Major healthcare and hospital stocks are in focus in morning trading after a federal judge ruled that the Affordable Care Act was unconstitutional. Publicly traded companies in the space include Humana (HUM), UnitedHealth (UNH), Centene (CNC), Aetna (AET), Anthem (ANTM), Cigna (CI) and Health Net (HNT). Publicly traded U.S. hospitals include HCA (HCA), Tenet Healthcare (THC) and Community Health Systems (CYH).
ACA 'UNCONSTITUTIONAL': A federal judge in Texas on Friday ruled that the Affordable Care Act, also known as Obamacare, was unconstitutional based on its mandate requiring that people buy health insurance. U.S. District Judge Reed O'Connor agreed with a coalition of 20 states that a change in tax law last year eliminating a penalty for not having health insurance invalidated the entire Obamacare law. In his ruling, Judge O'Connor said that the individual mandate requiring people to have health insurance "can no longer be sustained as an exercise of Congress's tax power" and that the "the individual mandate is unconstitutional" and the remaining provisions of the Affordable Care Act are invalid. The ruling was over a lawsuit filed this year by a group of Republican governors and state attorneys general. A group of intervening states led by Democrats have promised to appeal the decision, which will most likely not have any immediate effect. If Judge O'Connor's decision ultimately sticks, millions of Americans will lose their health insurance. Additionally, insurers will no longer have to cover young adults up to age 26 under their parents' plans, annual and lifetime limits on coverage will again be permitted, there will be no cap on out-of-pocket costs and there will be fewer protections for people with pre-existing conditions. A final decision may ultimately lie with the Supreme Court.
REACTIONS: California Attorney General Xavier Becerra, who is among a group of Democratic attorneys general defending the law, said the ruling "is an assault on 133 million Americans with pre-existing conditions, on the 20 million Americans who rely on the A.C.A.’s consumer protections for health care, on America’s faithful progress toward affordable health care for all Americans." He added that "The A.C.A. has already survived more than 70 unsuccessful repeal attempts and withstood scrutiny in the Supreme Court." In a statement, U.S. Senate Democratic leader Chuck Schumer said he hoped the decision would be overturned, as "If this awful ruling is upheld in the higher courts, it will be a disaster for tens of millions of American families, especially for people with pre-existing conditions." Meanwhile, President Donald Trump, who has consistently sought to repeal the ACA and has weakened it through regulatory changes, posted on Twitter late Friday night that "As I predicted all along, Obamacare has been struck down as an UNCONSTITUTIONAL disaster! Now Congress must pass a STRONG law that provides GREAT healthcare and protects pre-existing conditions." He later added, "Wow, but not surprisingly, ObamaCare was just ruled UNCONSTITUTIONAL by a highly respected judge in Texas. Great news for America!"
ANALYST COMMENTARY: JPMorgan analyst Gary Taylor told investors in a research note that Centene and Molina (MOH) could bear most of the selloff in managed care given the companies' exposure to Medicaid and Obamacare markets. Both insurers have a total ACA exposure of more than 40% of EPS, followed by WellCare (WCG) at 10%, he said. An interim appeal to the 5th Circuit would likely be resolved by mid-2019, but a further appeal if necessary to the Supreme Court would certainly push a ruling into mid-2020 term, he added. Meanwhile, Jefferies analyst Dave Windley said that Judge O'Connor's ruling will "certainly" be appealed, but first, Centene and Molina are likely to be weak. Constitutional law experts seem to believe the appeals process should leave ACA intact for Medicaid expansion, subsidies and pre-existing conditions, he said. SunTrust analyst David MacDonald said that while Friday's Affordable Care Act ruling "could create some volatility," he sees no near-term impact for Centene, expects an appeal and views "meaningful structural changes over time as unlikely." Goldman Sachs analyst Stephen Tanal removed Centene from the Conviction Buy List and lowered his price target to $144 from $155 to reflect risk associated with a potential adverse outcome in the Texas versus United States ACA ruling.
PRICE ACTION: Cenene declined over 9% and Molina dropped 15.6% on Monday morning, with others in the space also sharply lower.
Humana
-1.66 (-0.55%)
UnitedHealth
-6.26 (-2.36%)
Centene
-11.57 (-9.07%)
AET
+
Ticker changed to ELV
-7.43 (-2.70%)
Cigna
-5.37 (-2.62%)
HNT
+
HCA Healthcare
-6.36 (-5.02%)
Tenet Healthcare
-1.32 (-6.21%)
Community Health
-0.305 (-7.79%)
Molina Healthcare
-19.74 (-14.99%)
WCG
+