Will This Little-Known Lawsuit Destroy Obamacare?

U.S. Supreme Court. Photo: Kjetil Ree. via Wikimedia Commons. 

The Patient Protection and Affordable Care Act, otherwise known as Obamacare, is no stranger to lawsuits that claim it's unconstitutional. Indeed, this challenge made it all the way to the Supreme Court. But in 2012, Supreme Court Chief Justice John G. Roberts ruled that because the penalty for noncompliance with the individual mandate is a federal tax, Obamacare is constitutional.

For many, that ruling firmly settled the controversy regarding the overall constitutionality of Obamacare. However, in a somewhat surprising twist, it also opened the door to a new challenge. Specifically, Sissel v. United States Department of Health and Human Services asserts that the individual mandate is unconstitutional because it violates the "Origination Clause." More importantly, this lawsuit is making its way to the Supreme Court. While it seems unlikely that the Supreme Court will rule in favor of the plaintiff, if it did, it could directly affect hospital stocks. So let's look at what investors should watch out for.

The lawsuit
In 2009, the House unanimously passed H.R. 3590, the "Service Members Home Ownership Tax Act of 2009." The purpose of this bill was "[t]o amend the Internal Revenue Code of 1986 to modify the first-time homebuyers credit in the case of members of the Armed Forces and certain other Federal employees." In other words, it was a housing tax break for service members. However, upon reaching the Senate, Harry Reid (D-Nev.) removed all but the first sentence of the original bill and renamed it the "Patient Protection and Affordable Care Act," which then passed in the Senate, and continued on through the legislative process.  

Thus, while H.R. 3590 originated in the House, the Pacific Legal Foundation -- the foundation pursuing the lawsuit -- argues that because of how it was remade in the Senate, it violates the intent of the Article 1, Section 7 of the U.S. Constitution -- a.k.a. the Origination Clause -- which states, "All bills for raising revenue shall originate in the House of Representatives." 

How this could affect hospitals
It's important to note that what the Senate did isn't out of the ordinary. Indeed, the Troubled Asset Relief Program, or TARP, act of 2008 was passed in the same way. However, that hasn't stopped this lawsuit from gaining momentum. Consequently, Obamacare may once again face the Supreme Court. And if the Supreme Court rules that the individual mandate violates the Origination Clause, that could completely undermine the law, as the individual mandate is a central component. That, in turn, would have a direct impact on health-care stocks, and hospital stocks in particular.

When Obamacare was ruled constitutional, shares of hospital stocks such as Community Health Systems (NYSE: CYH  ) , Tenet Healthcare (NYSE: THC  ) , and Lifepoint Hospitals (NASDAQ: LPNT  ) saw a favorable boost. And the reason is straightforward: Hospitals are required to provide care even if a patient doesn't have insurance. This requirement leads to a number of unpaid bills, which negatively affects hospitals' earnings. But because the individual mandate imposes a "tax" on anyone without insurance, the amount of people who are uninsured is expected to decline. Under Obmamacare, Forbes estimates that hospitals will reduce 30% of their unpaid bills.

That's great news for hospitals' earnings. However, if the Supreme Court rules that the individual mandate is unconstitutional because of how it was passed, hospital stocks that saw a gain -- because of the expected drop in unpaid bills -- could decline.

What to watch
There's no way to know for sure what will happen with Sissel v. United States Department of Health and Human Services. However, if the Court rules in favor of the plaintiff, hospital stocks could see a decline. Consequently, this is something investors should continue to monitor.

Lawsuits aside, here's how Obamacare can make you money
Obamacare seems complex, but it doesn't have to be. In only minutes, you can learn the critical facts you need to know in a special free report called "Everything You Need to Know About Obamacare." This free guide contains the key information and money-making advice that every American must know. Please click here to access your free copy.


Read/Post Comments (3) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 30, 2013, at 12:56 AM, JES wrote:

    40 Members of the House of Representatives filed an amici curiae brief in Sissel, arguing that, “If the Senate can introduce the largest tax increase in American history by simply peeling off the House number from a six-page unrelated bill which does not raise taxes and pasting it on the ‘Senate Health Care Bill,’ and then claim with a straight face that the resulting bill originated in the House, in explicit contravention of the supreme law of the land, then the American ‘rule of law’ has become no rule at all” (see http://www.jespllc.com/speeches-press/).

  • Report this Comment On December 30, 2013, at 4:25 AM, garifolle wrote:

    If this is right, this is just another proof that the constitution is the biggest reason why the USA is so unable to govern it-self efficiently.

  • Report this Comment On January 03, 2014, at 12:31 PM, LegalBagel wrote:

    Yes, the Constitution is the biggest reason why the USA does not govern efficiently. That lack of efficiency is not a bad thing. Indeed, slowing and gumming up governmental efficiency is actually one of the biggest reasons why we have the Constitution. The most efficient government is called dictatorship. Even democracies (like the UK) can be more efficient than American-style constitutional republics, with all of their rights, separation of powers, and checks and balances. The result of government efficiency is typically the trampling of basic rights and liberties. Thankfully we don't have an efficient government in the USA, despite the best efforts of the executive branch to undermine the other branches, particularly since FDR. As long as we can keep President Obama and his successors from eliminating the Congress from decision-making, we'll keep it inefficient for a long time to come.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2778458, ~/Articles/ArticleHandler.aspx, 10/25/2014 2:33:17 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement