The American Health Care Act Hullabaloo, Explained in Market Terms

It can be easy to feel as if you are a “bad citizen” by not keeping abreast of the nation’s news at all times. For example, I’d wager a good 90% of people have next to no earthly idea what the “American Health Care Act” even was, what it contained, and (most importantly to us) how it affected the stock market. Fortunately for you, it is our job to stay on the pulse every single day, and to determine the effects job reports, financial news, and even politics have on the health of the economy.

First off, what was it. Let’s blast through the key points:

1. The “insurance mandate” goes away.

Verdict: Good for markets, as this was effectively a tax paid for noncompliance. Lower taxes = better economy; markets are always pleased with tax cuts.

2. There are still tax credits for people to buy insurance.

Verdict: Negligible. Tax credits = lower taxes = good for markets.

3. Insurers still have to cover pre-existing conditions, but can charge more for lapses in coverage.

Verdict: Insurance companies HATE the requirement to cover pre-existing conditions. Those are effectively auto-lose policies for them. Charging more for lapses would’ve helped them a little. Net gain for market.

4. Children can stay on parents’ plans until they are 26.

Verdict: Net benefit for market, however slight.

5. The tax increases from the Affordable Care Act will be removed.

Verdict: The largest and most significant net gain of the whole plan. As we’ve said, the market hates taxes. Much of the post-election run up can be attributed to renewed optimism that the Trump administration would be cutting taxes, ideally in a “Bigly” way.

Viewed agnostically (personal politics aside), the plan was a net benefit for financial markets. It didn’t pass. The Republican Freedom Caucus, arguing in favour of a total repeal instead of a replacement, blocked the bill from happening.

So then, what the effect of ALL of this? Was there one?

The result has been stagnation. Markets hate uncertainty. The fact is, people are NOT interested in trading when big news is due out of Washington that can change the very shape of the industry for an ENTIRE sector. Healthcare stocks have been affected most of all. And unless the administration pivots away to another goal (tax reform, please?) healthcare will continue to trade sideways, as investors cautiously wait on the sidelines to see what exactly shakes out.

Verdict: Until CLEAR guidance can be given from Washington, healthcare will continue to trade sideways, all else kept equal.

– Kiernan Easton, Private Wealth Manager and Partner at Dynamic Wealth Solutions

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