What Healthcare Reform Could Mean for ETFs

On Saturday, the House of Representatives took big steps in overhauling the nation’s healthcare system. Now the pressure is on Senate Democratic leaders to follow suit, as President Barack Obama puts new pressure on Democrats in Congress to finish their work on health care before the year is up. Will related exchange traded funds [ETFs] stand to gain?

We are about two steps away from health insurance reform in America, says Obama. Stephanie Condon for CBS News reports that Democrats in the House managed late Saturday night to pass their comprehensive healthcare bill by a vote of 220 to 215. Meanwhile, 39 Democrats voted against the bill, even after adding to the legislation a strict anti-abortion measure intended to earn the support of moderates.

Don Dion for TheStreet reports that even as public support for the healthcare bill wanes, there’s hope yet for the sector’s ETFs. (Why healthcare reform still looks good). The downward trend for providers could reverse as voters turn their backs on the ambitious healthcare overhaul. Voters are apparently dissatisfied with Obama’s policies. (How has health care affected ETFs so far?)

On the other hand, if healthcare reform goes through, some ETFs could see their holdings change as some constituents are legislated out of existence by the new laws.

As the health insurance and health care industry stand to gain from about tens of millions of customers, the industry is still complaining. Duff Wilson and Reed Abelson for The New York Times report that insurers do not like the idea of a government-run insurance program. Drug makers oppose billions of dollars in rebates they would have to give to the government over 10 years. Meanwhile, medical device providers would have to give a 2.5% tax to the government on their products. Also, employers large and small oppose rules that, for many of them, would make health care coverage — long a job benefit — become a federally-mandated obligation.

For more stories about health care, visit our healthcare category.

• iShares Dow Jones U.S. Health Care Providers (NYSEArca: IHF): up 26.9% year-to-date

• PowerShares Dynamic Health Care Services (NYSEArca: PTJ): up 10.3% year-to-date

Comments

[Steve in Gr...:]

Thanks, Mr. Lydon, for the note. You wrote"...On the other hand, if healthcare reform goes through, some ETFs could see their holdings change as some constituents are legislated out of existence by the new laws..."

Wow. "Holdings will change" is a pretty euphemistic formulation. Don't you really mean that "if healthcare reform goes through, shareholders or healthcare ETFs will see a substantial part of their net worth destroyed as the constituents are bankrupted"?

Let's be clear

If you think Obamacare is going to be enacted (or if you don't know), you should sell health care and every other U.S. equity and stay in cash.

If you think it is going to be defeated and result in no bill, you should buy healthcare and every other U.S. equity.

Nov 10 04:36 PM

[Alan Young:]

If Lydon thinks the legislation would destroy some businesses, he should be clear about it. Does he mean, literally, "legislated out of existence" as in outlawed, forced to discorporate? I don't know of any such provisions in the bill. If he means, "no longer able to compete" he should say that.

This is another silly overreaction based on the ravings of right-wing talk show entertainers who know (or care) nothing about the legislation, or the health care business, and take talking points from insurance industry lobbyists: "pull the plug on grandma." It's just noise, and Lydon should know better than to turn it into an investment thesis.

The fact is, we collectively spend far more on healthcare than any other country, and we are not getting our money's worth. Bill or no bill, we cannot survive this trend—we just can't afford to keep feeding the greed of these companies (big insurance, big pharma, and big hospital networks). They will have to learn to get by on less. Unfortunately, the current legislation won't even accomplish that. The pigs are still at the trough. It's going to take an even bigger crisis to focus the political will to start making health care affordable *for our economy as a whole*. (Whether or not it will be affordable for individuals is another question.)


On Nov 10 04:36 PM Steve in Greensboro wrote:

> Thanks, Mr. Lydon, for the note. You wrote"...On the other hand,
> if healthcare reform goes through, some ETFs could see their holdings
> change as some constituents are legislated out of existence by the
> new laws..."
>
> Wow. "Holdings will change" is a pretty euphemistic formulation.
> Don't you really mean that "if healthcare reform goes through, shareholders
> or healthcare ETFs will see a substantial part of their net worth
> destroyed as the constituents are bankrupted"?
>
> Let's be clear
>
> If you think Obamacare is going to be enacted (or if you don't know),
> you should sell health care and every other U.S. equity and stay
> in cash.
>
> If you think it is going to be defeated and result in no bill, you
> should buy healthcare and every other U.S. equity.

Nov 10 05:54 PM

[YoYoMama:]

I don't like Obama Care either, but to have such a knee jerk reaction is a bit premature, and the advice is a little absurd.

If you believe the House Bill that just passed will currently be inacted AS IS, you don't understand the process. The Senate bill has yet to be passed, it is much less radical than the House bill. After which point, the two Congressional bodies will have to draft compromises to both bills, the agree on that compromise bill. THEN it is sent to Obama's desk to either be passed as law or vetoed.

Along the way, the American people are expressing their will by their vote, a situation that at least has the attention of the moderates.

Still, the will of Congress is to get something done, so"no bill" is not likely an option. Something WILL get passed. To believe otherwise is also naive.

Whether or not what is passed looks like "Obama Care" - which is pretty much embodied in the currently passed House bill - remains to be seen. We simply don't know what the compromise bill will look like, and our political history shows bills rarely pass in original form.

So let's all just take a deep breath. No need for hyperbole just yet.

> Let's be clear
>
> If you think Obamacare is going to be enacted (or if you don't know),
> you should sell health care and every other U.S. equity and stay
> in cash.
>
> If you think it is going to be defeated and result in no bill, you
> should buy healthcare and every other U.S. equity.

Nov 11 10:15 AM