Obamacare Replacement: A Threat to Hospital Stocks?

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" The time has finally come to repeal and replace ACA " - This is what the House Republicans tweeted on Mar 6.

Following the recent presentation of draft legislation by the Republicans to repeal and replace Obamacare, or the Affordable Care Act (ACA), most of the market analysts opined that the new plan will lead to a massive decline in the number of insured people. The draft however did not specify to what extent the number of insured people will differ from ObamaCare. Per various statistical reports, it is being estimated that around 6-10 million Americans will lose coverage under the new healthcare act.

The most controversial topic that has popped up from the new Republican health draft is the phasing out of Affordable Care Act's Medicaid expansion.

One of the goals of the draft is to provide health care to low-income people on Medicaid by giving each state a fixed amount of federal money in the form of a block grant. This is in contrast to the practice of open-ended funding under ObamaCare.

Open-ended funding had earlier led to Medicaid expansion and had brought more than 20 million people under insurance coverage. Now, the proposed legislation will restrict states from bringing people under insurance coverage, as there will be no access to federal funds in case of a shortage.   

In fact, it is being widely feared that in order to manage funds, the states might curtail benefits under Medicaid, impose premium or make other changes such as elimination of subsidies.

Republicans intend to keep Medicaid expansion intact through 2020 and then gradually introduce block grants.

The new proposal is quite a threat to the U.S. healthcare industry including the hospital sector.

Hospitals are currently trying to gauge the extent of damage the proposal may inflict. They apprehend a higher rate of uninsured members if Medicaid funding is limited, as it will either cover fewer people, lesser services or both. Also, sustaining on the massive reduction in funding isn't possible without scaling back services or cutting jobs.

Meanwhile, patients will have to pay from their own pockets without any insurance coverage. This will in turn create financial pressure and bad debt for most players across the industry.

Here are a few Zacks categorized Medical - Hospital industry stocks which are likely to suffer from the replacement of ObamaCare -  

Acadia Healthcare Company, Inc. ACHC : This Zacks Rank #4 (Sell) inpatient health care service company has been trading below the broader Medical - Hospital industry trend for the last six months. The stock has lost 15.7%, which is much lower than the 9.2% gain of the industry.

The company's estimate revision trend for the current quarter is also unfavorable with five downward revisions versus no upward revisions in the last 30 days. The same can be observed in the magnitude of the estimate revision trend with earnings estimates moving down to 46 cents from 57 cents over the same time frame.

VCA Inc. WOOF :  This healthcare stock has been outperforming the broader industry for the last six months. The stock has till now gained 32.2% compared to the mere 9.2% gain of the industry. However the company's estimate revision trend for the current quarter is negative for the current quarter with one downward direction and no movement in the opposite direction in the last 30 days. The magnitude of the estimate revision also declined by a couple of cents. The stock also bears a Zacks Rank #4.

Universal Health Services, Inc. UHS : The share price trend of this Zacks Rank #3 (Hold) company has been underperforming the hospital industry trend for the last six months. The stock till now has generated a 3.0% gain which is lower compared to 7.4% gain of the broader industry.

Over the last 30 days, four analysts have decreased their earnings estimates for the current quarter, while no analysts have revised their estimates upward. The net effect has taken our Zacks Consensus Estimate for the current quarter from $2.17 per share to $2.10 per share in that period.

Mednax, Inc MD : Over the last six months, this Zacks Rank #3 healthcare service stock has been trading below the broader industry. The stock has gained 6.5% compared to 9.25% gain of the industry. For the current quarter the company has seen six estimates moving down with no upward revisions in the last 30 days. This trend has caused the consensus estimate to trend lower, going from 87 cents a share a month ago to its current level of 82 cents.

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Universal Health Services, Inc. (UHS): Free Stock Analysis Report

VCA Inc. (WOOF): Free Stock Analysis Report

Mednax, Inc (MD): Free Stock Analysis Report

Acadia Healthcare Company, Inc. (ACHC): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: UHS , MD , ACHC

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