The Unexpected Winners of the Affordable Care Act

523700c57a99a.imageThe Wall Street Journal recently ran a story titled “Fund Boss’s Gamble on Health Law Pays Off Big.“ If it seems odd to you that a hedge fund is making money off of the Affordable Care Act, then you haven’t been paying attention. Although the debate on whether the ACA has been good or bad for the healthcare of average Americans rages on, another debate has been settled: Obamacare is great for business.

Profits at the largest health insurers are at record highs, as are those at large hospital companies. The stocks of these companies are also trading at new records. A popular investment fund that tracks the performance of the biggest healthcare companies in America has tripled since that fateful day in September of 2009 when President Obama went to Congress and proposed his reform, far beating the broader stock market. One can only imagine what would have become of the law if the President had ended his speech by saying “and the biggest winners will be the healthcare companies.”

The profits are no accident. While ACA supporters continue to brag about the extra services insurers are forced to provide and the low premiums available on the exchanges, what they don’t talk about are all the little ways the law is great for business. Talking about an insurance plan and only mentioning the premium consumers pay is sort of like quoting the rent on an apartment while leaving out how many bedrooms it has or what neighborhood it’s in. It’s an almost meaningless number. Most exchange policies come with large deductibles and all sorts of copays, so the people signing up for the cheapest policies are really paying for the right to spend thousands of dollars out of pocket first.

But that’s not the only reason Obamacare has been great for business. While defenders point to all the things health insurance companies cannot do, like charge sick customers more or deny coverage to children, they leave out the key thing insurers can do: raise prices. Imagine if the government passed a law that required everyone in America buy pizza regularly. The law is sold to voters by also forcing pizza shops to use the finest organic ingredients and also offer a gluten-free option, but it doesn’t limit how much they could charge for this fancy pizza that consumers are forced to buy. In such a world, would you rather be selling pizzas or hamburgers?

This highlights the fundamental flaw in the President’s original argument for his reform. If the Affordable Care Act was so affordable, the government wouldn’t have to force people to participate. To make matters worse (or better if you are a healthcare company), the government also subsidises the participation of those that can’t afford it on their own. Subsidising a product consumers are forced to buy virtually guarantees insurance companies big profits.  No wonder the hedge funds that saw this coming are making a lot of money.

There is a fallacy that regulations are always bad for business. While the left is worried about big business and the right is afraid of big government, what hurts citizens the most is when the two get together. Just look at the billions defense companies have made from our military misadventures in the Mideast and the cushy bailouts Wall Street got while ordinary Americans lost their homes. The Military-Industrial Complex and the Washington-Wall Street Complex are now joined by the Obamacare-Healthcare Complex.

As if almost on cue, recently America’s Health Insurance Plans, one of the industry’s biggest lobbying organizations, announced the hiring of Marilyn Tavenner as CEO. Just months earlier Mrs. Tavenner had stepped down as the head of the Centers for Medicare and Medicaid Services, one of our principal healthcare agencies and the organization responsible for the not-so-smooth rollout of To complete the circle President Obama has nominated Andy Slavitt as her replacement at CMMS. Mr Slavit comes to his regulatory position after being a VP at UnitedHealth Group, the largest health insurance company in America. On his way through the revolving door he sold millions of dollars worth of inflated UHG stock. Hedge Fund managers are no longer the only people profiting from the affordable healthcare your government is forcing you to buy. Now the regulators that keep telling you how great the law is are cashing in as well.



January 2018
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