How to Profit If This New Lawsuit Destroys Obamacare

A little-known lawsuit could devastate Obamacare: That’s good news for these companies.

Jan 18, 2014 at 9:00AM


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

In case you haven't heard, there's a little-known lawsuit that could destroy Obamacare, making its way to the Supreme Court. Specifically, Sissel v. United States Department of Health and Human Services asserts that the individual mandate in Obamacare is unconstitutional because it violates the "Origination Clause."  

While it may seem unlikely that the Supreme Court will rule in favor of the plaintiff, stranger things have happened. More importantly, if the individual mandate is deemed unconstitutional, there are a number of ways you can profit. Here's what you should watch for.

The lawsuit
As I previously wrote, the House in 2009 unanimously passed H.R. 3590, the "Service Members Home Ownership Tax Act of 2009." Further, the purpose of the bill was to offer a housing tax break to service members. However, when H.R. 3590 reached 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.  

Consequently, the Pacific Legal Foundation argues that while H.R. 3590 originated in the House, 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 stocks
What the Senate did with H.R. 3590 isn't uncommon -- the Troubled Asset Relief Program, or TARP, act of 2008 was passed in the same way. However, this lawsuit is gaining momentum, which means 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. While that could have a negative impact on some companies, other companies stand to benefit -- specifically medical device companies such as Steris (NYSE:STE), CareFusion (NYSE:CFN), and Hospira (NYSE:HSP). Here's why.


Da Vinci Robot. Photo: Wikimedia Commons.

One of the big problems medical device companies face with Obamacare is the 2.3% excise tax on medical devices sold in the United States. Consequently, as Forbes points out, this tax could obliterate a third of medical devices companies' profits. That, of course, would affect stock prices. In fact, Forbes set up a thematically weighted basket of stocks, which shows that, by and large, medical device companies are underperforming the health-care sector and the S&P 500 by a "wide margin."

The individual mandate is one of the central components of Obamacare. Without it, fewer healthy people would buy health insurance, which would cause premiums to skyrocket. That would have an overall ripple effect throughout the health-care industry, which could cause Obamacare to collapse under its own weight. That, in turn, could also terminate the excise tax, which would boost medical device companies' profits.

What to watch
There's no way to know for sure what will happen with Sissel. However, if the court rules in favor of the plaintiff, that could undermine Obamacare, causing it to unravel. If that happens, medical device stocks could see a positive impact from the termination of the excise tax. Consequently, this is something investors should continue to monitor.

How to benefit from Obamacare
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.

Fool contributor Katie Spence and The Motley Fool have no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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