It's time to buy some insurance for your portfolio following Thursday's landmark Obamacare ruling.
The Supreme Court voted 5-4 in favor of President Obama's controversial healthcare reform law, formally known as the Patient Protection and Affordable Care Act.
The chief and appellate justices upheld the core of the law which has sweeping political and economic ramifications. Many economists, analysts and healthcare experts warn it's a Pyrrhic victory at best.
President Obama and his supporters cheered the landmark healthcare decision—as Republicans reached for an aspirin, an antacid or an analgesic.
While the GOP vows to throw out the law on day one if Mitt Romney wins Election 2012, the ruling does remove some of the dark clouds that have been looming over healthcare stocks. The uncertainty of the law's passage has had many market participants staying away from the sector.
Obamacare Ruling and the Average Household
What Obamacare means for the average American working family with an annual household income up to approximately $90,000, is that starting in 2014, they will be able to purchase private insurance through new state insurance markets at prices subsidized according to income level.
Mammograms, cancer screenings and other preventative healthcare measures will be available without deductibles or copays.
Adult children can remain on parents' health insurance plans until they are 26. Seniors can continue to receive discounts on prescription drugs, and health insurers will continue to pay rebates on premiums not adequately targeted at healthcare services.
In addition, insurers will no longer be able to deny coverage to adults with a preexisting medical condition and must stop or limit the practice of discriminatory pricing based on gender, age and current health status.
Furthermore, healthcare providers will gravitate away from the conventional fee-for-service approach toward systems that coordinate care.
Obamacare Ruling Winners and Losers
In the wake of the Obamacare ruling, select healthcare stocks are poised to benefit while the outlook for others is somewhat sickly.
Health insurers can look forward to premium revenue through new state exchanges from the new herd of healthy customers who are forced to carry coverage. Public managed care stocks such as WellPoint (WLP:NYSE), UnitedHealth Group (UNH:NYSE), Aetna Inc. (AET:NYSE) and Cigna Corp. (CI:NYSE) stand to profit.
While the Supreme Court partly invalidated the law's Medicaid expansion, which could temporarily temper monetary gains for managed care companies focused on Medicaid, the decision will also expand by 16 million the number of people on Medicare by 2014. Companies like Cigna, Amerigroup Corp. (AGP:NYSE) and Molina Healthcare Inc. (MOH:NYSE) can look forward to growth.
The big winners hands-down are the hospitals because Obamacare should increase payments and reduce debt loads. Clearly positioned to benefit are Tenet Healthcare Corp. (THC:NYSE), Community Health Systems (CYH:NYSE), HCA Holdings (HCA:NYSE), Health Management Associates Inc. (HMA:NYSE), Lifepoint Hospitals Inc. (LPNT:NASDAQ) and Universal Health Services Inc. (UHS:NYSE).
Medical device makers such as Boston Scientific Corp. (BSX:NYSE), Stryker Corp. (SYK:NYSE), St. Jude Medical Inc. (STJ:NYSE), Medtronic Inc. (MDT:NYSE) and Zimmer Holdings (ZMH:NYSE) won't fare as well as they will have to come up with ways to swallow Obamacare-related penalties: a 2.3% tax on their products.
However, Wells Fargo's medical device analyst Lawrence Biegelsen wrote in a note to clients that due to the fact that the law benefits hospitals, it could result in higher volumes and less pricing pressure for the medical device industry.
Getting more people insured is a good thing for drug giants. Big pharmaceutical companies like Johnson & Johnson (JNJ:NYSE), Pfizer Inc. (PFE:NYSE) and Merck & Co Inc. (MRK:NYSE) are in a stable position to effectively handle the tax implications and stand ready, eager and willing to snap up promising biotech and healthcare companies for expansion.
And as far as biotechs go, the immediate impact is slim. The proverbial early birds and most innovative of the bunch will succeed as has always been the case. A couple of names that come to mind are Elan Pharmaceuticals (ELN:NYSE) which is working on a game-changing treatment for Alzheimer's, and Vivus Inc. (VVUS:NASDAQ), which is developing a new weight loss drug.