The potential repeal of the Affordable Care Act will hurt hospitals, but we think some wide-moat pharma and biotech companies should be able to withstand the turbulence.
Debbie Wang: With the Trump administration and Republican control of Congress, we think they are going to make an early attempt at dismantling key pieces of the Affordable Care Act. This will end up translating into more people being uninsured. We see this as a negative for hospitals because they will have more patients coming in who are uninsured, and that will drive up bad debt expense. We see this as a positive for pharma and biotech because they will no longer have to pay in the ACA-required fees which were used to help subsidize premiums for the lower-income insureds. And we see this as a mixed bag for managed care companies, in that they will now be able to pull out of the insurance exchanges that are not profitable, but on the other hand, they will probably still be required to write insurance for insureds who come in with a pre-existing condition.
For investors, we continue to look for companies in healthcare that have moats. So, companies like Johnson & Johnson or Pfizer or Medtronic that have wide economic moats are the ones that we think are most likely to be able to withstand the turbulence that we will probably be seeing in the near term.
