Obamacare Subsidies Lapsed. Here's Why Health Insurer Stocks Are Watching the New Congress.

The political winds in the U.S. have shifted significantly, with the Democrats set to soon retake power in the Senate and the House of Representatives. This could have major investment implications for sectors exposed to government spending.

Defense stocks have cratered amid fears of reduced military spending. One area that may see a boost is health insurance, with many Democrats calling for a return to more subsidies for the individual health insurance market.

Here's what insurers will be watching out for, and whether it makes the sector a buy right now.

Image source: Getty Images.

The potential return of paying members

Earlier this year, health insurers that focus on the individual marketplace for the Affordable Care Act (ACA, otherwise known as Obamacare) experienced significant member churn. This was due to persistent healthcare cost inflation and the expiration of extended subsidies for lower-income payers that were enacted during the pandemic, which led many people to drop insurance coverage.

Now, some Democrats are saying they will push to restore these subsidies to improve affordability, which could help the 3-million-plus people who walked away from coverage return to the marketplace.

This could benefit insurers that focus on the ACA marketplace, like Oscar Health (NYSE: OSCR) and Centene (NYSE: CNC), which saw large levels of membership churn earlier this year. Government-funded subsidies may be heavily debated politically, but if enacted, they would undoubtedly benefit these providers by boosting insurance premiums.

Growing premiums regardless of subsidies

Even without subsidies, healthcare inflation has been a boost for health insurance stocks, as long as companies price their coverage accurately to generate profits.

Take Oscar Health, for example. Even with subsidies leading to high member churn throughout 2026, its premiums are set to reach a record $19 billion to $19.3 billion this year (the company is also gaining market share in a shrinking ACA marketplace).

Next year, monthly premiums on ACA coverage are set to grow as well. If Oscar Health and these other insurers can retain members, get more government subsidies, and ride healthcare cost inflation, their premiums (and hopefully profits) could compound at high rates in the years ahead.

Are health insurance stocks a buy?

Over the last few weeks, health insurance stocks have been rising as the chances for a return of Democrats' power in Congress grew in probability. Time will tell whether the subsidies return (President Donald Trump can still likely veto any legislation, perhaps leaving their return until 2029, not 2027), but these stocks will likely do fine regardless.

One risk is any talk of legislation for nationalized health insurance policies, which could bring premiums to the federal level, thereby boxing out private insurers with government competition, as happened with the student loan market two decades ago. This is unlikely to occur, but it's a reminder that an investment in health insurance comes with downside risks.

Taking a look at an ACA marketplace player like Oscar Health, shares still look somewhat cheap if you believe it can keep growing through healthcare inflation over the long term. This year, management is guiding for operating earnings of $850 million to $950 million. After rising over 100% in the past year, it trades at a market cap of around $11 billion, or an earnings multiple of 13 if the low end of this earnings guidance is met.

In 2027, healthcare inflation is set to drive monthly premiums higher yet again, which should help Oscar Health boost its revenue and earnings. For anyone who believes this trend will continue, its shares -- and perhaps other insurance stocks -- look like a good buy right now.

Brett Schafer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.