Obamacare Demystified: What’s Implied for Healthcare Companies?

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 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 (NYSE:ABT), Pfizer (NYSE:PFE), Merck (NYSE:MRK) and Johnson & Johnson (NYSE:JNJ), which we highlight below.

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Impact on U.S. citizens

The Affordable Care Act primarily requires individuals and families who are earning more than or equal to 133% of the poverty level and 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.

Impact on Health Insurance & Healthcare Companies

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 of those companies. Let’s look at the healthcare sector and its key drivers like market sizes which may get impacted.

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