Much to the chagrin of some policymakers on Capitol Hill, the Patient Protection and Affordable Care Act, or Obamacare as it is widely known, is going to effect. Without commenting on the success of the legislation itself, it can be said Americans are at least curious. So curious in fact that higher-than-expected traffic led to technical glitches at healthcare.gov, the marketplace where prospective customers can compare various health insurance plans.
For investors, there are ETFs with which to profit from Obamacare’s potential success. One obvious candidate is the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF). With the Affordable Care Act now the law of the land, millions of new clients are expected to flow into the health care sector. That portends potentially bright future outlooks for IHF constituents such as Dow component UnitedHealth (NYSE: UNH) and Express Scripts (NasdaqGS: ESRX). Those stocks combine for 24% of IHF’s weight. [An Obamacare ETF Winner]
Analysts see some health insurance providers as better-positioned than others to come out on top in the new health care marketplace. “While we would again acknowledge that price isn’t the only determinant, we do think it will be important, and believe that those plans at the lower price point will see the greatest exchange enrollment. That said, we believe Aetna and Humana, followed by WellPoint are positioned to capture the most exchange lives among the publicly traded managed-care organizations (MCOs) based on our analysis of the lowest-cost Bronze/Silver plans and subsidy eligible within respective regions,” said Credit Suisse in a research note posted on Barron’s.
Credit Suisse “analyzed each of the 36 federally run exchanges plus six of the state-run exchanges to determine which plans offer the lowest cost Bronze and Silver options within each region. We note that this initial analysis relies mainly on price, and we acknowledge other factors such as benefit designs, brand, and network configurations, among other factors, that may influence individual purchasing decisions,” according to the note.
WellPoint (NYSE: WLP), Aetna (NYSE: AET) and Humana (NYSE: HUM) are all top-six holdings in IHF, combining for 17.5% of the ETF’s weight. Along with other ETFs with exposure to this country’s most sweeping health care legislation in multiple generations, IHF has already been soaring. The ETF is up 31.2% this year, indicating that some of the Obamacare gains may already be priced in. [Medical Device ETF Front and Center in Budget Debate]
A increasingly strict regulatory environment and stingier reimbursement policies are among the other potential risks faced by IHF and its 49 components. Still, the demand outlook remains encouraging. One of the main tenants of Obamacare is to make health coverage accessible to those that previously could not afford it.
To that do that, Obamacare will make Medicaid available to more low-income Americans, potentially adding 16 million Americans to Medicaid over the next several years. That scenario could buoy IHF as an attractive long-term ETF bet.
iShares U.S. Healthcare Providers ETF
ETF Trends editorial team contributed to this post.