Broadly speaking, healthcare stocks and exchange traded funds have not been pinched too severely on news that the Republican-controlled Congress is offering up an alternative to the Affordable Care Act (ACA) and will move forward with plans to repeal the landmark healthcare legislation also known as Obamacare.
However, the SPDR S&P Health Care Services ETF (NYSEArca: XHS) could be one healthcare ETF to watch as the effort to quash Obamacare moves forward.
XHS, as has been previously noted, is intimately levered to the Obamacare trade because the ETF allocates a significant portion of its weight to healthcare facilities stocks, including some of the aforementioned hospital operators. XHS also devotes a big chunk of its weight to managed care providers. Some investors may not want to hear it, depending on their personal politics, but Obamacare has made those exposures in XHS all the more beneficial.
“As one of the healthcare ETF’s with significant exposure to hospital operators and healthcare facilities providers, XHS could be vulnerable if Obamacare is repealed. The ETF has benefited from the healthcare legislation as highlighted by its 127.2% gain since March 23, 2010,” according to Investopedia.
Hospital stocks were seen as big winners under Obamacare because with more Americans having access to health insurance, hospital operators would be able to be compensated for more procedures and services while providing fewer services for free.
Additionally, the actuaries calculated that around 8.4 million Americans became insured in 2014 and noted their increased use of medical services. The number of people on Medicaid is projected to increase to 78.1 million by 2024, outstripping Medicare, which is expected to have 70.3 million enrolled.
The uninsured rate has declined significantly since late 2013, before the the ACA, or Obamacare, took effect. More Americans gaining access to health insurance could bolster the long-term thesis for ETFs such as XHS. But efforts to repeal Obamacare challenge that investment thesis.
“The GOP bill, which still has a long way before it may become law, would replace Obamacare with a more limited program of insurance subsidies. That would probably result in less comprehensive insurance, increasing the risk that people will be unable to pay hospitals and doctors when they show up for care,” according to Bloomberg.