The Markets and New Healthcare: What's in it for You?
The new Trump Administration has been talking, since Inauguration Day, about the repeal and replacement of the current Affordable Care Act, inextricably linked to President Obama and known colloquially as Obamacare. The system widened the coverage net, pulling in some 20 million more Americans under the umbrella of insurance coverage, but also imposed a number of taxes on businesses and high-income individuals to help pay the costs. With the Trump Administration starting its own plan for a new American Health Care Act (AHCA), what is the potential impact on the markets and you?
Stocks and the P/E Ratio
Known as the Price-Earnings Ratio (P/E Ratio), Investopedia defines the P/E Ratio as "the dollar amount an investor can expect to invest in a company to receive one dollar of that company's earnings." Basically, this forward-looking ratio enables investors to better determine how much they are willing to pay per dollar of earnings.
For example, a company stock trading at a P/E Ratio of 20 offers an interpretation that an investor is willing to pay $20 for every $1 of current earnings. According to Advisor Perspectives, as of early March the P/E Ratio is 23.8, while the historic average of the figure for the American markets dating back to 1870 is roughly 16.7.
New Healthcare and the Markets
The proposed AHCA plan of the Republican Party, with the support of President Trump, could have a major impact on the market in different ways for different investors. The overall outcome could bring raising values of investments such as 401ks or other retirement plans, but raising values cannot be mistaken for overvaluation either.
Early in his administration, President Trump issued an executive order urging government departments to "waive, defer, grant exemptions from, or delay the implementation of provisions of the ACA. The equity markets typically dislike uncertainty, and with no planned repeal-and-replace in play at the time, markets were jittery as investors waited to see what type of fallout would occur.
Now that the AHCA has been introduced to the American public and is up for debate in the halls of Congress, among small Congressional organizations, the potential impact is becoming clearer. Under the plan, the AHCA will:
. Repeal the hospital insurance tax and Medicare tax on unearned income
. Eliminate taxes charged to insurance providers, pharmaceutical companies, and medical device manufacturers
. Eliminate a 10% sales tax charged on indoor tanning salons
. Lower refundable tax credits for consumers to use for purchasing a plan, which are calculated based upon income.
Aside from less federal government support for healthcare in America, the proposed AHCA would remove penalties imposed upon the industries and specific businesses mentioned above. United Health and Aetna, two of the nation's three largest insurance providers, recently exited the ACA markets in most states because of the cost of the program.
Under the ACA, these industries could see increases in investment and value because their operations would no longer be taxed as high to help support a federal marketplace. Additionally, insurance companies could previously only deduct $500,000 in wages on executive pay as a business expense, but the new bill would completely eliminate that limit, offering more savings for those companies.
A new healthcare plan would bring changes to individual investors and the market as a whole. Some individuals would find healthcare cheaper and have more money to invest, while companies would face lower taxation at the same time. For more information, please contact Indian River Financial Group.