The Affordable Care Act expanded the original purpose of Medicaid which was to provide insurance for the “poor”. Given the looser rules to qualify for Medicaid under the ACA, the program expanded as noted above. With that expansion, premium tax credits for coverage purchased through the Exchanges were supplemented for those whose income ranged from 100% to 400% of the Federal Poverty Level. At the top end of that range, the income would be above the median income of the United States.

The ACA is not sustainable in its current form. The notion of “one size fits all” is not working and there should be an urgency to fix it. The program has high and rising premiums; high and increasing deductibles; declining enrollment; restricted competition leading to fewer insurers, fewer doctors, and much less individual choice. While it is true that many millions of people now have some coverage they didn’t have before, many other millions are paying more for plans they didn’t want and have frequently been forced to see new doctors in locales not as convenient as the care they enjoyed before.

It’s important to note that the while the issues with the ACA may have negative ramifications for purchasers of insurance and taxpayers, ultimately they may not have a significant impact on health care companies themselves.  Although uncertainty about the future of the ACA abounds, it appears that it may prove difficult to remove it in its entirety.  Thus, as an overhaul to the ACA is being formulated, Main Management believes there is still value in Health Care ETFs.

On a sector level ETFs such as VHT (Vanguard Health Care ETF) still appear fairly valued.  On a more granular level Biotech ETFs such as XBI (SPDR S&P Biotech ETF) and IBB (iShares Nasdaq Biotechnology ETF) look to be inexpensive relative to their historical valuations.  Accordingly, even a ‘reformed’ version of the ACA should provide opportunities for companies in this sector, particularly as baby boomers continue to age.

At nearly 20% of the economy, healthcare is everybody’s issue. Taxpayers and insurance companies should demand a system that reduces costs and improves quality by inserting both choice and competition into the insurance market. We can only hope that with the gravity of the problem, Washington lawmakers will work together for a solution that makes sense for all Americans.

A pioneer in managing all-ETF portfolios, Main Management LLC is committed to delivering liquid, transparent and cost-effective investment solutions. By combining asset allocation insights with smart implementation vehicles, Main Management offers a unique approach that translates into distinct advantages for our clients, including diversification, cost efficiency, tax awareness and transparency. http://www.mainmgt.com

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