3 Ways the Individual Mandate in Affordable Care Act Will Affect Your Investments

Affordable Care Act is Here to Stay

With the Supreme Court ruling the individual mandate in the Affordable Care Act as constitutional, it is time to start looking at how this law can affect your investments. Some of the effects are direct while some others are indirect.

1. Some companies and their stocks benefit

A greater pool of insured guarantees a greater number of people seeking medical attention. Obvious beneficiaries are the hospital stocks and the drug manufacturers. Other beneficiaries include medical device makers and companies like Stryker (SYK) that make hospital beds and other equipment and Baxter International (BAX).

How about the stocks of the health insurance companies?

While the number of people paying premiums will increase, benefits payouts will increase as well due to lowering of the quality of insurance pool and the caps on the premiums. Over time the insurance industry will adapt. I expect the sector to be weak for a few years and eventually pick up.

2. Rest of the market is a mixed bag

The cost to do business in America is going up, while the productivity of the existing workforce will likely increase due to more universal coverage and healthier workforce. This of course means additional drag to the job growth and economic recovery. Bulk of the cost increases will be passed on to the consumers, one way or the other, so eventually the profits will recover. A good deal also depends on the relative health of China and Europe and whether the shift of manufacturing back to the US is sustained.

Personally, I believe that the businesses will find ways to evade or minimize these cost increases while the consumers will bear most of the burden.

3. Return of the inflation and accelerated breakdown of the Social Security and Medicare

Lower job growth, higher prices, means inflation will surely rear its head. Perhaps sooner rather than later. Assets such as stocks and real estate will rise and hopefully this will create real wealth for the society. Poor and less well off will see their expenses rise greater than their wealth so we are looking at an increasing divide between rich and poor. Ironically, if the law does succeed in improving general health levels (which I support), it will cause greater stress on the Social Security and Medicaid programs due to increased life expectancy, especially if the job growth is negatively affected (less contributions).

Of course, there will be challenges and back room deals and eventually what emerges may be different, given this is an election year. What concerns me most is that the law might end up with unintended consequences where healthier population ends up subsidizing benefits for those who couldn’t care less about living a healthy lifestyle. The mismatch between the risks and benefits eventually hurts the society at large by adding costs to the society which acts as a tax.

What kind of investments do well in an inflationary environment? Stocks in the companies with real tangible assets and real estate. During inflation, you want to be borrowing money and not lending it so bonds are not a good investment (especially when the yields are low and prices are high like now).

Bottomline for investors: Buy stocks, real estate and other tangible assets. Prepare for inflation. Avoid health insurance stocks. Prepare for a longer and perhaps delayed retirement.

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This post was featured in the Self Directed Investing for Retirement Carnival

Comments

  1. curiouscat says

    We definitely need to increase the standard retirement age much more than we have.
     
    It would be wise of us to institute graduated retirement, something like:  at age 65 work 32 hours a week.  Starting age 39 work 28 hours a week.  Age 72 20 hours a week.  Retire at age 75.
     
    We also need to stop spending twice as much as other rich countries on healthcare while getting no better results.

    • says

       @curiouscat Or increase immigration so more people are paying into the system. That though just delays the inevitable, but at least it will buy some time to figure out a good solution.
       
      For either of these to work, we need job growth.

  2. Concerned says

    I think your assessment is a bit poor unless I am missing how the healthcare plan is supposed to work. In order to get a more affordable healthcare the government needs to be able to regulate how much doctors can charge their patients. If they do that it will actually be a reduction in a healthy workforce. 
    With the new healthcare system as it is set up two more things could be a big problem. People will not want to pay out the extra money for this healthcare system and so our jail cells will fill up more than they are now and we will have to support those people. Second if more people start to go to the doctor The goverment will be will be spending more than they get from the tax payers as it is now. Eventually we will have to pay more of our hard earned money into this monstrosity. Our healthcare system is going to turn into what Britian has. Where 45% of whatever we make will go to the government to cover the costs of the healthcare system they are pushing down our throats.
    Immigration would be a bad idea. We really need to cut back on immagration. The immagrants are who a lot of the healthcare goes into. If you went with the immigration increase yes more money would go into the system, but much more of it would come out. Even if your just doing it to delay a problem, it will cause a completely new problem. That like taking supports from one building to help another one from collapsing. Yes you have stopped the one building from collapsing for now, but what happens to the other building now that it has less supports to make it stay up?
    While our healthcare system before what not perfect it was better than what they are doing now. People that are just making it,  will not be able to do so. Results of this is losing their jobs and homes and less money will go into the system. I personally think this will impede job growth. If you have any comments feel free to speak them. In conclusion its going to have a negative impact on the stocks anyway you slice it.

    • says

      @Concerned Yes, it is a poorly thought out system that I see more negatives than positives on the society as a whole. Raising costs on everyday living is no way to increase productivity and economic activity in the country and the market as a whole will have a drag due to this.
      As many stocks suffer, there will always be some companies that profit with the new health care regime. As investors, we need to find these companies.

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