3. Striking Down the Medicaid Expansion
States will be relieved if this contentious and expensive “unfunded mandate” is struck down, but it will create no other big winners.
Investor impact: Severe for certain stocks.
Nursing homes. Since they rely on Medicaid as well as Medicare, stocks like Sun Healthcare (NASDAQ:SUNH), Skilled Healthcare (NYSE:SKH) and Kindred Healthcare (NYSE:KND) would be hard-pressed to serve a graying population with fewer government resources.
Other Medicaid-focused stocks. Managed care companies with a large Medicaid patient base like Molina Healthcare (NYSE:MOH), Centene (NYSE:CNC) and Amerigroup (NYSE:AGP) also could be worse off if this coverage is stricken.
4. Striking Down Only the Individual Mandate
This is an untenable situation for the industry — and one in which most health care stocks lose big. Payers and providers would be forced to bear all the costs of reform without being able to balance the added risk with healthier, younger enrollees. Hospitals would still deal with the problem of uncompensated care. Nursing homes and Medicaid HMOs would still have to deal with declining reimbursement rates. Medical device manufacturers still pay the 2.3% annual sales tax. And that $80 billion in reimbursement rates Big Pharma dealt away in exchange for higher drug sales is gone forever.
Investor impact: Catastrophic.
Info-tech companies. Health care information systems and EHR stocks like those named above win because updating technology and infrastructure is a needed efficiency throughout the sector and will happen no matter what.
Just about everybody else: health care stocks as well as diversified mutual funds and exchange traded funds (ETFs) like Fidelity Select Health Care Portfolio (MUTF:FSPHX) or SPDR Health Care Select Sector ETF (NYSE:XLV) that have broad exposure to large-cap names most affected by the law.
5. Ruling That the Anti-Injunction Act Applies to This Case
The only thing worse for health care stocks than No. 4 above is for the Supreme Court to essentially rule that it can’t rule until 2014 or 2015. If that happens, dive for cover because this entire industry could be in turmoil for the next two years.
Investor impact: Catastrophic.
Bottom Line: When it comes to predicting how these six men and three women ultimately will rule, Vegas oddsmakers are as likely to pick the outcome as Inside-the-Beltway pundits.
But here are three hunches:
1. The justices wouldn’t have taken this case if they intended punt it into 2014, so scratch scenario #5.
2. They understand the catastrophic impact to the health care industry if they keep everything but the individual mandate, so nix #4.
3. The Medicaid expansion could be in trouble if the justices agree with the states that it’s an unfunded mandate.
My Bet: The ACA will be struck down 5-4, with Anthony Kennedy providing the swing vote and Sonia Sotomayor writing the dissent, giving the health care market and federal regulators another shot at building a better scheme the second time around.
Although I feel pretty good about my guess — don’t take it court.
As of this writing, Susan J. Aluise did not hold a position in any of the stocks named here.