Trump won and change is coming to the medical industry. Already the industry is rallying, and that’s not a flash in the pan.

This may surprise you, but the biggest investment opportunity to come out of what I’ll call Trumpcare is rooted in one of the major changes in Obamacare, also known as the Affordable Care Act. This change will be carried on to Trumpcare and will benefit the Big Five health insurance companies. I’ll give you an options play in a bit so you can profit from this change, but first let me tell you briefly about where we’ve been and where I think we’re going, healthcare-wise.

As a practicing medical doctor, my professional opinion is Obamacare, although well-intentioned, was a high-grade, government-designed mess. It started with a ­vapor-locked website and went downhill from there. It smothered medical care in red tape and confused participants with a seemingly endless stream of bureaucracy and clutter from open-ended rules and regulations.

Expenses rose, rules multiplied and there were not enough doctors in private practice willing to jump through its hoops to participate—the cut in pay, let’s just say, was dis-incentivizing. When some major insurers jumped off in 2015 and 2016 and most of the government-funded cooperatives failed, the Democrats said it needed tweaking. But it was going to need more than a Band-Aid and some chicken soup… 

The Medicare Gorilla

That one big Obamacare change that will move into Trumpcare is cuts in Medicare payments. Medicare is the 2,000 pound gorilla in this equation: The government spends more than $600 billion on Medicare every year.

To help fund Obamacare, the Democrats figure they’d save billions on Medicare spending. How? Mainly by cutting the Medicare money paid to hospitals, Medicare Part A. Hospitals would get smaller Medicare payments through a system of bundled payments—these types of payments are already in practice for hip and knee replacements, and next year they will be implemented for fractured hips, cardiac care, and so on. Much of the care for these treatments would be sent to less expensive facilities outside hospitals.

Key point: Even as (presumably) Obamacare is replaced, its changes made to Medicare payments won’t be. So Medicare expenses will drop, and that means expenses will also drop for private insurers. Also, health insurers are likely to receive more money from Medicare and will be able to increase their premiums.

So health insurers win.

And the Trumpcare model—what we know of it—will not disrupt this boon for health insurers.

Here are the seven principles in Trump’s blueprint:

Repealing the Obamacare’s personal mandate—that individuals are responsible for having health insurance.

Encouraging insurers to sell plans in any state, as long as the plans comply with state requirements. Although legal to sell across state lines now, insurers find it cost prohibitive.

Making insurance premiums tax deductible for individuals.

Establishing tax-free health savings accounts.

Increasing price transparency from providers and hospitals to allow individuals to shop for the best prices on treatments.

Transferring control of Medicaid to the states.

Making it easier for drug providers of less expensive safe products to enter the market and allowing consumers to buy “safe” foreign drugs.

How do you pay for all these things?
Cutting Medicare expenses, just as with Obamacare, is central. A recent trial balloon floating around Washington is based on House Speaker Paul Ryan’s “A Better Way” initiative to provide subsidy support for Medicare recipients starting in 2024. The key here, which plays right into the Big Five health insurers’ strike zone, is that many of the proposed Medicare options will be through private insurers, generating yet more income for the industry.

Bottom line: Trumpcare will look to reduce government’s role and its expenses in healthcare by transferring large chunks of Medicare to private insurers.

The Big Five’s Edge

The initial reaction to the Trump win on Wall Street was to bid up the prices of the Big Five health insurers: United Healthcare (NYSE: UNH), Aetna (NYSE: AET), Cigna (NYSE: CI), Humana (NYSE: HUM) and Anthem (NYSE: ANTM) higher.

It seems safe to predict that once the Trumpcare train leaves the station, the money will start rolling in for the Big Five, though it could be a bumpy track due to an angry Democrat faction of Congress.

No matter what, though, the trump card (sorry) for health insurers is already baked in. Once the Medicare bundled payments become the norm, private health insurers will start implementing them as well. So the insurers’ secret weapons for exploding profits will be the combination of higher premiums, lower overall drug expenses, market expansion through interstate commerce, greater reach into the individual market and a huge chunk of money from the upcoming changes in Medicare.

The Trade

I believe one of the best strategies to both manage risk and participate in the potential gains in the healthcare sector during these early days is using options. I think options will reduce the cost of the trade on a high-priced stock, allow potential profit if the stock rises or falls and serve as an insurance policy against any politically induced volatility from the presidential transition and its effect on the healthcare sector.

I recently recommended the purchase of the Aetna April 17 120 Call Option (AET_042117C120).

Today, I am recommending the purchase of a fairly far-in-the-future United Healthcare (NYSE: UNH) straddle, which is the simultaneous purchase of a put and a call option. I chose UNH because it’s the biggest insurer and has the most muscle in the system. It offers the greatest potential for gain in a rising or falling market. I am opting for a June straddle because there may be some volatility in the short term and the June straddle will give us time to let the trade develop. All we need for a big profit is for the stock to move in a big way, up or down.

Straddle Trade Details

Buy to open United Healthcare June 2017 140 Call Option (UNH_061617C140) up to $16.

Buy to open United Healthcare June 2017 140 Put Option (UNH_061617P140) up to $10.