President Obama’s historic healthcare reform bill of $938 billion passed by Congress on March 23, 2010 has marked the end of many months of power struggle between the Democrats and Republicans. Moreover, it has brought major changes to the US healthcare system that is hemorrhaging for so many years in the States.
Some of the stocks that are expected to benefit from the healthcare reform are the following:
Express Scripts (ESRX)
Handling nearly 500 million prescriptions per year, Express Scripts is a pharmacy benefits management company that buys drugs that are covered by insurance at mass discounts and sells them to pharmacies and patients by mail. By doing so, the company has reported an average annual sales increase of 3.8% since 2005 and a net income increase of 24% since 2008. Moreover, since April 2009, Express Scripts owns the pharmacy benefits management businesses of health insurer WellPoint (WLP) with a $4.68 billion deal.
With the healthcare reform, Express Scripts has a growth potential. With the addition of 265 million prescriptions and 25 million customers after the deal with WellPoint, it has gained increased negotiating power for better discounts with drug dealers. Moreover, the reform will expand drug coverage which gives Expert Scripts a nice upside in terms of increasing savings for customers buying prescription drugs.
Walgreens is perhaps the most famous drugstore chain in the United States. Besides that, it has reported an average sales increase of 11.1% and an average net income increase of 8.3% since 2005, showing a growth potential even before the healthcare reform takes effect.
With the healthcare reform, Walgreens is expected to benefit mostly as a provider given that prescription drugs account for nearly 70% of the firm’s revenues. Therefore, given that prescription drugs will increase, Walgreens will benefit in the long term and will also have the ability to offer superior customer service at a lower cost.
CVS is another well established drug dealer that has managed to report an average sales increase of 26.4% and an average net income increase of 32.6% since 2005.
With the healthcare reform, CVS is expected to benefit mostly from the increase in prescription drugs. This will boost the company’s earnings and will most likely make its shares more attractive to the investors.
From an industry perspective, the healthcare reform favors, first and foremost, the insurance companies, in spite their initial opposition. By 2012, after a freeze of the government rate to the 2010 levels, insurers will be subject to a gradual cutback in government payments equal to $136 billion by 2020. On a short-term horizon, insurers’ profits are expected to shrink as a result of the cutback in government payments to Medicare Advantage plans. Moreover, they are very likely to stop selling lifetime policies, or children coverage on the basis of pre-existing conditions. However, in the long run, insurers will benefit from the increasing pool of coverage as many changes are expected to take effect until 2014 that the healthcare reform will be fully implemented.