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Trump Promises Interstate Coverage Sales, Will It Help Insurance Stocks?
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Just a day after Republicans unveiled their highly-anticipated plan to repeal and replace Obamacare, President Donald Trump has taken to Twitter to promise that one key provision—eliminating state lines for insurance sales—will come at a later phase in the healthcare rollout.
The American Health Care Act
The House Republicans’ new legislation, dubbed the “American Health Care Act,” would immediately remove the individual mandate, a polarizing piece of the Affordable Care Act that requires individuals to have insurance coverage, while also ending the rule that businesses must offer coverage to their full-time employees.
The new law would also eliminate many of the new taxes set up to fund the Obama administration’s 2010 bill, and its own attempts to make healthcare more affordable would center around a refundable tax credit for people making under $75,000.
The Republican plan notably maintains some of the more popular elements of Obamacare, including mandates which allow minors to remain on their parents’ plans until age 26 and protect patients with pre-existing conditions from being denied coverage. However, the law features some uniquely conservative elements, including a restriction on the use of Medicaid funds at reproductive care providers like Planned Parenthood.
What’s Missing
The proposal has not yet been evaluated by the Congressional Budget Office, and many critics have already questioned its ability to provide coverage for the nearly 20 million people who enrolled for plans under Obamacare.
Interestingly enough, the elimination of state border-based restrictions for insurance offerings, an idea that President Trump has supported in the past, was left out of the first versions of the American Health Care Act.
Nevertheless, President Trump vowed that this provision would eventually be included in his healthcare reform plan:
Don't worry, getting rid of state lines, which will promote competition, will be in phase 2 & 3 of healthcare rollout. @foxandfriends
For a believer in the free market, interstate insurance sales seem like an obvious idea on paper. Allowing companies to sell plans across state lines could increase competition, and a staple of conservative economics is that competition promotes both lower prices and more choices for the consumer.
Setting aside for a moment the fact that the reality of this outcome is questioned by many, let’s consider whether or not a more competitive environment would be good for insurance companies. Remember, one of the main problems that insurance giants like Aetna , Humana (HUM - Free Report) , and UnitedHealth (UNH - Free Report) have had under Obamacare is that not enough healthy customers are buying plans, which is creating a risk pool with sicker, costlier patients.
Would interstate sales help insurance companies reduce their risk? Well, this could open some insurance companies up to a much larger pool of patients, which could very well reduce their risk and help their bottom lines.
However, an environment of increased competition, while seemingly advantageous for customers, could initiate a price war that may make it difficult for companies to maintain their current profits.
Of course, we must also consider that interstate sales may not be the most practical option for insurance companies. Out-of-state insurers may struggle to reach network deals with local doctors and hospitals, and adhering to each state’s unique patient protection laws would be messy at best.
There are currently five states that allow companies to offer insurance plans across state lines, but according to a recent report from the National Academy for State Health Policy, no insurer has yet to offer coverage pursuant to these laws.
In the short term, the biggest questions about this policy surround the exact phrasing of President Trump’s proposal and the up-front costs that would be associated with attempts to offer plans in different states.
Since we know very little about Trump’s interstate insurance plan outside of his recent tweet, it is nearly impossible to determine whether the new law would be beneficial enough for insurance companies to look past these up-front costs and invest in cross-state offerings.
But even if interstate insurance sales never makes it to the GOP repeal and replace plan, we can be sure that the next few months of legislative debate and attempted reform will cause fluctuation and volatility throughout the healthcare sector. Investors should be careful to stay informed and up to date on all of the latest news and proposals.
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Trump Promises Interstate Coverage Sales, Will It Help Insurance Stocks?
Just a day after Republicans unveiled their highly-anticipated plan to repeal and replace Obamacare, President Donald Trump has taken to Twitter to promise that one key provision—eliminating state lines for insurance sales—will come at a later phase in the healthcare rollout.
The American Health Care Act
The House Republicans’ new legislation, dubbed the “American Health Care Act,” would immediately remove the individual mandate, a polarizing piece of the Affordable Care Act that requires individuals to have insurance coverage, while also ending the rule that businesses must offer coverage to their full-time employees.
The new law would also eliminate many of the new taxes set up to fund the Obama administration’s 2010 bill, and its own attempts to make healthcare more affordable would center around a refundable tax credit for people making under $75,000.
The Republican plan notably maintains some of the more popular elements of Obamacare, including mandates which allow minors to remain on their parents’ plans until age 26 and protect patients with pre-existing conditions from being denied coverage. However, the law features some uniquely conservative elements, including a restriction on the use of Medicaid funds at reproductive care providers like Planned Parenthood.
What’s Missing
The proposal has not yet been evaluated by the Congressional Budget Office, and many critics have already questioned its ability to provide coverage for the nearly 20 million people who enrolled for plans under Obamacare.
Interestingly enough, the elimination of state border-based restrictions for insurance offerings, an idea that President Trump has supported in the past, was left out of the first versions of the American Health Care Act.
Nevertheless, President Trump vowed that this provision would eventually be included in his healthcare reform plan:
Could It Help Insurance Stocks?
For a believer in the free market, interstate insurance sales seem like an obvious idea on paper. Allowing companies to sell plans across state lines could increase competition, and a staple of conservative economics is that competition promotes both lower prices and more choices for the consumer.
Setting aside for a moment the fact that the reality of this outcome is questioned by many, let’s consider whether or not a more competitive environment would be good for insurance companies. Remember, one of the main problems that insurance giants like Aetna , Humana (HUM - Free Report) , and UnitedHealth (UNH - Free Report) have had under Obamacare is that not enough healthy customers are buying plans, which is creating a risk pool with sicker, costlier patients.
Would interstate sales help insurance companies reduce their risk? Well, this could open some insurance companies up to a much larger pool of patients, which could very well reduce their risk and help their bottom lines.
However, an environment of increased competition, while seemingly advantageous for customers, could initiate a price war that may make it difficult for companies to maintain their current profits.
Of course, we must also consider that interstate sales may not be the most practical option for insurance companies. Out-of-state insurers may struggle to reach network deals with local doctors and hospitals, and adhering to each state’s unique patient protection laws would be messy at best.
There are currently five states that allow companies to offer insurance plans across state lines, but according to a recent report from the National Academy for State Health Policy, no insurer has yet to offer coverage pursuant to these laws.
In the short term, the biggest questions about this policy surround the exact phrasing of President Trump’s proposal and the up-front costs that would be associated with attempts to offer plans in different states.
Since we know very little about Trump’s interstate insurance plan outside of his recent tweet, it is nearly impossible to determine whether the new law would be beneficial enough for insurance companies to look past these up-front costs and invest in cross-state offerings.
But even if interstate insurance sales never makes it to the GOP repeal and replace plan, we can be sure that the next few months of legislative debate and attempted reform will cause fluctuation and volatility throughout the healthcare sector. Investors should be careful to stay informed and up to date on all of the latest news and proposals.
Long-Term Buys You Won't See in the News
The stocks you see in today's headlines may not be in the news tomorrow or next week. If you're looking for profitable long-term investments, you may be interested to see what Zacks Research is recommending to our private members. These moves have double and triple-digit profit potential. Starting now, you can look inside our stocks under $10, home run and value stock portfolios, plus more. Want a peek at this exclusive information? Click here>>