President Donald Trump has signed an executive order that aims to make lower-premium health care plans available to more Americans. Time
Shares of health insurers and other medical-related stocks took a sharp dive Friday as investors reacted to a White House move to end payments to Obamacare insurers that were used to offset the cost of coverage for low-income people.
The move by the Trump administration, announced late Thursday, to end so-called cost-sharing subsidies added to the chaos and instability in the nation’s health-care system as the Trump team attempts to undo the 2010 Affordable Care Act.
Insurers took the brunt of the hit. Centene, which has a large Medicaid business, tumbled nearly 6%, Molina Healthcare fell more than 4% and Anthem was down nearly 3%.
Hospital stocks also fell, but were off earlier lows. Tenet Healthcare was down 4.7% and Universal Health Services was off 0.5%.
Prescription drug distributor AmerisourceBergen fell nearly 3%.
The decision to cut off subsidies to insurers comes as the 2018 sign-up season for health-care plans nears.
The Federal dollars that were paid to insurers under Obamacare were used to offset high health-care costs, such as co-pays, incurred by lower-income Americans. If insurers are cut off from that financial assistance, it would further reduce their incentive to participate in the individual exchange markets, and likely force them to raise premiums.
The health insurers would also likely suffer an earnings hit, which is why their shares are being sold off, explains Gary Kaltbaum, president of money-management firm Kaltbaum Capital Management.
“It’s very simple, it is negative for insurance companies because these are payments to them as part as of the Affordable Care Act,” he says. “It’s also negative for hospitals because the payments help pay out-of-pocket costs for people with low incomes so hospitals will incur more costs. No more payments equals less profits, (so) stocks go down.”
One Wall Street pro says today’s selloff in health insurance stocks could set up a buying opportunity, as there had been prior talk of the government ceasing or reducing payments to health insurers, and some of that is likely already baked into stock prices.
“These types of events typically lead to three days of selling before rebounding,” says Bruce Bittles, chief investment strategist at Baird. “Long-term demographics are bullish for health care providers, including insurance companies. The fastest growing segment of the population is 65 years or older.”
Prior to Friday’s selloff, health care stocks have been the second-best performing industry group in the Standard & Poor’s 500 stock index, with a gain of around 20%. Only tech stocks have done better, according to S&P Dow Jones indices.
Contributing: Associated Press