Obamacare should be a positive for healthcare sector

The Affordable Care Act implies a major reform in the public and private health insurance industry, which should increase demand for drugs and diagnostic equipment.

By Trefis Apr 2, 2012 3:49PM

When President Barack Obama signed the Patient Protection and Affordable Care Act (PPACA), popularly known as "Obamacare," in March 2010, it received large amounts of praise and criticism. Most people seem to feel strongly one way or the other.

 

The polarizing response and the underlying reasons for it are quite intriguing and lie at the core beliefs of fundamental rights governing healthcare and the government's ability to enforce these rights. As research analysts, we consider how this impacts healthcare companies such as Abbott Labs (ABT), Pfizer (PFE), Merck (MRK) and Johnson & Johnson (JNJ).

The Affordable Care Act primarily requires individuals and families earning more than or equal to 133% of the poverty level and that are not covered by their employer or government insurance plans, to maintain minimal essential health insurance coverage or pay a penalty. In a nutshell, it infers that the purview of Medicaid and Medicare facilities are expanding. This means every individual and family will be covered by some kind of medical insurance. On the other hand, this act's provisions will be funded by higher Medicare taxes for individuals earning above $200,000, as well as higher taxes on pharmaceuticals and diagnostics.


Health insurance companies will be at a disadvantage because the act increases insurance coverage of pre-existing conditions and subjects them to a new excise tax based on their market share. Moreover, 30 million Americans will be added to medical insurance benefits. This implies a major reform in the public and private health insurance industry, which brings opportunities as well as challenges.


More than any other parties, healthcare companies are likely to benefit from this act in view of the fact that there will be a sudden increase in demand for pharmaceuticals and diagnostics equipment. The US pharmaceutical market was worth $329 billion in 2010 and it is estimated that the legislation will add $115 billion dollars in revenue over 10 years. This is a solid reason to understand why Big Pharma is leaving no stone unturned in endorsing Obamacare.


If the act passes the Supreme Court examination, healthcare companies could find themselves sitting on a huge opportunity, which would create sweeping changes in the business landscape. Here's a look at how the market size of the healthcare sector may be impacted.


Abbott Diagnostics Market Size

See Full Analysis For: Abbott | Pfizer | Merck | Johnson & Johnson

3Comments
Apr 2, 2012 5:08PM
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Let's face it. Forcing 30-50 million people to purchase health insurance ought to be a boom for the insurance companies. I see where BO is confident his HCL will be upheld by the SCOTUS and he also "WARNED" the judges against judicial activism. Personally, I don't think warning them about anything helps his cause at all. When you start WARNING the Supreme court, you have some serious problems. The case has been argued and is being deliberated; yet, he's still trying to influence it's outcome. He's a real work of art. The issue was never what it does or doesn't do; BUT, can the federal government force the citizens to purchase health insurance. That's the paramount issue. 
Apr 2, 2012 5:07PM
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Obamacare is not constitutional and won't stand. So what is Plan B?
Apr 3, 2012 11:33AM
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The result here is the US pharmas will increase from $329b to $444b over 10 years if we have Obamacare. That is less than a 30% increase over 10 years. Most already grow at a much higher rate than that so this seems to me to reduce pharmas growth. If the $115b is in addition to their normal growth then we are talking about $11b a years but this is spread over how many companies. I just don't see how this has much impact either way. I believe the law will be struct down anyway.
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