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Senate Unveils Its Version of Trumpcare: Healthcare Stocks Up

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Healthcare stocks rallied yesterday following the release of the Senate’s version of Trumpcare. Key points covered by the 142-page Better Care Reconciliation Act of 2017 include cuts to Medicaid, lower taxes for the wealthy and defunding of Planned Parenthood. It will also allow states to decide on the benefits which need to be covered by insurance. This could make insurance coverage pricier for mental health ailments, maternity care as well as addiction issues.

The Senate is expected to vote on this draft bill next week. However, four Republican Senators (Sens. Rand Paul, Ted Cruz, Ron Johnson, and Mike Lee) issued a joint statement saying that they are not ready to vote for the bill due to several reasons but are open to negotiation and obtaining more information before the bill is brought to the floor. While the Senators acknowledged that the draft bill is an improvement to the current health care system, they noted that it does not appear to accomplish the goal of repealing Obamacare and making health care more affordable.

Next week, the Congressional Budget Office (CBO) is expected to issue a report regarding the implications on cost under the draft bill. According to the last CBO report, issued in May 2017, enacting the American Health Care Act (AHCA) AHCA or Trumpcare, as it is often referred to, would cut federal deficits by $119 billion between 2017 and 2026 while about 23 million people would lose health coverage in 2026 compared to Obamacare.

Healthcare Stocks in Focus

Healthcare stocks were up yesterday once the draft bill was released. Hospital stocks like Tenet Healthcare Corp. (THC - Free Report) ; up 6.9%), HCA Healthcare, Inc. (HCA - Free Report) ; up 2.5%) and Universal Health Services, Inc. (UHS - Free Report) ; up 1.8%) recorded gains while managed care companies like Molina Healthcare, Inc. (MOH - Free Report) ; up 2.3%) were also trading higher. Insurers like UnitedHealth Group Inc. (UNH - Free Report) were also up with this sector expected to gain from the repeal of Obamacare. While Tenet, HCA, UHS and Molina are all Zacks Rank #3 (Hold) stocks, UnitedHealth is a Zacks Rank #2 (Buy) stock. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Meanwhile, biotech and pharma stocks were also up on rumors that steps taken by the Trump administration to drive down drug prices would not be as draconian as previously expected. While the NYSE ARCA Pharmaceutical Index was up 1.7% yesterday, the NASDAQ Biotechnology Index was up 1.3%.

The Zacks-categorized Medical-Biomedical/Genetics industry as well as the Zacks-categorized Large Cap Pharmaceuticals industry has outperformed the broader market so far in 2017. While the Medical-Biomedical/Genetics industry is up 10.6%, the Large Cap Pharmaceuticals industry is up 13.2% compared to the broader market gain of 9.2%.  

With healthcare reform expected to be a key topic of discussion next week, healthcare stocks will remain in the limelight. However, Trumpcare still has a long way to go before it becomes law. The possibility of millions of people losing coverage and weaker coverage for those with pre-existing conditions are some of the key concerns regarding Trumpcare. Expect volatility in this corner of the healthcare market in the near-term.

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