Hospital Stocks Jump After Obamacare Ruling

Thursday, 28 Jun 2012 03:13 PM

 

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Stocks of hospital companies rose sharply and some insurance companies fell Thursday after the Supreme Court upheld a requirement that almost all Americans carry health insurance.

The stock of Hospital Corp. of America, the largest private hospital chain in the United States, climbed 10 percent. Community Health Systems rose 8 percent, Health Management Associates 7 percent.

Quest Diagnostics, which runs laboratories, and Laboratory Corp. of America both gained more than 2 percent.

The ruling was a win for hospital operators because it will add 32 million Americans to the rolls of the insured, vastly expanding the pool of healthcare consumers, said Jeffrey Loo, a stock analyst with S&P Capital IQ, a research group.

Under the current system, about one-fourth of the care provided by hospitals is never paid for, either because debts go bad or because the patient is uninsured, Loo said. He said the law will cut the portion of care that is not paid for in half.

However, Gary Taylor, a financial analyst for Citi Investment Research, warned clients that hospital stocks could "erase all their gains" from the court decision if Mitt Romney is elected president this fall. He has pledged to repeal the law.

Many insurance companies fell sharply after the ruling was announced. They bounced around while reporters and analysts dissected the court's ruling, and they later recovered some of the losses.

UnitedHealth Group, the biggest insurer, was down a fraction, less than the broader market, in mid-afternoon trading. It had been down as much as 7 percent. WellPoint was down 5 percent, Aetna and Cigna about 3 percent.

Some analysts expressed surprise at the quick sell-off in insurance companies. After all, those insurance companies will also gain millions of premium-paying customers.

Analysts with Jefferies, an investment bank, said in a note to clients that "after the dust settles, we are generally bullish" on companies like UnitedHealth because they will benefit from about 18 million new customers in 2014 and millions more after that.

Loo said some investors sold because they believe the insurance industry agreed to too many costly rules included in the law, such as covering people with existing medical conditions and ending pricing discrimination based on gender and age.

"But our view is that it should be an overall net positive" for health insurers because of the millions who will have to buy health insurance, Loo said.

Major insurance stocks are also up strongly since March 2010, when Congress passed the law. UnitedHealth is up 72 percent in that time, Aetna 18 percent and Cigna 22 percent. The Standard & Poor's 500 index is up 15 percent in that time.

Chief Justice John Roberts, in a break with other conservative justices on the high court, sided with the majority in allowing the law to go forward with its aim of covering more than 30 million uninsured Americans.

The court majority said that Congress had not overstepped its authority by penalizing people who refuse to buy health insurance.

One category of insurers was lifted by the news: companies that focus on patients who receive Medicaid, an existing federal health program that covers some people who can't afford care.

The health overhaul will increase the number of people on Medicaid by 16 million in 2014, analysts said. Centene and Amerigroup rose 6 percent, Molina Healthcare 7 percent.

Most observers had expected the court to uphold the expansion of Medicaid, Loo said. But he said concern about the court ruling had hurt stock prices.

"There's always that lingering uncertainty, and investors clearly don't like uncertainty, so a lot of them waited until the court upheld it," he said.

The broader stock market was down a little more than 1 percent. The Dow Jones industrial average, which was down about 100 points before the ruling came out at 10 a.m. EDT, was down 160 points after the ruling and 170 points later.

But the effect of healthcare stocks on the market was limited, said David Lefkowitz, senior equity strategist with UBS Wealth Management Research. He said that healthcare stocks make up about 11.5 percent of the S&P 500, and of that, half is pharmaceutical companies. Health insurance companies make up only about 1 percent.

Traders were glum because of persistent fear about the European debt crisis and weak economic data released earlier Thursday.

Stocks of the largest drug companies in the country were down but not heavily, in line with the broader market. Stocks of medical device makers were also down about the same amount as the broader market.

© Copyright 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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