The Patient Protection and Affordable Care Act, best known as Obamacare, has had a sweeping effect on the way we get medical care in the United States. The bill has to date enrolled nearly 12 million people, according to the Department of Health and Human Services.
However, Obamacare is currently facing a major threat to its ongoing existence: King vs. Burwell. This court case could make subsidies divvied out by the federal government via Healthcare.gov illegal, which in turn could make it very difficult for millions of currently subsidized Obamacare enrollees to make their premium payments. If these millions suddenly lose coverage, it will be really bad news for these five stocks, according to three Foolish analysts.
Todd Campbell: Few industries have benefited from exchange health insurance expansion more than hospitals. The industry has not only seen an increase in patient volume, but it's also writing off far fewer in losses from care for the uninsured.
HCA Holdings (NYSE:HCA)
To put the impact of the decline in write-offs in even better perspective, consider that last year, HCA's provisions for doubtful accounts was $689 million -- yes, million -- lower than was set aside in 2013. The combination of rising volume tied to an increasingly insured population and fewer write-offs contributed to HCA delivering net income per share of $4.16 in 2014, up 23% year over year.
Since admission growth helped revenue grow 8%, and fewer write-offs helped net income grow substantially faster, it's not a stretch to think that a Supreme Court decision that erases subsidies for people buying insurance through the federal exchange could lop off a significant chunk of HCA's profitability. Personally, I don't think subsidies will disappear, but if they do, this is one stock that could be punished by investors.
Sean Williams: To say there's a lot at stake this June for Obamacare and millions of its enrollees is probably a complete understatement. But, I'd surmise a ruling that favored the plaintiffs in King vs. Burwell could be even more damaging for pharmaceutical and medical device makers targeting chronic diseases.
A good example here would be hepatitis C or diabetes drug and diagnostic developers. Hepatitis C and diabetes can be easily determined by simple bloodwork at your doctor's office, and these tests would likely be covered under your insurance plan. However -- based on the nearly 9 million enrollees in Healthcare.gov in the 2014-2015 enrollment period and the 86% that qualified for subsidies -- if suddenly between 7 million and 8 million people no longer qualified for subsidies, it's very plausible they'd lose the ability to pay for their insurance, and subsequently for preventative care visits.
This is particularly important because the Centers for Disease Control and Prevention notes 8 million diabetes patients are current undiagnosed, while a majority of the 3.2 million HCV patients in the U.S. are unaware they have the disease.
A drug developer such as Gilead Sciences (NASDAQ:GILD) is counting on diagnostic testing to help identify more potential HCV treatment candidates for its dynamic duo of Sovaldi and Harvoni, while OraSure Technologies (NASDAQ:OSUR) is expecting its point-of-care HCV diagnostic test to help with that identification process -- especially among baby boomers.
If millions of Healthcare.gov users suddenly lose their subsidies, these two companies can probably temper their growth estimates a bit (more so for OraSure, which counts on the identification factor and has a narrower product portfolio than Gilead).
Another example here would be MannKind (NASDAQ:56400P706) which is looking to build rapport with consumers and physicians for its rapid-acting inhaled insulin product Afrezza. MannKind could benefit greatly if even a few million additional diabetes diagnoses were confirmed, but that might wind up being a long shot if King vs. Burwell doesn't work in drug- and diagnostic-makers' favor.
Formerly known as WellPoint, Anthem stepped up to the plate by participating in all of the Obamacare health exchanges throughout its network, which encompasses 14 different states. Even as some of the its competitors took a more conservative path by holding off on participating in healthcare exchange marketplaces until some of the wrinkles of the system worked themselves out, Anthem directly benefited from the large numbers of participants in the program, and it also saw substantial growth from the expanded membership in Medicaid.
The big problem with the Supreme Court case is that about half of the states in which Anthem does business have federally based marketplace exchanges that could see subsidies lost if the court rules against Obamacare. Although the key markets of California and New York have state exchanges that wouldn't be affected, other large states like Georgia and Ohio use the federal marketplace. Given the importance of having attracted so many new enrollees to Anthem's positive performance in 2014, seeing those customers flee if their subsidies get cut off could have a matching negative effect on share prices in 2015.