Health stocks are highly sensitive to news about regulatory and legislative change. This week is another test with the latest Republican effort to repeal President Barack Obama's signature healthcare law.
The overall S&P 500 healthcare sector has underperformed the broader stock market in the past two weeks as Senate Republicans seek to generate enough support to overhaul Obamacare with their latest bill, known as Graham-Cassidy.
The sector rebounded somewhat on Tuesday as odds for the bill's passage appeared to diminish after a key senator opposed it. The Senate faces a Saturday deadline because of an expiring rule that lets the Republican healthcare legislation pass with just a simple majority.
Here are the main stocks expected to move most from news over the Republican repeal efforts:
Hospital Operators
Throughout the year, the ups and downs of Republican repeal efforts have swayed shares of U.S. hospital companies such as HCA Healthcare Inc. and Tenet Healthcare Corp. Those stocks benefited from Obamacare's coverage expansion by reducing the companies' unpaid patient bills, including by expanding the Medicaid government program for low-income Americans, so the repeal proposals have generally been viewed as negative for hospital stocks.
Graham-Cassidy repeals enhanced federal funding for the Medicaid expansion beginning in 2020 and limits spending through a per capital cap. It also adds uncertainty by providing Medicaid funding through block grants to states that allows them to implement their own rules.
"The Graham-Cassidy bill is looking to reduce funding for Medicaid in the longer term. That is a benefit that we have seen improve the earnings outlooks for these hospitals," said Jefferies analyst Brian Tanquilut.
The proposal also repeals the requirement that individuals buy insurance or pay a fine, known as the individual mandate, which also could reduce insurance coverage, hurting hospitals.
One possible positive for hospitals could be the bill's increase of funding to states that did not previously expand Medicaid under Obamacare, where some publicly traded hospital companies have facilities, said Ipsita Smolinski, managing director at healthcare research consulting firm Capitol Street.