Wall Street Ponders if Obamacare Axe Helps or Hurts Tax Bill

(Bloomberg) -- The Senate’s latest plan to fund one of the largest tax cuts in history has dragged the health-care debate back into the limelight -- and that’s got Wall Street’s attention. Ending the requirement would save the government $338 billion over 10 years, but leave around 13 million Americans uninsured and raise premiums by about 10 percent, the Congressional Budget Office estimated.

Analysts are divided on the chances of passage and the impact across the health-care sector varies. The removal of Obamacare’s individual mandate may increase the chances of tax cuts that could bolster growth, a win for the broader market, while numerous other provisions may hurt select companies.

Goldman (Jami Rubin, head of health-care research)

“Our economists expect enactment to likely occur in early 2018, with 80 percent odds of passage, although they expect changes to the proposals to occur. Overall, tax reform aims to level the playing field for U.S./outside-U.S. based corporations and discourages the attractiveness of corporate inversions. Based on the current proposals, the winners appear to be U.S. based multinationals who could benefit from being able to bring back their offshore cash at a low one time tax rate and future foreign earnings tax free through the territorial system.”

“The simpler approach the House takes on foreign intangible income tax could prevail versus the Senate’s more complicated version. On balance, health-care companies that have ‘inverted’ would likely no longer be at an advantage (we note Allergan PLC and Endo International PLC as two names likely to see upward pressure on their tax rates), as could those companies with significant revenue generating IP overseas Alexion Pharmaceuticals Inc, Gilead Sciences Inc, Celgene Corp”

Leerink (Ana Gupte, managing director, health-care services)

“The repeal of the individual health insurance mandate is now expected in the Senate tax reform bill, increasing the likelihood of passage, in our opinion. For managed care organizations, Centene Corp (market perform) is the only company with meaningful health insurance exchange (HIX) exposure as Anthem Inc (outperform) has now exited 70 percent of their membership and Molina Healthcare Inc expects their pricing models to largely minimize any HIX exposure for 2018.”

“The recently revised CBO estimate stated the repeal could increase the number uninsured by 13 million, but the CBO estimates remain controversial and the actual increase in uninsured may be much less. Cost sharing subsidies (CSRs) are likely to be funded and could offset the downside from the individual mandate repeal by stabilizing exchanges. We continue to believe that tax reform presents an EPS tailwind as much as 20 percent to 40 percent for our managed care coverage though we do not expect it all to fall to the bottom line, but rather see it passed through at least in part to employers and consumers.”

Cantor (Steven Halper, equities analyst)

“The elimination of the mandate is not too meaningful to our managed care coverage companies, in our opinion. Simply put, the penalty for non-compliance was not significant enough to drive enrollment of healthy individuals. Accordingly, risk pools did not develop as expected and most of our publicly-traded companies had disappointing results in individual markets. As a result, Aetna Inc (neutral), Humana Inc (neutral) and UnitedHealth Group Inc (Overweight) have pulled out of individual markets for 2018. Anthem (overweight) has pulled out of many markets but maintains a presence. We do not believe Centene (overweight) would be negatively impacted by the legislation. Centene was the only company successful in individual exchange markets as it focused on transitioning Medicaid members in existing markets.

“Within healthcare IT, we believe the repeal (or non-enforcement) is potentially positive for Health Insurance Innovations (overweight). In theory, the elimination of the mandate should result in more individuals purchasing health plans that are non Obamacare-compliant.”

BMO (Ian Lyngen, Aaron Kohli, rates strategists)

“The negotiations have apparently gone from phase-in to phase-out and while we’re firm believers in the idea that all tax cuts are temporary (or viewed so by the market), putting in an explicit end date for fiscal stimulus certainly takes away much of the potential economic upside.”

“We continue to expect that the best-case scenario for tax reforms would be a watered-down version that is effectively a modest tax cut which doesn’t require a government shutdown to achieve.”

“That said, we’re growing increasingly apprehensive about Congress’s ability to avoid a shutdown in December – especially now that the GOP has thrown in a repeal of the requirement that all Americans have health insurance.”

Evercore ISI (Terry Haines, analyst/senior political strategist)

“We keep our call unchanged that tax legislation is 75 per cent likely.”

“The major change here is the dropping of the Affordable Care Act individual mandate. This raises money but it is important for investors to understand that it is not designed to topple Affordable Care Act (ACA): ending the mandate is being paired with the Alexander-Murray bipartisan compromise designed as a short-term ACA fix that restores CSR payments, among other things. The removal of the individual mandate would structurally weaken the individual health insurance market by deteriorating the risk pool, raising premiums for those that remain and increasing the risk of a downward spiral; however, recent CBO analysis suggests that the market would still be viable albeit with 10 percent higher premiums and 13 million fewer people insured. In the near term, an accompanying extension of Obamacare subsidies for health insurers — the Alexander-Murray bipartisan bill — would deal with immediate concerns about the stability of the market over the next year.”

Cowen (Chris Krueger, senior policy analyst)

“This has probably been the best 10-day policy stretch for Congressional Republicans all year - we do not think it is coincidental this has matched up with President Trump being on the literal other side of the world.”

Even so, he still expects bill to fail in Senate; “Like Captain Ahab, Senate Republicans are going back to the ObamaCare repeal in the bill. It is moves like this that keep us on our increasing isolated island who view this saga as a replay of Repeal-Replace.”

11Transparency and time are not this bill’s friend as every Fortune 500 tax department begins combing through these massive bills rife with hugely consequential - and expensive - changes to the entire tax code”

Beacon Policy Advisors

“There appears to be increasing momentum for tax reform and we believe that if it passes the Senate, it will ultimately become law as soon as before year-end.”

“Politically, including an ACA mandate repeal provision is a high risk/high reward endeavor. Republicans accomplishing both partial healthcare reform and comprehensive tax reform in the House Tax Cuts and Jobs Act would be a major victory that will energize the GOP base and donor class as well as change the narrative around the Republicans’ inability to govern. However, including the ACA mandate repeal brings the GOP’s victorious enemies of previous healthcare battles into the tax reform debate. ”

“Five major health organizations, including Blue Cross Blue Shield, the American Medical Association, and the American Hospital Association, wrote a letter to Congress yesterday opposing the repeal of the individual mandate in the tax reform plan. Awakening such influential groups along with the grassroots networks of healthcare advocates that were largely silent so far in the tax reform debate only creates a more difficult task of creating cohesion and unity among a slim majority in both chambers of Congress.”

Veda (Henrietta Treyz, director of economic policy)

“Most of the newly uninsured will become so by choice. Thus, politically speaking, we think it is an easier sell – no one is actually ‘taking away’ anyone’s insurance. There is little doubt that premiums will increase in the individual market, but it appears that Senate Republicans are willing to accept that as the price of ‘freedom’ to choose to go uninsured.”

Horizon Investments (Greg Valliere, chief global strategist)

“Just as the Obamacare bill failed in the Senate months ago, the same cast of characters could oppose it: GOP Sens. Susan Collins, Lisa Murkowski and John McCain (although the latter may vote for the bill). There are other possible no votes from Sens. Jeff Flake and Bob Corker, who are opposed to a tax bill that could lose $1.5 trillion. For added drama, there are no assurances that maverick Sen. Rand Paul will vote for the final bill, and then there’s the Alabama fiasco; no one can be sure who (if anyone) will fill that seat.”

Throwing mandate repeal into tax bill “virtually eliminates any chance that even one or two Democrats will vote for the measure; bipartisanship was on life support already. In fact, we predict that if there’s a chance of actually abolishing the health mandate, Chuck Schumer will go nuclear – he will employ every trick in the book to grind the government to a halt when fiscal 2018 funding expires on Dec. 8.”

To contact the reporters on this story: Cristin Flanagan in New York at cflanagan1@bloomberg.net, Felice Maranz in New York at fmaranz@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Morwenna Coniam

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