plans without covering all the ten essential health benefits required under the Affordable Care Act. It would have made it much more lucrative for health insurance companies to offer plans on exchanges—a key issue for these companies throughout 2015 and 2016. To learn how UnitedHealth Group (UNH), the largest health insurance company in the US, was impacted negatively by the public exchange business, read UnitedHealth Group May Exit Public Exchanges in 2017.

Health insurers could have charged higher premiums to people with pre-existing conditions. It would help insurance companies reduce risks and subsequent losses. The bill also planned to remove the requirement of offering coverage for mental health services from Medicaid plans.

All of these changes would have helped boost health insurance carriers’ profit margins in 2017. The bill’s failure has been viewed as a negative for the health insurance industry. It can also have a negative impact on share prices of the Health Care Select Sector SPDR Fund (XLV). UnitedHealth Group, Aetna, Anthem, and Cigna account for ~5.6%, 1.6%, 1.6%, and 1.4%, of XLV’s total portfolio holdings.

In the next part, we’ll analyze how Trumpcare’s failure impacted pharmaceutical and biotechnology stocks.

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