Healthcare stocks fall as judge rules Obamacare unconstitutional

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From Reuters: Dec 17 (Reuters) – Shares of U.S. health insurers, hospitals, and healthcare companies fell on Monday after a federal judge ruled that Barack Obama’s signature healthcare law was unconstitutional.

Obamacare officially called the Affordable Care Act (ACA), mandates that all individuals have health insurance or pay a tax and also includes payments worth billions of dollars to health insurers to subsidize for low-income Americans.

Republicans, including President Donald Trump, have long criticized Obamacare, calling it a costly and unneeded government intrusion into Americans’ lives. About 11.8 million consumers nationwide enrolled in 2018 Obamacare plans.

The law, however, will remain in place to allow appeals process to play out, and the Supreme Court might eventually rule on the case.

Most legal experts do not believe the Supreme Court will ultimately side with this ruling, but the uncertainty could be pressure stocks in the near term, brokerage Oppenheimer said.

The ruling, if affirmed, would have a draconian impact on the healthcare sector and the overhang alone could trigger widespread selling across the sector, Oppenheimer analyst Michael Wiederhorn said.

Centene Corp fell 7.8 percent to $117.5, while Molina Healthcare slumped 10.1 percent to $118.4. The companies are among health insurers with exposure to ACA.

WellCare Health Plans and Anthem Inc declined 4.7 percent and 2.1 percent, respectively.

Brokerage BMO Capital Markets expects Centene and Molina to be most affected by the ruling, as they have the highest ACA exposure, which the broker measures as an “estimate of the percentage of company revenue and earnings driven by

Obamacare exchanges and/or the Medicaid expansion.”

“While we are disappointed in the recent Northern District of Texas court’s ACA ruling, we recognize that this is a first step in what will be a lengthy appeals process,” Molina Healthcare said.

“Regardless, the ACA will remain in effect for 2019, and we are optimistic that it will remain in effect thereafter.”

Even in case of an eventual injunction, the defendants would certainly seek and most likely get a stay pending appeal, Evercore said.

Hospitals and healthcare services providers Community Health Systems, Tenet Healthcare Corp and HCA Healthcare Inc fell between 4 percent and 8 percent.

The fall in healthcare stocks pulled the broader S&P 500 managed health care index down 2.5 percent.

Evercore ISI said it expected no immediate impact from the ruling, calling it only a declaratory judgment and not an injunction.

Even in case of an eventual injunction, the defendants would certainly seek and most likely get a stay pending appeal, Evercore said.

The Health Care Select Sector SPDR ETF (XLV) was trading at $87.86 per share on Monday afternoon, down $1.10 (-1.24%). Year-to-date, XLV has gained 6.64%, versus a -2.96% rise in the benchmark S&P 500 index during the same period.

XLV currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 34 ETFs in the Health & Biotech ETFs category.

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