While still highly unlikely, the Affordable Care Act, or so-called Obamacare, may be put through the wringer as it heads off to the Supreme Court, potentially posing a significant risk to the outperforming health care services and related exchange traded funds.
Over the past year, the iShares U.S. Healthcare Providers ETF (NYSEArca: IHF) rose 24.8% and SPDR S&P Health Care Services ETF (NYSEArca: XHS) increased 20.5%.
The two ETFs have benefited from their large exposure to hospital stocks. IHF includes a hefty 14.2% position in UnitedHealth Group (NYSE: UNH) and 10.0% in Express Scripts Holding (NasdaqGS:: ESRX). XHS takes a more equal-weight approach to the health care provider and services industries. [Rising Services Spending Could Prop Up Healthcare, Tech ETFs]
Thea health care space could experience some bumps ahead as the Supreme Court hears a challenge to the ACA in early March, which could significantly cripple the new health care law and drain billions out of the consumer economy, reports Rick Newman for Yahoo! Finance.
“The individual insurance market would become very unstable,” Christine Eibner, a Rand senior economist, said in the article. “There’d be a massive decline in enrollment, which would have a very destabilizing effect.”
Specifically, the plaintiffs in the case King v. Burwell argue that the ACA does not state that the federal government would offer insurance subsidies to people in states that don’t offer their own health care insurance exchange. So far, 34 states use the federal exchange for Obamacare.
If the Supreme Court rules in favor of the plaintiffs, observers warn that Obamacare could enter a death spiral where millions lose subsidies and exit the program, which would push up costs for remaining enrollees.
Consequently, insurers like UnitedHealth, Anthem (NYSE: ANTM), Cigna (NYSE: CI) and Aetna (NSYE: AET) would take a large hit. The four companies make up 33.2% of IHF.
Changes to the ACA have been seen as highly unlikely. The U.S. Congress has also been loathe to change the program. For instance, House Majority Leader Kevin McCarthy of California has stated that Republicans would only move to repeal the Affordable Care Act when they had something to replace it with.
iShares U.S. Healthcare Providers ETF
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