Working Paper: NBER ID: w16193
Authors: Mohamad Alississ; Nolan H. Miller
Abstract: The recent reform of the U.S. health care system has been described both as a boon and a death blow for the healthcare industry and for private insurers in particular. We exploit the surprise election of Republican Scott Brown to the U.S. Senate, which dealt a serious blow to the prospects for reform by depriving Democrats of their 60-vote "filibuster-proof" majority, to evaluate the market's assessment of Health Reform's impact on the health care industry. We find that Scott Brown's election was associated with an abnormal return of 2.2 percent for a typical dollar invested in health care stocks and an abnormal return of 6.3 percent for a typical dollar invested in managed care firms. A typical dollar invested in the pharmaceutical sector experienced abnormal returns of 2.9 percent, while investments in healthcare facilities (including hospitals) experienced abnormal losses of 3.4 percent. Analysis of firms participating in government programs show that firms involved with Medicare Advantage experienced gains while those involved with Medicaid Managed Care experienced losses due to the election.
Keywords: health reform; healthcare industry; Scott Brown; event study; abnormal returns
JEL Codes: D72; G14; I11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Scott Brown's election (K16) | abnormal returns in healthcare stocks (I11) |
| Scott Brown's election (K16) | perceived likelihood of health reform passing (I18) |
| perceived likelihood of health reform passing (I18) | abnormal returns in healthcare stocks (I11) |
| abnormal returns in healthcare stocks (I11) | market reaction to health reform (I11) |
| investments in managed care firms (I11) | 63% CAR (G22) |
| investments in pharmaceutical firms (L65) | 29% CAR (Y10) |
| investments in healthcare facilities (R53) | -34% CAR (G32) |