Lots of economic changes will be made within the Biden Administration. One area that is likely to see some work is in the healthcare sector. Remember Obamacare? President Biden was a big supporter of this legislation about 11 years ago when just like today, President Obama had a Democratic majority in the Congress and Senate. It was far from perfect then and even though former President Trump tried to gut the law, it still remains on the books.
But what is on President Biden’s mind with healthcare? During the campaign, Mr. Biden talked about making some tweaks to the law to make it more affordable for users and less costly for the government. Does this mean more spending? Perhaps so. But it probably means more latitude and bigger profits for HMO companies from a bigger base of customers and clients buying health insurance directly from them. Remember, they were huge beneficiaries when Obamacare passed in 2010.
Yet, conservatives believe a continuation of Obamacare is a disaster for the future and a massive spending program like no other. At the same time, for years Republicans could only talk the talk, rather than walk the walk. They had no alternative to Obamacare and could not pass legislation when it counted. So, we try again with the Democrats.
I’m not sure of the tweaks or changes to come but they are likely to have some effect on spending. If there is more money coming to the healthcare system, then names like UnitedHealth (UNH) - Get Report, Humana (HUM) - Get Report, Anthem (ANTM) - Get Report, Molina Health (MOH) - Get Report and Cigna (CI) - Get Report are going to reap the benefits. Specifically, if more consumers are added to the "rolls" of healthcare, these companies stand to profit. There has been a big push from progressives for mandated healthcare for everyone. While Obamacare brought about 20 million into the system, there could be millions more entering into the system under Biden, giving an edge to these companies.
We also would look to CVS (CVS) - Get Report. Not just a drug store, this company bought Aetna, an HMO, a couple years back in a masterstroke that gave them a giant leg up over Rite-Aid (RAD) - Get Report and Walgreens (WBA) - Get Report. And with the pandemic still clearly disrupting our lives, the hospitals are a good sector to place capital. Names like HCA (HCA) - Get Report, Tenet (THC) - Get Report and Universal Health Services (UHS) - Get Report are likely to fill up more beds and charge more fees to the plans if if they have more control over who gets admitted (which is what Obamacare was all about).
From a technical perspective (see chart below), the hospital sector is more favorable than the managed care group. Hospitals have good relative strength, positive volume trends and good long term support, while money flow is bullish. On the other hand, managed care is moderate technically but fundamentally is strengthening. Relative strength is strong, MACD is on a bull signal as the NYSE healthcare index recently reached a new all-time high.
President Biden admitted changes needed to be made to Obamacare, and that goes back some years. Will he bow to the progressives, and spend like crazy, break the budget and remove fiscal responsibility from the equation?
Let’s see if he is true to his word.