Obamacare Reaches Supreme Court: HealthCare Companies Eagerly Watch

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Obamacare Reaches Supreme Court: HealthCare Companies Eagerly Watch

On Tuesday, the Supreme Court will spend two hours reviewing the key to President Obama’s health care plan: the requirement of Americans to either buy health insurance or face a fine.

The highly-contested case has 26 Republic states challenging it on the grounds that the requirement intrudes on an individual’s liberty. According to The Wall Street Journal, at issue is Congress using its interstate-commerce powers to monitor citizens who decide against participating in the new health insurance marketplace.

The other side of the coin is the Obama’s administration argument that the mandate will tackle the national crisis that has the uninsured placing high costs to the U.S. healthcare system. The new provision is key to insurance reforms, which would require insurers to accept every possible customers regardless if they arrive with pre-existing medical conditions.

In Day Two of the three hearing days, U.S. Solicitor General Donald Verrilli will kick things off on Tuesday morning. He will speak for up to an hour on behalf of the administration. Then, two lawyers for the challengers have 30 minutes of response time; this will include remarks by Paul Clement, a former solicitor general in the George W. Bush years, representing state challengers.

Michael Carvin, of Jones Day, will represent other challengers, the National Federation of Independent Business.

From Tuesday’s arguments, it will affect the Supreme Court’s five justices who have a conservative majority. Also at issue from this week’s Supreme Court review is the effect on healthcare stocks.

What will happen to healthcare stocks?

The Court is not expected to reach a decision until June and the topic will remain at the forefront for the November elections. Healthcare analysts are keeping a close watch on the proceedings and some believe the court will uphold the law.

Should this happen, what will it do for health care stocks?

To date, health stocks have under performed as compared to the broader market with the NYSE Healthcare Index up only 3.6 percent as compared to the S&P 500 index’s 11 percent rise. 

With the Supreme Court ruling, it could take off some of the pressure. Recently, Goldman Sachs analyst Matthew Borsch estimated a  “neutral-to-positive” reaction from the majority of health stocks should the law stay. Investors could be happy with the disappearance of some provisions but there could be concerns about an alternative with cost containment, he added.

Analysts have predicted that hospital stocks could rise should the law stay intact. With additional people having insurance, it could lessen the pain felt by hospitals from customers who don’t play. This includes the large publicly traded hospital ssuch as HCA Holdings Inc. (NYSE:HCA) and Tenet Healthcare Corporation (NYSE:THC)

Other affected health care stocks could include the Medicaid insurers Molina Healthcare, Inc. (NYSE:MOH) and Centene Corp (NYSE:CNC), who could also benefit from the plan as it expands Medicaid coverage.

Recently, Medicaid-focused insurers stocks have incurred better performances than many health stocks. Centene has risen 12 percent and Molina is up 46 percent this year. They are in a position to benefit from people acquiring health insurance.

Other potential stock positively affected by an upheld mandate should the court decide that the remainder of the law can survive without it, is large managed care firms such as WellPoint, Inc. (NYSE:WLP), UnitedHealth Group Inc. (NYSE:UNH) and Aetna Inc. (NYSE:AET)

Borsch sees managed-care stocks rising if the court knocks down the individual mandate, but only if the court also rejects the requirement that health insurers accept customers regardless of their health.  Health insurers take an opposing side and believe that without the mandate, insurance premiums would rise as healthy people buy insurance as needed.

And then there’s one more perspective. BMO’s Dave Shove believes that investors are putting too much weight on the court’s ruling; he thinks insurers will ride out the storm.

Investors and voters will need to be patient as June and November, respectively, are months away with change coming even later for the uninsured.

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