The passing of Ruth Bader Ginsburg is creating a stir for some health care stocks, prompting the investment community to ponder the fate of the Affordable Care Act (ACA), also known as Obamacare.
The long and the short of it is, as evidenced by Monday's drubbings for some of these names, markets view Medicaid insurance providers and hospital operators as vulnerable to a possible repeal of Obamacare. The concern is relevant over the near-term because, as if 2020 couldn't get any wackier, the Supreme Court is scheduled to hear an Obamacare single pay mandate case a week after Election Day.
“Prior to Ginsburg's death, the court looked likely to uphold the ACA at least along the previous voting lines (5-4), but without her vote, the path to upholding the law just got more complicated, creating the potential for the millions of Americans who gained access to insurance through the ACA to lose that coverage,” writes Morningstar analyst Julie Utterback.
Here are some exchange-traded funds to consider if Obamacare can withstand its latest challenge.
iShares U.S. Healthcare Providers ETF (IHF)
The iShares U.S. Healthcare Providers ETF IHF has had its hands full on the political front for over a year.
First, it was a crop of contenders for the Democratic nomination pushing for Medicare for All, weighing on IHF components such as UnitedHealth UNH.
Now, it's the specter of the Supreme Court dealing a blow to Obamacare, which would punish IHF holdings such as Centene Health CNC.
“President Trump and Senate leadership appear intent on voting on a new justice before the end of the year. If that is the case, there is a chance that a 5-4 vote upholding the ACA could turn to a 5-4 vote against the law, assuming the new justice votes in line with most of the other conservative jurists,” according to Morningstar.
Conversely, the Supreme Court has turned back stronger challenges to the ACA in the past, perhaps indicating that if that trend repeats, IHF could be poised to rally if a similar ruling is made.
SPDR S&P Health Care Services ETF (XHS)
The SPDR S&P Health Care Services ETF XHS has its own vulnerabilities to a potential repeal of Obamacare as highlighted by the fund's 4% decline over the past week. The fund's 50 holdings include Health Care Distributors, Health Care Facilities, Health Care Services, and Managed Health Care providers, the latter two of which could be derailed if the U.S. health care system is dramatically altered by a new look Supreme Court.
As is the case with IHF, XHS is experiencing near-term pain on speculation that a more conservative Supreme Court, assuming Trump can get his nominee onto the bench, will make a political call, not a legal call, when hearing the upcoming ACA case. That remains to be seen.
iShares Evolved U.S. Healthcare Staples ETF (IEHS)
The good news with the iShares Evolved U.S. Healthcare Staples ETF IEHS is twofold. First, it's a diversified health care ETF, so it's not excessively allocated to insurance and managed care providers. Second, it's actively managed, so it could potentially more responsive to changes in the health care legal and political landscapes than the other ETFs highlighted here. Those benefits are reflected in IEHS's modest year-to-date gain while IHF is in the red.
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