The Stock Price Effect of the Affordable Care Act

Abstract

This is the first empirical study to assess the stock price effect of the Affordable Care Act. The timeline for appropriate assessment begins when the Act became law on June 28, 2012 in a 5-4 decision by the United States Supreme Court. Although the study is constrained by the fact that not much time has passed since the June, 2012 Court decision, quarterly returns and stock prices were analyzed for each quarter beginning with the third quarter of 2012 and ending with the first quarter of 2014. This is referred to as the post-Act time period. The results were then compared to similar quarterly data for the period 2004-2007. This is referred to as the pre-Act period. Fifty-seven firms and 912 pre-Act firm quarters were assessed for 5 health care industries in the sector (hospital companies, diagnostic companies, medical device companies, drug manufacturing companies, and assisted living companies). These total firm quarters were then compared to the same 57 firms and 399 firm quarters in the post Act period. Findings indicate that stock prices of these firms are significantly positive in the pre-Act study period but significantly negative in the post-Act study period. The analysis was then broken down by each of the five industries in both the pre and post-Act study periods. Findings again show that stock prices are significantly lower in post-Act time periods with hospital companies, diagnostic companies and medical device companies being the most pronounced in stock price decline. These results have significant bearing on managers and investors in a post Affordable Care Act era. It is possible that the health care sector as a whole may experience continued downward pressure on both earnings and stock prices, while specific industries in the sector may experience more significant impact than others in the quarters and years to come.