Alone among developed nations, the United States allows a large percentage of its population to have limited or no access to quality health care, a subset of that group dying prematurely or unnecessarily due to that lack of access. The Affordable Care Act (ACA), called “Obamacare” by many, sought to correct this problem. It is currently being debated — actually the debate is over. The country is now waiting on the results of a debate before and within the Supreme Court about the constitutionality and future of the ACA. That decision comes out tomorrow.
The crowd on Wall Street has not made up its mind about what to expect and how to react. There are three possible scenarios:
• The law is upheld
• The entire law is overturned
• Parts of the law are overturned, specifically the mandate that everyone must buy health insurance of pay a fee or fine to the government. At present the mandate would effect 13 million Americans, roughly 4% of the population.
How will the trading crowd react?
The Law is Upheld: If the law is upheld, the general consensus this is good for health insurers and providers — supposedly — as they will have more and healthier customers. The law is bad — supposedly — for medical-device makers who will continue to pay a 2.3% tax on their devices. These opinions are wrong-headed but this is what traders think, and I assume this is how stocks could react if the law is upheld. A secondary impact would be traders’ beliefs that a defeat before the Supreme Court would energize the Republican base and help Mitt Romney. Romney swears he will overturn the ACA if elected, something he cannot do given the Democrats’ sworn intent to filibuster any big changes in the ACA. Traders are, as a group, a little to the right of Attila the Hun, so this potential reaction is not surprising. Frankly, I don’t see this as a big deal in the upcoming election.
The Law is Overturned in Full: If the law is thrown out in its entirety, health insurers — but not providers — will probably fall and medical-device makers will go up, the inverse reaction to what I wrote above. After a couple of hours or days, traders may realize that the end of many components of the ACA already in place will negatively impact overage and care for many millions of Americans and they are going to be hacked off. And that will be a big deal in the upcoming election and, in turn, the crowd on the Street will react be negatively, over a period of days, if they accept the Democratic base and many others are going to been very mad at the Republican Party. Romney already has a big gender problem — repealing provisions that guarantee mammograms ain’t going to help.
The Mandate is Thrown Out: The office pools taking place inside the Beltway — yup, people will bet on anything — believe the Court will throw out the mandate. However, within these pools people are uncertain if they will also throw out the provisions that force insurers to provide coverage to sick people (a novel thought, health insurance for sick people). If they throw out the mandate but leave these provisions in place, health insurers are going to get hammered. They will have fewer healthier customers and be forced to provide coverage to customers that cost them money. If the mandate and the provisions guaranteeing access to all wanting to pay for health insurance is also thrown out, health insurers may go down, they may not.
What investors should do
This is all speculation on an unprecedented scale for me. The bottom line: Since the speculation is so vague, the best thing to do is to avoid everything that can be touched hard by the ruling — namely health care insurers, providers and medical-device makers. Sit this one out right now.
If the device makers take a hit, wait until they bottom and take a hard look at Cepheid (CPHD). It owns the market for tests for tuberculosis and hospital-acquired infections, including MRSA. And many biotech and genomic names are immune to this nonsense. Two favorites (I own them) are Curis (CRIS), in cancer treatments, and Compugen (CGEN), in drug discovery.