Trump's Win Is Causing a Tremendous Sell-Off in Hospital Stocks

By Markets Fool.com

Image source: Getty Images.

Continue Reading Below

What happened

After Americans elected Donald Trump President, shares in HCA Holdings(NYSE: HCA), Community Health Systems (NYSE: CYH),and Tenet Healthcare Corp.(NYSE: THC) are falling more than 10% Wednesday at 2:30 p.m. EST.

So what

Repealing Obamacare is a major policy position for Trump, and his plan to dismantle the Affordable Care Act raises a questions for hospital operators regarding how they'll get reimbursed for providing healthcare to low income Americans.

Since Obamacare's passage, over 12 million Americans have signed up for health insurance via the Affordable Care Act's marketplaces, and another 15 million Americans have become newly enrolled in Medicaid, in large part due to the Act's Medicaid expansion provision.

Continue Reading Below

As low-income health insurance enrollment has grown, hospital operators like HCA Holdings, Community Health, and Tenet Healthcare have been able write-off less healthcare and categorize less healthcare as charity care. Unless Trump replaces Obamacare with a program that insures a similar number of people, it's likely that hospital operators bad debt expense will climb significantly if the ACA is repealed.

Now what

Investors hate uncertainty, and bad debt expense is far from a rounding error for the industry. Even after the benefits associated with an increasingly insured population, HCA Holdings, Community Health, and Tenet Healthcare's provision for bad debt expense still totaled $840 million, $704 million, and $367 million, respectively, in the third quarter.

Trump has indicated that he will replace Obamacare with something better, but there's little that's concrete about his plan that investors can point to (yet) to reassure them. Until Trump offers up a better blueprint for how he'll handle insuring low-income Americans, investors are probably best off avoiding the hospital industry altogether, and concentrating on other investment ideas that may be less risky.

10 stocks we like better than Tenet Healthcare
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Tenet Healthcare wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of November 7, 2016

Todd Campbell has no position in any stocks mentioned.Todd owns E.B. Capital Markets, LLC. E.B. Capital's clients may have positions in the companies mentioned.Like this article? Follow him onTwitter where he goes by the handle@ebcapitalto see more articles like this.

The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.