Ask Investors Whether Obamacare Is Working
Since the Patient Protection and Affordable Care Act took effect two years ago in the rockiest of rollouts, American health-care companies outperformed every industry in the U.S. Taken together, they are the best collection of stocks among worldwide peers.
The impact of Obamacare on the U.S. economy and its health-care system remains a matter of intense debate. More Americans have health insurance, but the longterm effects on the cost of medical care and on government spending are still unknown.
For health-care companies, though, one thing is clear: Instead of being the economic catastrophe predicted by congressional Republicans, all of whom voted against it, Obamacare, at worst, is benign for U.S. business and, at best, is making global investors rich.
There isn't a group of companies anywhere packing as much punch for money managers during the past two years as the 458 big and small firms in the Russell 3000 Health Care Index, according to data compiled by Bloomberg.
They delivered 35.9 percent, almost twice the 18.5 percent total return of the rest of the stock market since October 2013. That was when Health and Human Services Secretary Kathleen Sebelius apologized for the software errors that made it impossible for many people to obtain insurance coverage through the government's new healthcare.gov website. (The problems were fixed.)
Obamacare, enacted in 2010 as the biggest entitlement legislation in a generation and upheld twice by the Supreme Court, increased the access of private and public health insurance to more than 44 million uninsured Americans by imposing new taxes, mandates and subsidies.
These included: prohibiting insurers from canceling coverage when people get sick; eliminating preexisting conditions and gender discrimination as reasons to decline coverage or raise rates; letting young adults remain on their parents' plans until age 26; strengthening Medicare coverage for the elderly; expanding Medicaid coverage for the poor; creating health insurance exchanges; requiring large employers to provide coverage, and providing tax credits for small business. About 16.4 million people gained health coverage during the largest reduction in uninsured in four decades.
Few, if any, publicly-traded corporations acknowledge any threat to their performance because of the Affordable Care Act. Bloomberg News earlier this year examined the transcripts of chief executive officers and chief financial officers addressing analysts and shareholders specifically on the ACA and reported that Obamacare put "such a small dent in profits on U.S. companies that many refer to its impact as 'not material' or 'not significant.'"
For investors, Obamacare is proving no worse than promising, as reflected in the 24-month returns of the companies that make up the Russell Health Care Index. Within that group, health-care providers and services and biotechnology did best, up 50.4 percent and 33.3 percent respectively. Almost a dozen of these groups returned more than 19 percent and only health-care technology was a loser, down 0.5 percent.
Among the 500 largest companies that make up the Standard & Poor's 500 Index, the 55 health-care firms produced a total return of 35 percent, beating their 124 comparable global rivals, which gained 28.8 percent. The companies in the health-care providers and services area, such as Unitedhealth Group, Anthem, Cardinal Health and Express Scripts Holding, lead the health-care industry and outperform their global peers.
The emergence of U.S. health care as the world beater coincides with the advent of Obamacare. During the five years prior to October 2013, the industry was the fourth-best performing group of companies among the 10 in the Russell 3000. After Obamacare took effect, this industry became the best.
Markets represent the judgment of buyers and sellers of what’s valuable. By that yardstick, shareholders already have decided that Obamacare is a boon for the American economy. They're also showing that health care for more Americans is proving to be a good investment.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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