Winners and losers in health law decision

Hospital stocks and Medicaid insurers saw big gains after the Supreme Court's ruling, while other health care stocks dropped.

By Kim Peterson Jun 28, 2012 3:15PM
Image: Medical doctor (© tetra images/Getty Images/Getty Images)The nation's collective jaw dropped Thursday morning after the United States Supreme Court upheld the core of President Barack Obama's health care act. After a moment to register the news, Wall Street got to work trading the stocks that might be affected.

Stocks in general were lower Thursday, but that had more to do with worries about Europe than the health care debate. Still, the decision clearly rippled across health care stocks. Below, I'll take a look at the winners and losers.

Big winner: Hospital stocks
Who pays when uninsured people show up in emergency rooms needing medical aid? Hospitals do, to a large extent. There were about 50 million Americans without coverage in 2010, or 16% of the population. The Affordable Care Act will expand health insurance to 30 million more Americans, cutting the costs for uncompensated care at hospitals.

"If the law is fully or partially repealed, for-profit hospital operators' costs of treating patients unable to pay their bills would rise, and would limit operators' revenue growth and profit margins and constrain cash flow," wrote a Moody's vice president who analyzes hospital stocks in April.

Hospital stocks soared in response to the decision. HCA Holdings (HCA) rose 10% to $29.34, and Tenet Health Care (THC) was up nearly 7% to $5.32.

Winner: Medicaid insurance stocks
The court ruled that individual states will not be required to expand Medicaid, and some states won't. But others will, meaning that millions of Americans will probably enroll in Medicaid starting in 2014.

Medicaid insurers rose after the ruling. Molina Healthcare (MOH) was up more than 6% to $22.68, Amerigroup (AGP) rose nearly 6% to $65.98 and Centene (CNC) rose 3% to $30.88.

Minor loser: Diversified insurance stocks Image: Insurance © NULL/Corbis
After seeing large drops immediately after the decision, major health insurance stocks swung back and weren't all that affected by the afternoon. Why? Because the decision really isn't that bad for them.

"The decision essentially maintains the status quo," wrote Citigroup analyst Carl McDonald in a note Thursday. "We can argue the stocks might be off a little, since there was hope the court would eliminate some of the negative aspects of health reform. At the same time, it's easy enough to argue for the stocks to rise a bit now that we've gotten through this significant overhang."

For one thing, the individual mandate was not overturned. If that had been the case, people would only buy health insurance when they needed it and that's nothing but a disaster for insurance companies (witness what happened to Washington in 1999).

Shares of the largest U.S. insurer, UnitedHealth (UNH) were only down less than 1% Thursday afternoon to $59.04, while WellPoint (WLP) took a harder hit with a loss of 4.5% to $66.31.

Minor winner: Weight Watchers?
Even Weight Watchers (WTW) shares were caught up in the ruling, rising 1.5% to $50.33. Investors believe that more health care focus will shift to preventative care, and that companies and insurers will form more partnerships with Weight Watchers and similar programs.

More than two-thirds of the U.S. population is considered overweight, and half of them are classified as obese.

Minor loser: DrugmakersImage: Prescription medicine expenses © Don Farrall/Photodisc/Getty Images
The law will add $47 billion in taxes in fees to drugmakers such as Pfizer (PFE) and Johnson & Johnson (JNJ). But with more people on insurance plans, the potential for more prescriptions written and more revenue to drugmakers is strong.

As Gene Marcial pointed out Wednesday, drugmakers have a lot going for them, with exciting products in their pipelines and new demand coming. Their problems have already been baked into the stock.

Pfizer shares fell a little more than 1% to $22.51, while four other drugmakers fell less than 1%: Johnson & Johnson, Bristol-Myers Squibb (BMY), Eli Lilly (LLY) and Merck (MRK).

Loser: Medical device makers
One way the health care act pays for expanded Medicaid is by taxing medical device revenue, and device makers took a hit after Thursday's decision. The law imposes a 2.3% excise tax on medical device revenue by next year.

You could see how well that portion of the law went over with device makers Thursday afternoon. Shares of Boston Scientific (BSX) were down 2.5%, Intuitive Surgical (ISRG) was down more than 2% and Medtronic (MDT) was down more than 1%.

The biggest benefit of all: Certainty
Across the health care sector Thursday, one theme came through. The decision brings some certainty that was sorely needed for a long time. Various portions of the law may see more challenges, but in general, health care companies know more now than they did last week, and can prepare for that.

More about the Supreme Court decision


5Comments
Jun 28, 2012 3:22PM
avatar
Winners:  The 30 million without health insurance

Losers: the American middle class that will now have to pay for these freeloaders

Winners:  Democrats, that have expanded the entitlement state

Losers: Republicans, for not realizing that this is an assault on Capitalism and Freedom.



Jun 28, 2012 5:12PM
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We are all losers under this Communist Obama law...
Jun 28, 2012 5:17PM
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bend over america here comes the change
Jun 28, 2012 5:37PM
avatar
the same people that are paying will just be paying more so all the deadbeats can still get what they want.
Jul 4, 2012 11:45PM
avatar

Who do you think is paying for the freeloaders now, the people who have insurance which is built into your premiums already.  The rest of the 1st world has figured this out a long time ago.  Getting people medical care before they collapse on the hospital steps saves money.  Preventative care saves money.  Economies of scale by increasing the amount of people who use the services reduces per capita coats.  Also, the increased buying power of the medical providers reduces costs.  Whe we get rid of the insurance companies and allow the Medical providers to market to individuals directly understanding the 15/85 mandate, we well save another 20% at least.

 

 

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