Corporate Winners, Losers Under Supreme Court Healthcare Ruling

By | June 29, 2012

Hospitals and insurers providing Medicaid plans for the poor emerged as the main corporate winners from the U.S. Supreme Court’s decision to uphold President Barack Obama’s healthcare law, while investors in large insurers were left deflated.

The ruling paves the way for hospitals to see a massive influx of insured customers from the law which is expected to broaden coverage to more than 30 million uninsured Americans.

And although the judges allowed states to opt out of an expansion of Medicaid benefits for the poor, investors and some industry experts saw the impact as minor.

Large insurers also are expected to see increased enrollment as Americans are now required to obtain health coverage. But the 2010 law heaps more stringent regulations and fees onto the industry, and the decision dashed hopes among some investors that the court might strike down the legislation.

The reaction on Wall Street was immediate as the court’s decision was reported early on Thursday. Hospital operators HCA Holdings Inc. shares closed nearly 11 percent higher and Community Health Systems Inc. gained 8 percent.

Medicaid specialist Amerigroup Corp. gained 4.9 percent and rival Molina Healthcare Inc. ended up 8.6 percent. But shares of two of the biggest insurance companies, WellPoint and Aetna Inc., fell 5.2 percent and 2.7 percent respectively.

“There was a little bit of momentum in the (insurer) group thinking that they might get the whole thing thrown out,” said David Heupel, a healthcare analyst with Thrivent Investment Management. “You didn’t get the worst case, but you certainly didn’t get the best case today.”

A Jefferies & Co. survey released last week of more than 100 investors found that 77 percent expected the law to be altered in a “material way,” such as striking down the mandate requiring all Americans to have insurance or overturning the whole law.

Widening the pool of paying patients stands to benefit hospital companies, which are often left to cover the high medical bills of the sick who have no coverage.

“It’s good for us,” said Alan Miller, chief executive of Universal Health Services Inc., which runs acute and mental health hospitals. “You’ve got a lot of people now who are going to be covered and they’re going to pay their bills, or the federal government or the state or somebody is going to pay their bills.”

Medicaid insurers saw their stocks rise despite the court allowing states to opt out of expansion of that program.

“It didn’t hurt Medicaid HMOs because people aren’t worried about a bunch of states refusing Medicaid money,” said Robert Laszewski, who consults for health insurers as president of Health Policy and Strategy Associates. “Maybe one state turns it down.”


Large health insurers avoided the worst case scenario from a possible decision of striking down just the individual mandate. Such a ruling would have forced insurers to cover high-cost patients without having healthy enrollees to balance the insurance pool, potentially driving up costs.

Under the law, insurers face government review of premium rate increases, new requirements for spending on medical care and fees on the sector starting in 2014. But the companies also should see their insurance rolls grow.

“It is actually very mixed,” Mike McCallister, chief executive of insurer Humana, said of the law. “It is good to have more customers and this will generate more customers. Some of the regulatory changes, even if they are good policy … (will face) challenges for implementation.”

WellPoint shares fell the most of the large insurers. Morningstar analyst Matthew Coffina said the company had the most exposure to plans for individuals and small business that are most affected by the law.

By contrast, shares of UnitedHealth Group Inc., the largest health insurer by market value, which also has a big Medicaid business, managed a 0.5 percent gain by the end of trading on Thursday.

CRT Capital analyst Sheryl Skolnick called the sell-off in health insurers unwarranted.

“The way I look at it, the health plans just got handed 30 million lives on a silver platter,” Skolnick said.

Shares of home healthcare companies fell after the ruling, with Amedisys Inc. ending the day down 9.1 percent.

Skolnick called it a “dreadful decision” for home health companies. The law, she said, “imposes significant reimbursement cuts on that industry over a period of 10 years, more significant than any other sector.”

Shares of medical device companies, which face taxes on their products under the new law, also declined modestly, with Boston Scientific Corp. closing down 1.6 percent.

Healthcare investors had been eagerly anticipating the ruling on the law, which heaps new regulations – some small, some sweeping – on virtually every industry.

While some investors devised complex options strategies to play the decision, the more risk-averse were wary of buying ahead of the event, and instead waited for more certainty on the regulatory landscape before choosing where to invest.

“This gives us clarity, which is what markets needed,” said Todd Schoenberger, managing principal at the Blackbay Group.

Shares of five different healthcare companies were temporarily halted, some more than once, after the ruling was announced, due to sharp moves. Those stocks were: Tenet Healthcare, WellPoint, Community Health, HCA and Health Management Associates Inc.

(Additional reporting by Bill Berkrot, Ryan Vlastelica and Chuck Mikolajczak in New York and Debra Sherman in Chicago; Editing by Michele Gershberg, Jeffrey Benkoe, Matthew Lewis and Tim Dobbyn)

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