Health insurance and hospital stocks surged following the release of the Senate's Obamacare repeal bill. Analysts say in some ways the Republicans' draft legislation threads the needle on the health industry's concerns, by funding insurance subsidies near term, while pushing out deep cuts to Medicaid seven years from now.
"You preserve Medicaid until 2021 ... and that's good for the hospitals — it retains the status quo," said Sheryl Skolnick, Mizuho Securities' director of research. "It's good for the managed care plans that have Medicaid contracts."
While the Senate bill proposes cuts of more than $800 billion state funding for Medicaid, more or less in line with the House legislation, the risk for the health industry is pushed out over a longer time period.
"Nobody in the market cares what's going to happen seven years from now," Skolnick explained. "It's a lot more clever than the House bill. The House bill was sort of brute force. This has a lot of interesting subtleties. Politically, it's much more masterful."
Some investors may think that by kicking Medicaid cuts down the road, that the Senate bill effectively ensures that they will have to be revisited. From 2003 to 2014, scheduled Medicare cuts in reimbursement for doctors were postponed year after year until they were finally overhauled with permanent funding.
"The near-term aid for the individual market and longer phase-out of Medicaid expansion support the shorter-term outlook and raise the possibility that the most significant coverage cuts may never go into effect post the 2020 election even if repeal is passed now," wrote Evercore ISI analyst Michael Newshel in a note to clients.