Health care stocks were mixed Friday as investors reassessed the potential effect that the Senate’s proposed bill to toss out much of Obamacare could have on the bottom lines of hospitals and insurers.
Investors in the health sector, which also include drug makers and medical device companies, initially breathed a sigh of relief that the draft bill unveiled Thursday — aimed at repealing and replacing the Affordable Care Act — was a more moderate version of the earlier House bill.
Health care stocks rallied sharply Thursday soon after the bill was released.
But the bullish sentiment cooled a bit on Friday. Investors refocused on the fact that the bill could eventually result in fewer insured people, as well as criticism from lawmakers and members of the health care community that steep cuts to Medicaid coverage down the road could hurt state budgets and make it harder for the poor to get coverage.
The health care sector was little changed Friday, easing just 0.09%. For the year, the sector is up nearly 17%. That compares with a nearly 9% gain for the broad U.S. stock market.
“The (Senate) bill would still be negative versus current law with large coverage losses if passed as is,” Michael Newshel, an analyst at Evercore ISI, wrote in an investor note.
Hospital stocks rose Friday after a major rally a day earlier, with HCA Holdings up 0.12% and Universal Health Services finishing 0.2% higher.
The bill’s proposals also call for a phase out of Obamacare’s Medicaid expansion and the elimination of individual must-have-insurance mandates.
Insurer stocks were lower. Aetna and Anthem fell 0.6% and 1.2%, respectively.
Centene and Molina Healthcare, two of the largest players in the Medicaid managed care business, fared better, retaining their gains on Friday. The Senate plan proposes to extend coverage for people covered through Medicaid expansion funding through 2024 rather than 2020.
While some investors were heartened by the extension, others focused on the inevitability of the phase out.
“Decreasing Medicaid funding will put a strain on already-struggling state budgets and will only get worse as time goes on,” Molina said in a statement. “States will need to respond by either cutting eligibility, eliminating health care benefits, or paying providers even less than Medicaid pays today.”
Still, there are pluses for stocks under the Senate plan, according to Wall Street analysts. They include: a “less draconian” approach to drug pricing; eliminating taxes paid by the rich to pay for Obamacare; and establishing two funds totaling $119 billion to stabilize the individual insurance exchanges, which have come under pressure due to rising premiums.
“The Senate bill, though similar to the House bill, is seen as more moderate,” said Jeffrey Loo, health care equity analyst at CFRA Research.
The Senate’s plan eliminates the penalty Americans had to pay for not getting health care coverage. But it keeps Obamacare tax-credit driven subsidies to help offset the cost of health insurance for those that don’t get coverage at work.