What Health Care Reform Means for ETFs

June 18th at 12:00pm by Tom Lydon

ETF health careAre you one of the millions without health care? The Obama administration has made revamping the health care industry. But what would such an overhaul ultimately mean for related exchange traded funds (ETFs)?

On June 17, Democratic leaders in Congress began to push for a measure that will require all Americans to get medical insurance, forcing insurers to accept all patients and ending tax breaks for employer-paid health benefits, report Nicole Gaouette and Laura Litvan for Bloomberg. President Barack Obama has pressed the need for a health-care overhaul as a top domestic priority and said it’s a “moral imperative” to extend coverage to the 46 million Americans who are uninsured.

According to the White House Council of Economic Advisers, health care makes up 18% of the U.S. economy and may increase to 34% by 2040.

Republicans and others are wary of the price tag of $1.6 trillion over 10 years and whether a new government-run insurance program will be created to compete with private insurers, according to Reuters.

Rising health care costs decrease the competitiveness of U.S. insurance companies, strain state and federal budgets and eat away at consumer wealth. The U.S. spends around $2.5 trillion on health care annually and is still behind other developed nations on many public health measures.

Back in March, health care companies considered Obama’s overhaul a potential profit-killer and investors shared the same assumption as they dumped shares, remarks Kevin Baker for TheStreet. As the government increases taxes and takes money from Medicare to pay for a government-sponsored health program, the “Medicare for All” system may put pressure on many insurance companies.

Health care ETFs are made up of a variety of health-related companies, and this includes insurers for some of them. If the moves strain insurance companies, could we see a shift in the indexes for such funds?

  • iShares Dow Jones U.S. Healthcare Provider (IHF): up 2.1% year-to-date

ETF IHF

  • Rydex S&P Equal Weight Health Care (RYH): up 7.5% year-to-date

ETF RYH

  • First Trust Health Care AlphaDEX (FXH): up 9.2% year-to-date

ETF FXH

  • PowerShares Dynamic Healthcare (PTH): down 5.2% year-to-date

ETF PHT

  • Vanguard Health Care ETF (VHT): down 2% year-to-date

ETF VHT

For more information on health care, visit our health care category.

Read the disclaimer, as Tom Lydon is a board member of the Rydex Funds.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.