I was at an interesting dinner last, and amongst the very notable things discussed over giant steaks (yes, that is an actual dinner photo), ObamaCare came up.

Some of the attendees thought — like Senator Ted Cruz does — that it is a job killer, the bane of the economy. But that is essentially a political Macro argument, and not a true investing thesis. As we have seen this past year (Curse of the Macro Tourists), building an investment around a big macro theme has not been a particularly successful strategy. There are simply too many moving parts, too many unknowns, and to be blunt, way too much cognitive bias, for this to succeed as a strategy.

I have repeated counseled against focusing on politics in investing, and ObamaCare is no different. Indeed, my very first column for the Washington Post (February 6, 2011) was simply titled Why politics and investing don’t mix. Instead, smart investors have been thinking about how this insurance mandate will impact various sectors and companies. A few years ago, we discussed this and decided to overweight HealthCare sector via XLV ETF filled with Pharmaceuticals and Insurers and Hospitals; 3 years later, clients remain long, but we are now only modestly overweight the sector.

Lost in the initial political debate was the actual impact on insurance plans and hospitals: About 45 million uninsured people will now become new health care consumers (See Doctors Brace for Health Law’s Surge of Ailing Patients). The second factor was that hospitals will no longer be on the hook for free ER services, as they have for almost 3 decades.

Whats that you say? Hospitals are mandated to give away free services?

Yes, this is actually true. In response to some prior bad behavior from hospitals called “patient dumping,” a mandate for unfunded medical care was created. The Emergency Medical Treatment and Active Labor Act (EMTALA) was signed into law by Ronald Reagan. It mandated that “Hospitals provide care to anyone needing emergency healthcare treatment regardless of citizenship, legal status or ability to pay.”

You read that right, RR created a universal coverage mandate, forced the private sector to pay for it, and created the world’s most expensive, least effective Health Care program. Hospitals hated it, jacked up prices in response, and tried to spread the costs to everyone else.

Given that history, it is no surprise that Hospitals are quietly pleased with ObamaCare. Reall their stocks rallied after the Supreme Court ruled on the legality of the new rules. It should come as no surprise: They get to remove a huge cost they had no prior ability to control. They also get a massive number of new paying customers. Lastly, they have a much greater ability to determine who their patients will be than they had in the past.

And while I may be one person with one viewpoint, the broad Healthcare Index (see chart below) is up 200% + since the March 09 lows — and has done nothing but go up since ObamaCare was given Supreme Court approval (June 28, 2012) as well.

The Politics of ObamaCare are complex and confusing and partisan. The investing thesis — and results — have been anything but.

XLV Health Care SPDR (ETF)
click for larger chart

Category: Investing, Politics, Psychology

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

40 Responses to “Investing Around ObamaCare”

  1. rd says:

    The irony of being fed huge steaks creating new customers for the healthcare system is too delicious.

    • Eating protein and fat ibstead of carbs and sugar flies in the face of th government recommendations of the past 40 years, which have coincided with America (and MEXICO) becoming the fattest nation on earth.

      I’ll take the steak and sauteed spinach over bread & dessert!

      • peggysue says:


        You are absolutely correct. Fat is not as bad for you as sugar and carbs.
        The Feds over time have totally mis informed the public on nutrition. The rise of the fast food nation is doing irreparable harm. Rarely and I mean rarely grace fast food premises.
        Eat most meals at home that are made from scratch. Proud that my grand sons are fed by their mom in the most nutritious way. She also severely restricts the boys TV watching.

        We gave up cable and satellite some time ago. Two important side benefits. More high quality time and NO fast food ads. In fact, no ads at all!


  2. TLH says:

    If you raise the cost of employment, you have less of it. Rates are going up for the young to support the old and uninsured. You do not presently have enough doctors. That is why nurses are providing care. Scans are being substituted for good medical acumen. We already have a two tiered medical system. Medicaid is inferior care. Not enough doctors take it. Too much medical care can be worse than no medical care. There is not enough money to pay for a political elite plan our elected officials receive.

    • You are radically over-simplifying a complex subject.

      But if you REALLY want to know why we have too few doctors, perhaps you should have a chat with AMA and Medical School Association, which strictly limit the number of Med students, constricting supply of medical care and raising prices.

      • gstream says:


        Amazing how much better you feel, look, sleep after cutting grains, soy and sugar and increasing fat intake. I feel like this is really starting to gain traction with the general public.

        If anyone wants to lose weight I highly recommend sites like marksdailyapple.com and wholelifechallenge.com –

        I hope that we can figure out a way to make these diets more cost-effective for the general public. Part of me thinks that offenders like Kraft and McDonald’s might be part of the solution, once they cut out grains/sugar/soy. While I love me a grass-fed fatty ribeye and spinach, I also believe there is no reason that processed cannot also be healthy.

      • poppy2530 says:

        Definately agree processed by nature will strip nutrients from the foods can it be used possible I am not knowledgeable in that realm but Hoffer stated this once a food is processed there will be a rise in mental health cases since individuals will be deprived of necessary nutrients.

        The funny thing is soy has never been consumed to the levela dn amount it is in todays world the human body has not adapted to consuming soy in the way we do now only certain cultures used soy and always prepared it in a certain way.

        Peoples bodies and nutrient and genetic profile are so different its why only certain diets work for certain individuals and never the entire population human body is too complex to be pidgeon wholed I eat 2 tablespoons of butter a day and eat balanced diet its what works for my body if I ate sugars and breads I will get fat and be sluggish as well as develop yeast problem its my genetics.

        Yet when a population or anyone is conditioned adn trained to see a limited amount of options or see the higher price of food to eat organic or grass fed as just too much they dont take into account the actual price it will cost you to get healthy or recovery if the cheaper non organic or processed foods deteriorate your health.

      • MarkKlose says:

        As well as restrictions on the immigration & licensing of foreign trained physicians. Both the education & immigration issues are specifically designed to create scarcity.

      • poppy2530 says:

        I know its funny how those assocaitions works and the selectiveness an competitiveness for those that are actually in medical school its amazing.

        One other thing is that most these doctors are given education on interaction of pharmecuticals and your local doctor if they know anythinga bout nutrition it will not be from med school but merely there own research.

        But knowing ina life and death situation what to give someone is invaluable but under this very very simplified assumption you would think there could be a much higher capable canidate pool and efficient process to get MD’s practicing in the field

      • DeDude says:

        Its not just that. Actually there is currently a slight excess of people graduating from med school (who cannot finish their training and become practicing doctors for lack of resident slots). The training of doctors in specialties is funded by hospitals. The hospitals do not train people unless they can profit from the training. They make a lot of money of training specialist who do procedures (so we have huge numbers of cardiologist) and not much on people just seeing patients (so the epidemic of obesity and diabetes is mismatch with a huge lack of endocrinologists). The good news is that a huge number of people who should only see their doctors once a year (baring emergencies) are automatically scheduled to see them every 3-4 months. So when the doctors get overwhelmed with new patients they will start sorting out next appointments a little better.

    • rd says:

      Presumably this is why the Canadian economy collapsed years ago and has never recovered.

    • blackvegetable says:

      The US ranks roughly 40th in Physicians per capita……..

  3. george lomost says:

    “You read that right, RR created a universal coverage mandate…”

    Jeez, next thing we’ll learn that the other great hero of the Right, Winston Churchill, started ‘socialized medicine’ in Great Britain.

    Oh wait, he did!

  4. ByteMe says:

    The demographics play with boomers wanting to slowly shuffle out of this world comfortably make REITs focused on higher-end nursing homes seem like a long-term growth winner.

  5. [...] Investing around Obamacare.  (TBP) [...]

  6. peggysue says:

    Someone tell me what is wrong with this picture, please.
    1. More people receive medical coverage when before they did not.
    2. More people receive Medicare coverage when before they did not.
    3. Insurance companies receive millions more customers.
    4. Hospitals receive many more paying customers.
    5. More jobs created due to above.
    6. Innovation increases in health care area.
    7. Repubs and tea party continue to oppose all of above and continue to look and act like fools.

    Thank you.

    • willid3 says:

      to many of the wrong people getting help? now if this was about giving away every thing to the 1%, no problem we can do that. wont even show as a crisis, will just get done

  7. MacroEconomist says:

    I refuse to believe this article because it deals with facts.


    Ted Cruz supporter

  8. skier5150 says:

    Barry, a long time fan I am, but the ACA passed during a market bottom and the whole market has pretty much doubled since.

  9. [...] changes this law represents to health care finance. Into the breech strides Barry Ritholz with Investing Around Obamacare. Ritholz’s bottom line – healthcare, and hospitals in particular, are poised to [...]

  10. TenaciousB says:

    “Hospitals will no longer be on the hook for free ER services, as they have for almost 3 decades.”

    Source? Maybe hospitals will no longer be responsible for the people who now have coverage, but EMTALA will still be up and running for those without insurance (of which there are many: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/06/07/obamacare-leaves-millions-uninsured-heres-who-they-are/).

    The issue may decrease in magnitude, but it’s still very much with us.

    • Robert M says:

      It only exists because the states that are not implementing the ability to expand Medicaid. As a result those states hospitals will continue to see those patients whose income is > $11,500 and <$15,500. They will be as a rule males, regardless of age, who think they are invincible and do not need medical care. Most will be found to have diseases at stage 3 or 4 because they refused to go have a checkup when something was wrong. They will hold on to life tenaciously costly far more than had they simply had the check up established a baseline and been caught at stage 1 or 2.

      Unfortunately the President and his team have refused to "advertise" the fact that the health insurance available will basically change it from health care as repair to health care as maintenance. I suggest you look @ coverdca.com. It is clear that is where CALI plans to go. The only factor hurting this will be the lack of doctors to see patients. As usual BR ferreted the facts to that problem. I will add I am not in favor of opening up immigration for the benefit of foreign doctors and crippling healthcare in their native countries.

  11. sihaque says:

    Is this really a zero sum game? There will be efficiencies for hospitals, doctors gain more patients, people are healthier but on net still buy the same number of prescriptions, so who loses?

    • rd says:

      With any luck it will be a -30% game as we get closer to the rest of the developed world’s health care costs. The primary losers will likely be the high profit margins in many of the big healthcare companies as consumers get better data on costs and can do more comparison shopping, squeezing those margins. It will be interesting to see what happens when folks like Jeff Bezos and Fred Smith move into that field.

      Doctors and hospitals spend a lot of money on paperwork they would rather not do. They would not mind a reduction in revenue if their paperwork costs and time declined commensurate.

  12. bear_in_mind says:

    I understand you weren’t publishing a comprehensive treatise on the issue, but I have one quibble to point out from this passage:

    “You read that right, RR created a universal coverage mandate, forced the private sector to pay for it, and created the world’s most expensive, least effective Health Care program. Hospitals hated it, jacked up prices in response, and tried to spread the costs to everyone else.”

    Hospitals and other allied professionals in medical industry food-chain indeed increased their pricing for care; and indeed, they partially ‘tried to spread the costs’. However, the citizens shouldering the largest portion of these increases have been those of lower-incomes, aged and/or disabled, who have virtually NO bargaining power. They were subsequently charged egregious “retail” fees for services, whereas large insurance companies routinely pay +/- 40 percent of retail pricing for any given medical service.

    To top it off, hospitals and medical plans began aggressively collecting these retail service fees, sending unpaid / underpaid bills to collection agencies and notifying credit bureaus of late payments and unpaid debt. This often destroys the credit ratings of individuals who are most dependent upon what little credit they could access in the first place.

    Shameful… but money for those humongous executive bonuses have to come from somewhere, right?

  13. [...] Rhetoric aside, Obamacare is good for health care corps (Big Picture) [...]

  14. poppy2530 says:

    Great view BR,

    I didnt take the time to think about the individual sector and have gone through ER services without insurance and have not understood the outrageous increases in prices charged look at what the bill is for labs alone next time you go to the doctor what actually billed is crazy.

    Took a uninsured loved one and they were willing to settle for a visit for 800 if could be paid in next 6 days if not then would go to a collection agency for 3000.00 all we got were general labs and crap diagnosis of beta kerotene toxicity. Anywho these things happen and they must provide services you can ask anyone at the counter of your local ER or even if you call them. So i can see the costs they have its like having a business and not being able to hedge these variable costs its very difficult to deal with.

    Bickering and fear mongering over waht the bill will or wont do can be debated for days looking at who it helps what sectors benefits and what that will be is the opportunity greatly ignored this return in a portfolio just proves it. Damn confirmation and overall biases.

    Any who healthcare is a huge business just like any huge business the ones at the top will get compensated and will look for ways to improve profits colleges hospitals to your local nightclub operate on similar basis why we get all up in a riot about these things must be some type of human condition someone will always complain.

    Plus the typical healthcare route is only one option for someone to take there are many alternative routes that have been successful and unsuccessful just like traditional medicine works and doesnt work. One of the things to always keep in mind no one can make money off of you if you are healthy or dead keeping someone sick and in need of these services is where it is made. Gotta ask ourselves if we need to use these services why are we using them why is this system we choose to use our only option(at times it is like breaking a bone or life and death situation) what can we do to prevent this and steer away from this as our option.

  15. nofoulsontheplayground says:

    BR, you may want to update the post to say the XLF is up 100%+, not 200%+. I know you meant to put that it more than doubled, and it’s an easy mistake to make when doing this. It’s interesting how much the XLV underperformed going into the Supreme Court decision.

  16. 4whatitsworth says:

    The only thing that comes to mind is that this is another reason not to invest in the United States right now. We are eating our young by increasing their heath care cost to pay for the elderly and enslaving them with debt for a lousy education. Don’t get me wrong we need quality health care for all but this is not the way to go about it.

  17. [...] It’s well known that hospitals are required to provide free emergency care services to poor people. What’s generally not known is that this law was passed and signed under Ronald Reagan’s presidency. Via Barry Ritholtz: [...]

  18. Livermore Shimervore says:

    You stole that chart from my playbook. I have repeatedly pointed out how well healthcare, as an investement class, has performed since the ACA law (contrary to popular right-wing speech it no longer a bill it is THE LAW). But once people actually start consuming all that healthcare I have to wonder if they’ll be able to shift costs around and stick Uncle Sam and large Corporations with the ER bills. Or maybe it will continue to be like the Movie Biz in Hollywood where not even $400mm films ever seem to turn a profit.
    Carbs and sugar being less damaging that saturated fat is not necessarily true. It depends on the indvidual, you need a plaque test to confirm if the proportion of the less healthy part of your LDL cholesterol is not outrun by the proportion of you HDL. The standard cholesterol test is not nearly the best test. Ignoring these results in the long-run can set you up for vascular dementia not too far down the road. The best thing to do is eat some more King Oscar sardines or Sockeye Salmon with any of the following: cauliflower, broccoli or brussell sprouts.

  19. [...] How do you invest around Obamacare? (The Big Picture) [...]

  20. intlacct says:

    Y’all are gonna need Obamacare after that steak. Mama mia!

  21. Barry,

    I shifted a nice chunk of my retirement money to that sector when you mentioned it as an idea back then…I’ve since gone mostly to cash after a nice run, so thanks.

    Now how to position for the following anecdotal info:

    I’ve done our State (CT) calculator. A comparable ACA plan to what I currently have (self employed farmer, family of 3) is slightly more than DOUBLE what I currently pay. DOUBLE!!! High deductible, approx. 75% coverage after deductible is met…frankly, what I have is crappy, and this looks to be crappy as well…but at TWICE the price. The good news for me (I’m a poor farmer) but the bad news for taxpayers, is that I will be subsidized nearly 80%!!! My out of pocket for the premiums will be cut in half!!! Wow. Double the cost of the plan, cut my payments in half. Sign me up!!!

    I have one full time farm hand, only sightly poorer than me. He will likely sign up for an even higher deductible plan, for which he will likely be fully subsidized. So, he will continue to pay minor out of pocket costs up to $14,000, and then his policy (subsidized to the tune of $15,000) will kick in.

    I think I need to put that money back to work in the insurance sector…revenues and profits should explode…until the possibility arises that there may no way to pay for this ridiculous system (meaning health insurance in general).

    As always, thanks for the good work.

  22. [...] Barry. (2013). Investing Around ObamaCare. The Big Picture. September [...]

  23. [...] Investing around Obamacare (The Big Picture) [...]

  24. [...] Ritholtz’s ideas for Investing Around ObamaCare. [...]