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Is the Affordable Care Act Healing Health Care’s Woes?

As the ultimate impact of Obamacare comes into focus, the sector’s winners and losers are becoming more apparent.

Basili Alukos, CPA, CFA, 02/10/2014

For the everyday Americans affected by the U.S. Affordable Care Act, the law has brought uncertainty because of delays, deferrals, and bumpy rollouts. For investors, however, the effects of Obamacare on the companies in the health-care sector are beginning to clear up. To get an update on how the law will have an impact on firms in the industry, I talked with Morningstar health-care analysts Damien Conover and Vishnu Lekraj. Our discussion took place Dec. 16 and has been edited for clarity and length.

Basili Alukos: I’d like to start by getting a broad understanding of health-care trends under the Affordable Care Act. The United States is the largest spender on health care in the world, but we often don’t get much bang for our buck. Will the new law change that dynamic?

Damien Conover: The United States spends a much higher percentage of its GDP on health care than do all other industrialized nations for arguably equal outcomes. The goal of the Affordable Care Act was to expand access to health care rather than trying to bring down costs. There are elements in the bill that try to get at bending the cost curve a little bit, but they don’t have a lot of teeth and it really wasn’t the key piece of the reform initiative.

So, going forward, we’ll still see a large percentage of U.S. GDP going to health care. Firms and industries that have their profitability tied to volume are going to be the beneficiaries.

Alukos: How much does the United States spend relative to other nations?

Conover: The United States is in the high teens as a percentage of GDP. Most industrialized nations spend between 9% and 12% of GDP. Emerging markets spend in the mid- to high-single digits. But relative to the developed markets, the United States spends close to double, and it doesn’t have better mortality rates, or better core outcomes.

One of the reasons why it’s so expensive in the United States relative to the other nations is that there is more choice in the United States. There’s a choice of drugs, choice of hospital, choice of doctor. Those are elements that if you don’t control cause prices to go up.

Alukos: Vishnu, how many uninsured people will the ACA bring into the system?

Basili Alukos, CPA, CFA, is a stock analyst with Morningstar.
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