5 Stocks That Will Benefit if Obamacare Is Overturned
Jun 22nd 2012 1:33PM
Updated Jun 22nd 2012 1:36PM
When the Patient Protection and Affordable Care Act was signed into law by President Obama in March 2010, the winds of change began blowing in the health-care sector. For many lower-income and previously uninsurable persons it was meant to give them access to health-care coverage that simply didn't exist before. For hospitals, it was meant to give individuals accountability for their own coverage.
But the law itself isn't peaches and cream for all those involved. With the Supreme Court just days away from issuing its ruling on whether the Affordable Care Act is constitutional, there are quite a few companies that would love to see the law struck down as unconstitutional. Here are just five of those companies:
One of the many implementations of the Affordable Care Act is that an excise tax of 2.3% be placed on total medical device revenue by 2013 to help pay for the expanded Medicaid coverage that the law would provide. This tax could force many device makers to cut back on their research and development budgets, as well as potentially laying off workers and moving their operations overseas just to curb costs. Medtronic, the largest medical device maker in the world, recently shed 1,100 jobs while announcing plans to hire 1,500 over the coming 11 months. The catch, however, was that these new hires would predominantly be overseas.
If the Supreme Court strikes down Obamacare, health-care innovation would continue to thrive, health-care jobs would probably stay in America, and companies like Intuitive Surgical would continue to command incredible pricing power. Intuitive's da Vinci robotic surgical systems aren't cheap, and Obamacare has made it very difficult for these device makers to pass along higher prices to end users.
WellPoint (NYS: WLP)
Whereas Medicaid HMOs like Molina Healthcare and Centene are crossing their fingers for Obamacare to be approved, WellPoint is facing approval with a bag over its head.
WellPoint is a managed-care provider that is heavily focused on small group and individual businesses. It's also an area where WellPoint often rejects people due to pre-existing conditions, where it can readily raise premiums, and where it spends quite a bit on administrative expenses. Obamacare would require WellPoint to accept all patients as well as spend 80% of its collected premiums on patient care. It also would make enacting price increase incredibly difficult.
If the Supreme Court shoots down Obamacare as unconstitutional, WellPoint could be off to the races. The constrictive nature of the bill would basically cap WellPoint's earning potential. Without Obamacare, WellPoint will maintain strong premium pricing power (say that three times fast) and will still have a say over who's in and who's out of its patient network.
AT&T and 3M are really just the tip of the iceberg of more than a dozen companies that enacted huge one-time health-care reform charge-offs just days after President Obama signed the Affordable Care Act into law in 2010. AT&T took a gigantic $1 billion charge while 3M wrote off $90 million in health-related expensing. The reason these big companies took these non-cash charges was due to the upcoming removal of a key Medicare tax benefit in the ACA. The removal of this benefit could mean the reduction of health-care coverage to retired workers, as well as the potential cutback on coverage to existing employees.
If Obamacare fails to get past the Supreme Court, companies like AT&T and 3M that were forced to take these writedowns are suddenly going to be sitting pretty -- and to boot, they're going to have a happy workforce because health-care benefits would be unlikely to be cut. This isn't an across-the-board trend, but there are enough large-cap companies that are going to be negatively affected by Obamacare that its failure and the continuance of these tax breaks, as well as the happiness of their employees, would be a welcome outcome.
Your move, Supreme Court
Now it's just a matter of waiting to see which way the Supreme Court will side. However, one thing is a near certainty: If Obamacare is struck down, these five names should be heading higher.
Agree? Disagree? Think I'm just a loon? Tell me and your fellow Fools about it in the comments section below.
With the U.S. elections around the corner, our team of analysts at Motley Fool Stock Advisor realizes there's more at stake for stocks than just what we're witnessing in the health-care sector. Find out which stocks could benefit based on which president-elect wins in our latest special report. Get your free copy by clicking here!
The article 5 Stocks That Will Benefit if Obamacare Is Overturned originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Intuitive Surgical, Medtronic, and WellPoint. Motley Fool newsletter services have recommended buying shares of Intuitive Surgical, WellPoint, and 3M. 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 that never takes a sick day.
Copyright © 1995 - 2012 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.