President Donald Trump is threatening to strip health insurers of key Affordable Care Act subsidies to force a repeal of Obamacare. But health care stocks remained stable on Monday, suggesting that investors either see Trump’s threats as empty or have already priced in further deterioration of the federal health insurance exchange.
On Friday, Trump tweeted his desire to “let ObamaCare implode.” On Saturday, he tweeted some specifics. “If a new HealthCare Bill is not approved quickly, BAILOUTS for Insurance Companies and BAILOUTS for Members of Congress will end very soon!”
[See: 11 Health Care Stocks for a Regular Dose of Income.]
Trump’s reference to “bailouts” pertains to the cost-sharing reduction, or CSR, subsidies that provide government funding to insurance companies to help reduce health care costs for low-income Americans. Trump has repeatedly threatened to stop paying these subsidies but has yet to follow through with the threat. The most recent payment was made roughly a week ago.
If insurance companies stop receiving CSR subsidies, they may have no choice but to either raise premiums or drop out of ACA markets. Lobbyist group America’s Health Insurance Plans estimates that the elimination of CSR payments would trigger a 20 percent rise in premiums. Veda Partners health care analyst Spencer Perlma says that eliminating payments could “immediately destabilize the exchanges, perhaps fatally.”
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Roughly six months into Trump’s term, uncertainty has become par for the course for insurance investors. Republicans have struggled to present a united front on health care reform and have yet to get a piece of legislation passed by the Senate.
At this point, health care investors may be resigned to the chaos. On Monday, shares of insurers Aetna (NYSE: AET), Anthem ( ANTM), Cigna Corp. ( CI) and Humana ( HUM) all traded lower by less than 1 percent.
E Squared Capital Management health investor Les Funtleyder says investors are betting that the president and Congress won’t end up making any meaningful changes to the current system.
“Most of the stocks are basically calling the Congress’s bluff, in that really nothing material is going to happen,” Funtleyder says.
[See: 7 of the Best Health Care Stocks to Buy for 2017.]
Several of the largest insurers, including Aetna and Humana, have already announced they will not be participating in the health exchange market in 2018. Anthem recently announced it will be pulling out of the Ohio, Wisconsin and Indiana marketplaces next year as well.
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