1. Upholding the ACA in Its Entirety
It seems counterintuitive that the Supreme Court’s blessing would have the mildest impact, but it’s true. That’s because most of the fear and loathing already has been priced into health care stocks over the past 18 months.
Investor impact: Minor.
Health insurers and managed care providers: UnitedHealth Group (NYSE:UNH), Humana (NYSE:HUM), Cigna (NYSE:CI), Aetna (NYSE: AET) and WellPoint (NYSE:WLP) would vie for up to 30 million new customers.
Big Pharma: Prescription drug sales should rise with all those new patients — a boon for companies losing patent protection on lots of big-name drugs. Look at Merck (NYSE:MRK), GlaxoSmithKline (NYSE:GSK), Pfizer (NYSE:PFE), Johnson & Johnson (NYSE:JNJ) and AstraZeneca (NYSE:AZN).
Health information companies: By creating health exchanges and requiring a migration to electronic health records (EHRs), the law boosts info-tech companies that help payers and providers get their systems up to scratch. Keep an eye on Cerner (NASDAQ:CERN), McKesson (NYSE:MCK) and Quality Systems (NASDAQ:QSII).
Medical devices: The ACA’s 2.3% excise tax on medical devices ranging from artificial knees and pacemakers to surgical gloves and imaging technology is slated to take effect next year — a tough break for companies like Medtronic (NYSE: MDT), St. Jude Medical (NYSE:STJ), Covidien (NYSE:COV) and Boston Scientifics (NYSE:BSX). Although JNJ also is a mega-manufacturer of medical devices, its pain would be offset somewhat by its pharmaceutical gains.
Home health care: Providers like Lincare Holdings (NASDAQ:LNCR), Gentiva Health Services (NASDAQ:GTIV), Amedisys (NASDAQ:AMED) and Almost Family (NASDAQ:AFAM) would still face $40 billion in Medicare reimbursement cuts over the next decade.
2. Striking Down the Entire Law
Killing the law basically returns the industry to the status quo, for now. Lawmakers will be pressured to replace the ACA with something, however, so health care entities that get a reprieve must stay on their toes.
Investor impact: Minor.
Insurers and managed care companies. Repealing the law means no universal health coverage or pricing requirements. And last week’s announcements by Humana, UnitedHealth and Aetna to voluntarily cover children on their parents’ policy until they turn 26 and end most retroactive cancellations, lifetime limits and co-pays for some preventative care will buy great PR for insurers that don’t want “repeal” to turn into “replace.”
Home health care and medical devices: Repeal would be good for the reasons listed above.
Hospitals: Rising levels of uncompensated care and no tort reform to restrain the high cost of malpractice suits will keep hospitals in a fix without the ACA. Closely monitor the blood pressure of HCA Holdings (NYSE:HCA), Health Management Associates (NYSE:HMA), LifePoint Hospitals (NASDAQ:LPNT), AMN Healthcare (NYSE:AHS), Universal Health Services (NYSE:UHS) and Tenet Healthcare (NYSE:THC).