Health

Max Nisen is a Bloomberg Gadfly columnist covering biotech, pharma and health care. He previously wrote about management and corporate strategy for Quartz and Business Insider.

The GOP's seven-year effort to kill Obamacare may finally be dead -- destroyed by American voters giving them the ability to actually do it. 

Health-care investors are so tired of the uncertainty about the future of the Affordable Care Act that many have been rooting for passage of some GOP health-care bill, any bill, never mind what was in it. The news late Monday night that the Senate GOP's effort to repeal and replace the ACA will likely fail hit health-care stocks in early trading on Tuesday.

But despite the chaos that will emerge from the ashes of the Senate's efforts, the long-term benefits of its failure are worth it. 

Chin Up
Health care stocks have outperformed the broader S&P 500 over the course of the Trump presidency; the failure of an ACA repeal effort shouldn't change that
Source: Bloomberg

As a last gasp, Senate Majority Leader Mitch McConnell has proposed a vote to repeal the ACA with no replacement. That might be the worst outcome for the health-care sector.

As the GOP is using the Senate's budget reconciliation process to avoid a Democratic filibuster, it can kill parts of the ACA -- its Medicaid expansion, insurance subsidies, its individual mandate, and its taxes -- but not its regulations protecting people with pre-existing conditions. The result of such a vote would be a broken insurance market -- expensive rules without the funding or mechanisms to make them work. 

McConnell's proposal is to delay the impact of the repeal by two years, with the idea that such a ticking time bomb will force a compromise on a new health-care plan. But the GOP is nowhere near consensus on such a plan. And any new bill would require raising taxes again, probably making it a non-starter for much of the GOP.

The Congressional Budget Office estimates a naked repeal would leave 18 million people uninsured in the first year it went into effect, and 32 million in 2026. In the face of that reality, a vote for a straight repeal seems unlikely to succeed; McConnell may just be seeking a face-saving show vote.  

Bad to Worse
An immediate repeal of the Affordable Care Act would be extremely disruptive to the U.S. health care system
Source: CBO

After McConnell's "full repeal" stunt, what's next? 

The GOP could try again. Louisiana Senator Bill Cassidy has an alternative proposal that lets states keep parts of the ACA. The party could also (heresy!) write a new bill with hearings, policy debate, and input from the health-care industry. It could focus narrowly on the individual market instead of taking a hatchet to Medicaid. But the congressional plate is already overflowing with other priorities, namely the budget and tax reform. Health-care soul searching will probably have to wait.

So for now the ACA remains the law of the land; the status quo may just continue. That's not ideal. Many for-profit insurers have had trouble in the ACA's individual exchanges. But the law appears to be stabilizing despite doomsday GOP rhetoric, and more states could expand Medicaid. That would help hospitals and insurers and shore up the exchanges. 

President Donald Trump says he's willing to let the ACA fail -- sabotaging it, essentially. But it's a threat on which he may never deliver. The political consequences of such a move would likely be disastrous for the GOP. And many Republicans seem to prefer a bipartisan fix to the ACA without an interim step that deliberately causes suffering -- arguably the ideal outcome for the sector

Ultimately, anything but straight repeal is likely better than the Senate health-care bill. The one unambiguous beneficiary of that law was tanning salons, who got a multi-billion-dollar tax break. Every other corner of the health-care world would have been exposed to to more than $700 billion in Medicaid cuts and a potentially broken individual market. Sector-specific impacts -- from an increase in uncompensated care at hospitals to the return of lifetime limits crimping sales of rare-disease-focused drugmakers -- abounded. 

Avoiding that is worth extra uncertainty in the near term -- even if investors don't see it yet.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Max Nisen in New York at mnisen@bloomberg.net

To contact the editor responsible for this story:
Mark Gongloff at mgongloff1@bloomberg.net