After a long and drawn out battle over the country’s future health care system, the historic health care bill was finally passed and signed. The bill’s passage could have an impact not only on health care-related exchange traded funds (ETFs), but well beyond that.
President Barack Obama signed legislation on March 23 to overhaul the health care system, which will provide coverage to an estimated 30 million who currently lack it and cost the government about $938 billion over 10 years, reports Emanuela P. Lima for Tribuna. The measure will ad 16 million to Medicaid rolls and subsidize private coverage for low- and middle-income people. It will also regulate private insurers. [5 ETFs for Obama’s Health Care Overhaul.]
Changes that will immediately take into effect include:
- Small business will receive a tax credit to help cover workers.
- Exclusions of pre-existing conditions for children.
- Prohibiting recessions – the practice of carriers dropping patients because of small errors on applications – will be eliminated.
- Extend dependent coverage till the age of 26.
- Provisions for a $250 million rebate for seniors on Medicare to help pay for prescription drugs. Next year, there will be a 50% discount on all brand-name drugs, and by 2010, the government will cover it all.
By 2014, Medicaid will extend to people earning less than 133% of the federal poverty level and include childless adults. Additionally, most citizens, legal residents and immigrants with papers will have to purchase “minimal essential coverage.”
Christian Magoon, former president of Claymore Securities, discussed what the bill means for health care providers, drug companies and insurers with Cinthia Murphy for IndexUniverse. [Why Health Care ETFs Are Waiting to Exhale.]
The health care industry will add 30 million more customers, but companies, especially health insurance companies, will see margins shrink as a result of the bill, says Magoon.
Magoon comments that pharmaceuticals and biotechs avoided any price controls, and they will benefit from more people getting prescriptions. Insurance companies, though, are now constricted by more rules and regulation, but most of the new rules won’t take effect until 2014.
- iShares Dow Jones U.S. Healthcare Provider (NYSEArca: IHF)
Magoon argues that biotech companies are the best bet in the short-term, with companies that have lots of products and solutions in the works, and more merger and acquisition activities by pharmaceuticals likely to continue. He opines that ETFs are the best way to play the industry since an investor may avoid single-company risk.
- iShares Dow Jones U.S. Pharmaceuticals (NYSEArca: IHE)
- PowerShares Dynamic Pharmaceuticals (NYSEArca: PJP)
- iShares Nasdaq Biotechnology Fund (NasdaqGM: IBB)
- First Trust NYSE Arca Biotech Index Fund (NYSEArca: FBT)
- iShares Dow Jones Medical Devices (NYSEArca: IHI)
We can opine on the supposed health care bill winners and losers, but nothing is a sure thing. To play the fortunes of the entire sector, risk-averse investors may want to consider broad health care funds instead:
- Health Care Select Sector SPDR Fund (NYSEArca: XLV)
- iShares Dow Jones U.S. Healthcare Sector (NYSEArca: IYH)
- Vanguard Health Care (NYSEArca: VHT)
Still, the passage of the bill may not be so great for some companies. Boeing Co. (NYSE: BA) recently disclosed that the bill will force the company to take an income tax charge of around $150 million, or 20% per share, in the first quarter, reports Ben Rooney for CNNMoney. AT&T (NYSE: T) expects to put down a $1 billion charge in the first quarter. Deere & Co. (NYSE: DE) and Caterpillar Inc. (NYSE: CAT) have announced similar charges.
The charges are part of the law that eliminates tax deductions for Medicare prescription drug subsidies of 28%. The Obama administration argues that the bill closes a loophole that allows companies to write off a double deduction.
For more information on the health care industry, visit our health care category.
Max Chen contributed to this article.