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The Obamacare Ruling: 5 Investing Scenarios

The Supreme Court's decision will surely create winners and losers

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As the U.S. Supreme Court prepares to rule on the constitutionality of the Affordable Care Act (ACA) this month, the stakes are high for all Americans — not to mention politicians in a presidential election year. What these nine justices decide, and exactly how they craft their lengthy opinion, will also have a huge impact on health sector investors.

The court should announce the fate of the 2,700-page ACA, now also known as Obamacare, by June’s end. Even so, Wall Street likely won’t know the full impact as the news breaks. That’s because the justices must rule on multiple constitutional questions in three different cases: National Federation of Independent Business v. Sebelius; Department of Health and Human Services v. Florida; and Florida v. Department of Health and Human Services.

In those three lawsuits, the court must decide four questions, and the future of health care reform hinges on their ruling for each one.

1. Does the Anti-Injunction Act apply? The Anti-Injunction Act says citizens can’t sue the government over a tax or penalty that hasn’t yet taken effect. If the High Court rules that this act applies to Obamacare, opponents can’t challenge the law until the individual mandate’s penalty takes effect in 2014, or 2015 when the actual tax is due. If the court says “yes” here, it’s game over for the remaining three questions.

2. Is the “individual mandate” Constitutional? This is the law’s most controversial part. The justices must decide whether the Constitution gives Congress the right to require virtually all Americans to buy a product — health insurance — or pay a tax penalty. This provision is key for health care companies because younger, healthier individuals would be forced to buy insurance instead of waiting until they get sick. That would offset the higher costs of insuring people with preexisting conditions.

3. Does “severability” kill the entire ACA? If the Supreme Court kills the individual mandate, it must decide whether all of the law’s other provisions can live without it. This is the biggest risk for insurers and managed care companies. If the individual mandate dies, but they still must cover individuals with preexisting conditions without charging higher premiums based on medical history, it creates an untenable situation for those payers.

4. Can Congress force states to comply with Obamacare? The ACA requires states to expand Medicaid coverage to everyone under 65 with incomes at or below 133% of the poverty level. If they don’t, they’ll lose all their federal Medicaid money. Since Medicaid accounts for 40% of the funding states receive from the federal government, some claim the ACA is “coercive,” and therefore unconstitutional. Hospitals, which are struggling with uncompensated care from uninsured patients, are counting on this Medicaid expansion to lighten their load.

Although myriad political and social issues are stitched into ACA’s crazy quilt, our focus here is to break down the impact different scenarios will have on investors. Remember: For any of these last three questions, the Supreme Court must first rule that it can remove certain parts of Obamacare without killing its other provisions.

So, here are five possible ways this landmark decision could play out, ranked from the mildest to most serious investing impact — and the likely winners and losers in each case:

Article printed from InvestorPlace Media,

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