End Of Private Insurance?
If the Sanders bill were to pass, the effect on the health care industry would be profound. Medicare “is the low-cost payer to hospitals,” wrote Raj Denhoy and Anthony Petrone, medical device analysts at Jefferies. “If it becomes a bigger portion of the overall payor mix, hospitals will be under a lot of pressure to lower costs.”
If “Medicare-for All” becomes the law of the land, the hospital industry could lose $800 billion over a decade; drug prices might be reduced by 30%; and the private insurance industry would be outlawed overnight, according to analysis by Raymond James’ Meekins and Yanchunis.
It goes without saying that Medicare for all would be devastating for many health care stocks, and by extension, health care ETFs.
Less Than 1% Chance
The prospect of big changes to the health care industry might be scary for investors. But before you sell all your health care funds, understand that nothing is a done deal.
The election is many months away, and there is no telling which presidential candidate will grab the Democratic nomination, let alone who will win the general election.
That’s why Raymond James analysts believe there is less than 1% chance that Medicare for all actually becomes the law of the land in the next five years.
If that’s the case, health care ETFs could end up being a bargain once the political dust settles.
Short-term movements aside, most analysts tend to agree that, barring sweeping changes to health care law in the U.S., the sector is a good long-term value after this year’s underperformance.
For investors interested in potentially capturing that value, the aforementioned XLV is the obvious choice. The $17.4 billion ETF is the largest, most liquid health care fund on the market.
However, for investors looking to take bolder bets on the segment, XLV may not be the best option. The actively managed $417 million ARK Genomic Revolution ETF (ARKG) has trounced XLV so far this year, delivering a gain of 35.7% thanks to big bets on gene-related companies like Illumina, Invitae and Intellia Therapeutics.
(Use our stock finder tool to find an ETF’s allocation to a certain stock.)
Stocks of insurance companies—poised to be the biggest losers if Medicare for all becomes law—aren’t found in ARKG.
Similarly, biotech funds like the ALPS Medical Breakthroughs ETF (SBIO), the Virtus LifeSci Biotech Clinical Trials ETF (BCC) and the SPDR S&P Biotech ETF (XBI) have done well, with double-digit returns.
For a full list of the available health care ETFs and their year-to-date returns, see the table below:
Health Care ETF YTD Returns
Data measures total returns for the year-to-date period through April 22.