Obamacare repeal efforts have once again picked pace this time with U.S. Senators Lindsey Graham (R-SC), Bill Cassidy (R-LA), Dean Heller (R-NV), Ron Johnson (R-WI) and former U.S. Senator Rick Santorum (R-PA) unveiling legislation to reform health care last week.
The legislation, commonly referred to as the Graham-Cassidy-Heller-Johnson (“GCHJ”) bill or the Graham-Cassidy bill, proposes the repeal of Obamacare and its replacement with a block grant that will be given to states every year to help individuals pay for health care. The bill will give states a lot of freedom to decide how the money will be used to take care of the health needs of patients. States will get more flexibility as well as resources to create healthcare systems with lower premiums and expanded coverage.
The grant money would replace the federal dollars currently spent on Medicaid expansion, Obamacare tax credits, cost-sharing reduction subsidies and the basic health plan dollars. The proposal also aims to remove the inequity of four states receiving 37% of Obamacare funds and brings all states to funding parity by 2026.
Key Points of the Graham-Cassidy Bill
To sum up, the key points of the Graham-Cassidy bill are the repeal of Obamacare individual and employer mandates as well as the Obamacare medical device tax, strengthening the ability of states to waive Obamacare regulations, returning power to the states and patients by equalizing the treatment between Medicaid expansion and non-expansion states through an equitable block grant distribution and protecting patients with pre-existing medical conditions.
The CBO’s Take
A preliminary report from the non-partisan Congressional Budget Office (“CBO”) will be out by early next week though the CBO said that it will be at least several weeks before it will be able to provide estimates of the effects of the bill on the deficit, health insurance coverage, or premiums.
The preliminary report will include information as to whether the bill would lower on-budget deficits by at least as much as was estimated for the American Health Care Act (as passed by the House on May 4, 2017), whether Titles I and II in the legislation would save at least $1 billion each and whether the bill would increase on-budget deficits in the long term.
The next step for the Graham-Cassidy bill is for it to pass the Senate where 50 votes are needed. This may well prove to be a tough task - the Senate has only 52 Republicans and one of them, Sen. Rand Paul, has already said that he will oppose the bill. That leaves a very narrow margin for the bill to be passed successfully.
Moreover, the goal is to pass the bill before Sep 30, which means a very tight deadline within which Republicans will have to decide their stand on the bill. The job is made even tougher by the fact that the full CBO report will not be available by then and the Senators will only have the preliminary report to bank on for information on the impact of the bill especially regarding premium and coverage.
Previous attempts to “Repeal and Replace Obamacare” did not meet with much success. A quick recap of the events that unfolded over the past few months shows that “Repeal and Replace Obamacare” has been a key goal for President Trump who had said that his first course of action, once elected, for Obamacare would be to ask Congress to repeal it immediately. However, the President and Republican party leaders first suffered a setback in March this year with a healthcare bill (the American Healthcare Act or Trumpcare) being pulled from the House floor when it became clear that there would not be enough votes to pass the bill.
Then in June, the Senate issued its version, the Better Care Reconciliation Act of 2017, with certain changes being made - however, four Republican Senators (Sens. Rand Paul, Ted Cruz, Ron Johnson, and Mike Lee) issued a joint statement saying that they were not ready to vote for the bill due to several reasons but were open to negotiation and obtaining more information before the bill was brought to the floor.
The Senate then came out with a revised version of its bill but this too failed to garner full support. With efforts to “Repeal and Replace Obamacare” failing, the focus shifted to repealing Obamacare without an immediate replacement - the Obamacare Repeal Reconciliation Act of 2017.
Hospital and Insurance Stocks in Focus
As the latest Obamacare scenario plays out, healthcare stocks will remain in focus in the coming days. Hospital stocks started the year on a strong note though this sector will be under pressure if Obamacare gets repealed without a suitable replacement. This is because hospitals benefited under Obamacare with more than 20 million people gaining coverage. Repealing and/or replacing Obamacare without a suitable replacement would result in a significant increase in the uninsured population which does not bode well for hospitals. The Hospital industry, which is currently among the bottom 10% of the Zacks-ranked industries, while up 2.7% year to date, has lagged the overall market rally of 11.6%.
On the other hand, insurance stocks have had a strong run this year with the industry gaining 27.1% year to date. Not surprisingly, the HMO industry is among the top 6% of the Zacks-ranked industries with key players like Aetna Inc. (AET - Free Report) , Centene Corporation (CNC - Free Report) , Magellan Health, Inc. (MGLN - Free Report) and WellCare Health Plans, Inc. (WCG - Free Report) holding a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
With the possibility of millions of people losing coverage and weaker coverage for those with pre-existing conditions, expect volatility in this corner of the healthcare market in the near-term.
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