Health insurers rallied after the Senate Republicans released a draft Bill to replace Obamacare, with expansion of Medicaid being seen as one of the most encouraging moves. Hospitals have benefited from higher rates of insured people under Obamacare.

Senate Republicans’ unveiling of the Healthcare Bill was also a shot in the arm for drug companies, as they hope that the much-awaited tax reforms will get implemented. Biotech stocks are already fueling the healthcare sector as recent reports suggest that efforts by Washington to rein in drug prices would not be as harsh on the industry as feared.

The Senate Healthcare Bill in Details

After weeks of heated discussions and arguments, Senate Republicans unveiled the text of their health care refurbish plan. The new Bill won’t change the Obamacare as drastically as the House legislation passed in May, but demands significant cuts that would likely benefit the uninsured.

Medicad was expanded by Obamacare, which provided health coverage to millions of low income Americans who couldn’t afford it earlier. The Senate Bill will continue Medicad expansion under Obamacare for the next three years and will roll it back in 2021. But, from now, states won’t receive an open ended funding and instead will receive a fixed amount.

Obamacare had assured coverage to people with pre-existing ailments and restricted insurers from charging them based on health conditions. The Senate Bill, however, will allow insurers to provide less than needed coverage in states that get waivers for essential health benefits. Obamacare also required every health plan to cover essential benefits. These included maternity and hospital care, prescription drugs and mental health, to name a few. The Senate Bill, did allow states to redefine what qualifies as an “essential” element of a healthcare plan.

In order to expand healthcare coverage, Obamacare raised money by imposing two new taxes on the wealthy. The Senate Bill, however, eliminated those taxes. Obamacare, in the meantime, provided tax subsidies to help people with a certain level of income; the Senate Bill being largely in line with it. Obamacare also aided young people to get insured by allowing them to stay on their parent’s insurance until they turn 26. The Senate Bill won’t remove such a provision. Last but not the least, when it comes to employer affordability mandate, the Senate Bill wants large employers to provide affordable coverage to most Americans.

Overall, as rightly pointed out by Spencer Perlman, director of health-care research at Veda Partners, the Senate plan has the “same architecture” but with “nicer furnishings”.

GOP Health Bill Boosts Hospital, Health Insurers

Hospital and insurers rallied following the release of the Senate GOP health bill, which have been more favorable to them than the House of Representatives Bill passed in early May. The rollback of the expansion of Medicaid, the government insurance program for low income Americans was particularly seen as a positive move.

Hospitals have already benefitted from Obamacare’s coverage expansion. HCA Healthcare Inc (HCA Quick QuoteHCA - Free Report) rose 2.5% following the release of the Bill, while Tenet Healthcare Corp (THC Quick QuoteTHC - Free Report) gained 1.5%. Among large insurers that specialize in Medicaid also gained, with Centene Corp (CNC Quick QuoteCNC - Free Report) up 3.6% and Molina Healthcare, Inc. (MOH Quick QuoteMOH - Free Report) rising 2.3%.

Drug Stocks Hit Record Highs

Healthcare stocks skyrocketed, with the SPDR S&P Pharmaceutical (XPH Quick QuoteXPH - Free Report) rising 1.3% and the SPDR S&P Biotech (XBI Quick QuoteXBI - Free Report) gaining 0.9%, as the Senate Bill has given investors enough confidence in Republicans achieving another major legislative reform related to tax. President Trump has already promised to change the tax code so that companies can bring back cash held overseas. This in turn is expected to spur a series of buyouts among innovation starved healthcare companies looking for growth.

The easing out of the drug price outrage, in the meantime, will further boost such companies. As per Jay Rao, a medical doctor and money manager at Balyasny Asset Management, Washington will find it difficult to impose any price controls with Tom Price as secretary of Health and Human Services who has a history of rejecting such policies. Hence, healthcare firms shouldn’t fear the possibility of a draconian crackdown on drug prices. Easing regulatory hurdles is a blessing in disguise for drug makers, specially, when Trump had accused the industry of “getting away with murder”, when it comes to charging exorbitant drug prices (read more: Fresh Capital to Be Injected into Biotech Stocks: 5 Must-Buys).

5 Best Winners

Given such promising trends, investing in the aforementioned areas seems prudent. We have, thus, selected five stocks that not only boast a Zacks Rank #1 (Strong Buy) or 2 (Buy) but also have a VGM score of ‘A’ or ‘B’. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners.

Lantheus Holdings Inc (LNTH Quick QuoteLNTH - Free Report) develops diagnostic medical imaging products that assist clinicians in the diagnosis and treatment of cardiovascular and other diseases. The company has Zacks Rank #1 and a VGM score of “A”. The company has returned 75.6% on a year-to-date basis, higher than the Medical - Products gain of 21.1%. The company is projected to increase 28.5% this year, higher than the industry’s projected growth of 9.7%.

Cambrex Corporation provides products and services for the development and commercialization of generic therapeutics. The company has Zacks Rank #2 and a VGM score of “A”. It has given a return of 13% on a year-to-date basis, more than the Medical - Biomedical and Genetics gain of 10.5%. The company is projected to increase 8.5% this year, higher than the industry’s estimated growth of 6%.

Health Insurance Innovations Inc is a developer, distributor and cloud-based administrator of individual and family health insurance plans (IFPs) and supplemental products, which include short-term medical (STM) insurance plans, and guaranteed-issue and underwritten hospital indemnity plans. The company has Zacks Rank #2 and a VGM score of “B”. The company has given a return of 35.8% on a year-to-date basis, more than the Insurance - Life Insurance gain of 18.3%. The company is projected to increase 30.4% this year, higher than the industry’s projected growth of 11.9%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Anthem Inc offers a spectrum of network-based managed care plans to large and small employer, individual, Medicaid and Medicare markets. The company has Zacks Rank #2 and a VGM score of “A”. The company has given a return of 34.4% on a year-to-date basis, more than the Medical - HMOs gain of 21.1%. The company is projected to give a solid return of 8.2% this year.

American Equity Investment Life Holding (AEL Quick QuoteAEL - Free Report) is a full service underwriter of a broad line of annuity and insurance products, with a primary emphasis on the sale of fixed rate and index annuities. The company has Zacks Rank #2 and a VGM score of “A”. The company, which is part of the Insurance - Life Insurance industry, has given a steady return of 9.7% on a year-to-date basis. The company is projected to increase 71.2% this year, higher than the industry’s projected growth of 11.9%.

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