Monday, June 25, 2012

Stock Market Winners and Losers Following Obamacare Ruling by Supreme Court

The U.S. Supreme Court will rule this week on the constitutionality of the Patient Protection and Affordable Care Act ("Obamacare") and it is likely to impact the stock market as much as the European debt crisis. There will be likely winners and losers depending upon the outcome (which could be upholding the act, complete striking down of the act or elimination of the individual mandate and while retaining other pieces of the act, such as guaranteed coverage). 

Here are some of the likely winners if Obamacare is upheld: commercial insurers like Aetna (ticker: AET) and Medicaid providers like Centene (ticker: CNC) since it would channel new, funded patients into traditional insurers – with an estimated 20 million Medicaid recipients. Jim Cramer of CNBC suggests that if SCOTUS upholds the law, health care plan providers like UnitedHealth Group (ticker: UNH) and WellPoint (ticker: WLP) or pharmacy benefit managers like Express Scripts (ticker: ESRX) are positioned to make greater profits off the law. 

Additionally, large cap drug companies like Merck (ticker: MRK), Bristol-Myers Squibb (ticker: BMY), and Pfizer (ticker: PFE) are well positioned. Finally, some hospital operators like HCA Holdings (ticker: HCA) would do well because of the lowering of uncompensated hospital care. The hospital and provider sector would probably lose market value if SCOTUS found all or part of the act to be unconstitutional. Firms with the heaviest Medicaid mix would be hurt the most if the entire act or just the law that mandates new individuals into the system is rejected – such as Amerigroup (ticker: AGP), and Molina Healthcare (ticker: MOH).

The worst case scenario for the hospitals and other Medicaid providers is if the Supreme Court eliminates the individual mandate but maintains the remainder of Obamacare. They would be left with the reimbursement cuts, but not the promised entry of new funded customers – meaning the impoverished patients would return to the emergency room and adding to the already high level of bad debts. This includes firms like Tenet Healthcare (ticker: THC), Health Management Associates (ticker: HMA), Community Health Systems (ticker: CYH), and Vanguard Health Systems (ticker: VHS).

If the act is overturned, Cramer says that the shares of firms like Paychex (ticker: PAYX), a provider of payroll, human resources and benefits outsourcing solutions for small to medium-sized businesses, should do well. The other equity segments that could be potential beneficiaries of a decision against Obamacare are medical device makers. The act calls for an excise tax of 2.3% on total medical device revenue by 2013 – which is designed to pay for expanded Medicaid coverage under the law. Among the firms that could to well if the act is removed are Intuitive Surgical (ticker: ISRG), Medtronic (ticker: MDT), and Boston Scientific (ticker: BSX). 

Some believe, such as CNBC’s Cramer, that if the act is struck down, then hiring in the U.S. will increase. He likes large cap firms, such as Wal-Mart (ticker: WMT) or Home Depot (ticker: HD) to be winners in an Obamacare defeat. In any case, the decision this week will not only impact the 2012 presidential and congressional contests, but it will change forecasts on Wall Street.