Uncertainty Over Supreme Court Ruling Weighs on Healthcare

The outcome of the historic Obamacare of the Affordable Care Act (ACA), passed by former US President Barack Obama was already under question. The demise of Justice Ruth Bader Ginsburg only exacerbated this cloud of uncertainty looming on the case, which was going on at the Supreme Court.

The case pertains to the legality of the provision in relation to the individual mandate of the Obamacare and raises question about the entire law’s sustenance. The individual mandate was upheld as a constitutional exercise of Congress’ taxing power by a five-member majority of the Supreme Court in NFIB v. Sebelius in 2012.

However, per the 2017 Tax Cuts and Jobs Act (TCJA), Congress set the shared penalty to zero dollars as of Jan 1, 2019, leading to the current litigation. In June 2018, a federal judge in Texas invalidated the entire law. But instead of deciding whether the rest of the ACA should be struck down, the 5th Circuit sent the case back to the trial court for additional analysis. Earlier this year, the Supreme Court agreed to review the case.

Justice Ginsburg defended the law and her presence on the bench saw a possibility of light at the end of the tunnel for the Obamacare supporters. But now if a sixth conservative is appointed to step into her shoes, there will be high chances for the scale to swing away from Obamacare.

Ramifications if ACA is Repealed

If the entire Affordable Care Act is held unconstitutional, , an estimated 20 million people will likely lose insurance cover including protection for people with pre-existing medical conditions, the Medicaid expansion in many states, coverage for youngsters with maximum age limit of 26 years on their parents’ plans, subsidies for low-income groups and a host of other changes.

Some of the possible repercussions of overturning the Obamacare will be that nearly 133 million Americans — roughly half the nation’s population below the age of 65 with a history of medical conditions — could get disqualified from buying a health insurance policy or be compelled to pay significantly higher premiums.

Nearly 21 million of 23 million people who either purchase health insurance through the marketplaces set up by the law (roughly 11 million) or receive coverage through the expansion of Medicaid (12 million) are prone to become uninsured if Obamacare is struck down.

The repeal of Obamacare may take away Medicaid coverage from 12 million Americans. This apart, nearly 60 million people covered under Medicare will experience changes to medical care and possibly pay higher premiums. Nearly 2 million young adults with coverage through their parents’ plans can lose the same.

Healthcare Entities at the Receiving End

The Urban Institute estimated that nationwide without the ACA, the cost of care for people who cannot pay for it could increase as much as $50.2 billion. Hospitals and other medical providers were better off under ACA as it reduced costs for uncompensated care due to the expansion of Medicaid. But minus this coverage, these healthcare players, who are already struggling financially (especially hospitals) will incur losses from giving care to uninsured patients, which might increase their bad debts.

Insurers are likely to see revenue declines from Mediacaid and Medicare as ACA helped fuel growth in Medicaid across states that expanded coverage to low-income groups and poor adults.

Healthcare Shares Down

On the last trading day, UnitedHealth Group Inc. UNH, the nation's largest health insurer, slid 1.7%. Centene Corp. CNC, the biggest player on the ObamaCare exchanges and a major Medicaid managed care player, dipped 3%. Molina Healthcare, Inc. MOH shed 7.5% value. Among other managed care players, Humana Inc. HUM and Cigna Corp. CI fell 1.9% each while Anthem Inc. ANTM retreated 4%.

Hospital stocks, which were relieved by a decline in uninsured costs were also hurt with HCA Healthcare HCA, Tenet Healthcare (THC) and Community Health Systems, Inc. being down 3.8%, 2.53% and 4.3% each.

There is, however, no certainty as to what course the case may take. In case the impending elections are won by the Democrats, the challenge to the Obamacare will not matter much as Joe Biden is pro-Obamacare and is inclined to strengthen the provisions of the law. And if the Republicans emerge victorious, who are right now opposing the law, the revocation of the same will seem an uphill task due to the massive loss that all the healthcare industry participants will suffer.

Among the stocks mentioned above Humana and UnitedHealth carries a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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UnitedHealth Group Incorporated (UNH): Free Stock Analysis Report
Humana Inc. (HUM): Free Stock Analysis Report
Cigna Corporation (CI): Free Stock Analysis Report
Molina Healthcare, Inc (MOH): Free Stock Analysis Report
HCA Healthcare, Inc. (HCA): Free Stock Analysis Report
Centene Corporation (CNC): Free Stock Analysis Report
Anthem, Inc. (ANTM): Free Stock Analysis Report
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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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