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Street Authority
Street Authority

What the Supreme Court's "Obamacare" Ruling Means for Health Care Stocks

Cooler heads have prevailed. A showdown between the executive branch of government and the judicial branch of government looked to usher in a new era of intra-governmental rancor that our Founding Fathers sought to avoid. But the Supreme Court's decision to let much of the Obama Administration's health care law stay intact is a victory for anyone who wants to see policy makers in Washington move forward -- not backward -- in addressing many of our nation's major fiscal challenges.

Opinions vary widely on the merits of the far-reaching legislation, with detractors on both sides of the partisan aisle (albeit for differing reasons). Yet many agree that health care is in need of some sort of fix. For roughly two decades, we've been spending a rising percentage of our gross domestic product (GDP) on health care (which by some estimates has reached 17%) without a commensurate increase in the quality of care we receive.

The Obama administration's goals of expanded coverage and streamlined costs through the use of best practices are laudable. The proof, as they say, will be in the pudding. Chances are, the plan will need to be tinkered with as some anticipated benefits fail to materialize. For example, hospitals will be rewarded (or punished) as they move to meet goals of improved patient outcomes. Quickly and radically improving the delivery of hospital-based health care is more daunting than you might think.

Yet even if the plan achieves all of its goals, a range of health care segments will either benefit or suffer from the legislation. Back in the beginning of June, I gave my take on the health care law itself and how the Supreme Court's possible decisions would affect various health care sectors and stocks. And despite how you may feel about the legislation itself, you need to be aware of the winners and losers so that you can position your portfolio accordingly.


Clear winners from this landmark ruling include:

• Hospitals that no longer need to shoulder the burden of uninsured emergency room patients who can't pay their bills when they come due. (These hospitals will also benefit from an increase in higher-margin elective surgeries as more patients get coverage).

Stocks that could possibly benefit include: Community Health Systems (NYSE:CYH), Tenet Healthcare (NYSE:THC), Universal Health Services (NYSE:UHS) and HCA (NYSE:HCA).

• Health insurers that will gain access to millions more new patients.

As I said in my previous article, "Insurers hate the idea of being forced to extend insurance to high-risk patients. Yet they agreed to take on these patients as long as all patients -- high-risk and low-risk -- were enrolled. Insurers realized that if they had to cover any patients seeking coverage, without all being required to participate, then people would simply wait until they got sick to apply for insurance. "

Stocks that could benefit from this ruling include Coventry Health (CVH), United Health (NYSE:UNH), Humana (NYSE:HUM), and Aetna (NYSE:AET), although I would caution against buying these stocks strictly because of this news, as some experts feel differently about whether these stocks would benefit, and it will likely take a while for this to play out before we really know for sure.

The losers

On the flip side, any companies that sell medical devices or pharmaceuticals are faced with a stark reality. Reimbursement pressures are rising and will get even more severe. A key goal of the health care overhaul is aimed at utilizing the lowest-cost treatment option, assuming outcomes are equal.

As a result, look for medical-device makers to start investing only in new products that have lower price points than products that are currently on the market (or at least yield vastly superior outcomes that save money in terms of post-treatment follow-up). Boston Scientific (NYSE:BSX) is a specific stock in this sector that got hit on news of the ruling.

About the author:

Street Authority
Charlie Tian, Ph.D. - Founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

Rating: 2.7/5 (6 votes)


Paulwitt - 5 years ago    Report SPAM
ObamaCare has been renamed.....

It's now ObamaTax

LwC - 5 years ago    Report SPAM
Actually IMO it's time to call it what is really is: the No Free-loaders Health Care bill.

Are you a free-loader?

Paulwitt - 5 years ago    Report SPAM
I'm not a free-loader. I have a high-deductible plan.

Paulwitt - 5 years ago    Report SPAM
A couple of thoughts about health care reform (yes, we do need it)

1) tort reform

2) buy across state lines

3) personal medical tax credits (just like business gets)

4) pools for people with pre-existing conditions

5) bipartisan solutions

6) pilot programs

7) sales tax on all food (this captures the underground economy, everyone pays)

8) fix what you have before starting a new program

9) get doctors involved, not politicians

*I'm a independent voter

BTW we're going bust!
LwC - 5 years ago    Report SPAM
A couple of thoughts about health care reform (yes, we do need it)

1) tort reform Maybe, but unfortunately this has become a right wing talking point instead of true attempt at solution. The simple fact is that some doctors/hospitals are careless and/or incompetent so some kind of tort process is probably necessary

2) buy across state lines Maybe, but then we lose the protection of State regulators which may or may not be a good thing

3) personal medical tax credits (just like business gets) Business get deductions, not credits, and individuals also get deductions

4) pools for people with pre-existing conditions Not necessary under the current law which requires issuance of insurance without regard to pre-existing conditions

5) bipartisan solutions Well good luck with that

6) pilot programs I don't know what those would be

7) sales tax on all food (this captures the underground economy, everyone pays) Yes, we need another regressive tax in that it hits poor people the hardest

8) fix what you have before starting a new program The new program attempts to do that, only partially successfully due to lack of bipartisan solutions (see 5)

9) get doctors involved, not politicians Doctors are involved; some doctors are for the reform and some are against. IMO it's the politicians' job to make solutions, it's not the doctors' job. IMO most doctors do not have any better insight into this than you or I.

*I'm a independent voter Whatever

BTW we're going bust! HUH?

Paulwitt - 5 years ago    Report SPAM
You win
Invest E Gator
Invest E Gator - 5 years ago    Report SPAM
Yes. Obamacare. This is just what America needs - codifying even more profits for a select few operating in the health care industry, and even more impoverishment for the nation as a whole, directly into the law books. The Supreme Court has so cool-headedly given a stamp of approval to the ushering in of yet another extension to the growing regulatory plutocratic-cleptocracy that is becomming the United States.

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