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Band-Aid Please! Health Care Stocks Lick Their Wounds and Search for Ointment Amid a Sector Meltdown

Apr 17, 2019

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  • US health insurer stocks continued to drag down major US indices today as the sector grapples with investor angst over the “Medicare for All” debate that is already at the forefront of the 2020 US Presidential Election. On Tuesday, US health insurers capped their worst 5-day slide since 2011 -- the selloff continued into today as the S&P Health Insurers Index is down 2.81% intraday.

 

S&P 500 Health Care Index 3-Month Price Chart

 

  • The state of US health care came into the fray last week when Democratic Presidential candidate Bernie Sanders participated in a Fox News town hall in Pennsylvania and voiced his support of Medicare for All, a stance taken in the past by Sanders.
     
  • Prior to the town hall last week, Sanders published a tweet that heavily criticized UnitedHealth Group Inc. (UNH) and UnitedHealthcare CEO Steven Nelson. “Our message to Steven Nelson and UnitedHealthcare is simple,” Sanders wrote, “When we are in the White House your greed is going to end. We will end the disgrace of millions of people being denied health care while a single company earns $226 billion and its CEO makes $7.5 million in compensation”
     
  • The comments made by Sanders did not go unnoticed. When UnitedHealthcare hosted its fiscal first quarter conference call on Tuesday, all appeared to be going well until CEO Steven Nelson raised a concern towards the end of the call. In regards to an expansion of the Medicare government program, which covers about 60 million Americans, Nelson said it would spark, “wholesale disruptions of American health care,” and would,” surely have a severe impact on the economy and jobs -- all without fundamentally increasing access to care.”
     
  • Nelson’s comments immediately spurred a selloff of US health insurer stocks. In Tuesday’s trading, the S&P 500 Health Care Index fell 2.03% while UnitedHealthcare dropped 3%. To make matters worse, the selloff came despite a solid earnings beat from UnitedHealthcare and increased FY2019 guidance!
     
  • Investor angst over Medicare for All is likely overdone, however, according to Bloomberg. In a recent report, Bloomberg said it is a longshot that Medicare for All will become law even though it is backed by several contenders for the Democratic Presidential nomination.

 

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