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Here's Why Healthcare Stocks Are Falling This Week

The future of Obamacare became murkier this week with the passing of longtime Supreme Court Justice Ruth Bader Ginsburg, who affirmed the constitutionality of various parts of the Affordable Care Act (ACA) in numerous of rulings.

If Ginsburg's replacement sides with Supreme Court conservatives against the ACA in an upcoming case, the number of Americans without health insurance could rise by millions, which would cause revenue to fall for healthcare companies. Currently, more than 20 million Americans have health insurance because of Obamacare.

A view of the front of the building housing the Supreme Court.

IMAGE SOURCE: GETTY IMAGES.

The possibility that fewer people would seek necessary medical care if Obamacare is dismantled sent share prices for health insurers, medical device companies, and biopharma companies tumbling on Monday.

The Health Care Select Sector SPDR Fund (NYSEMKT: XLV) and SPDR S&P Biotech ETF (NYSEMKT: XBI) dropped by 2.2% and 3.6%, respectively, and declines were bigger for many individual healthcare stocks. For instance, hospital giant HCA Healthcare (NYSE: HCA) declined by 5.1% and Medicaid-insurer Centene (NYSE: CNC) fell by 8.4%.

Since the ACA became law in 2010, Republicans have sought to dismantle it via a number of means, including a series of legal challenges in the Supreme Court. So far, results there have been mixed. The Supreme Court struck down a rule mandating states expand Medicaid coverage, but concluded that the individual health insurance mandate was constitutional in 2012, a decision that largely kept Obamacare intact.

That could change on Nov. 10, when the Supreme Court is scheduled to begin hearing oral arguments regarding Republicans' latest challenge to the individual mandate. 

In 2017, the Tax Cuts and Jobs Act reduced the penalty associated with forgoing health insurance to zero. Because the majority opinion in 2012 cited the mandate's constitutionality under the federal government's taxing authority, and no penalty is now assessed for failing to have health insurance, the law's constitutionality is being reexamined.

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Todd Campbell has no position in any of the stocks mentioned. His clients may have positions in the companies mentioned. The Motley Fool recommends HCA Healthcare. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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