3 Sectors That'll Break Out the Champagne If Obamacare Is Upheld
Jun 24th 2012 8:07PM
Updated Jun 24th 2012 8:12PM
A ruling by the Supreme Court on whether the Affordable Care Act is constitutional is right around the corner.
The ACA, designed to expand Medicaid coverage and require all U.S. citizens to carry health insurance, may be completely approved or completely denied, or it could have certain aspects of the bill invalidated. Rather than tackle each scenario all at once, let's today look at three sectors that are going to be uncorking the champagne if the bill gets approved in its entirety.
1. Big Pharma
Considering that large pharmaceutical companies are dealing with their steepest year of patent declines over the past 12 months, the approval of the ACA couldn't come at a better time. Millions of newly insured citizens are the perfect way for Pfizer (NYS: PFE) to boost sales, given that it lost patent exclusivity last year on Lipitor, the world's best-selling drug. Bristol-Myers Squibb (NYS: BMY) has attempted to grow its pipeline through acquisitions, but that hasn't guaranteed any near-term pain relief for losing patent protection on Plavix, the second-best selling drug in the world, last month.
Whether patients are paying with their own insurance or through Medicaid, the ACA would assuredly boost demand and pad Big Pharma's bottom line.
Perhaps no sector stands to get a bigger weight lifted from their shoulders than the hospital sector.
Hospital earnings often suffer because the uninsured usually wait for little problems to turn into costly problems before finally conceding and heading to the doctor. Hospitals then have a nearly impossible time trying to collect money from these patients after they've been treated. HCA Holdings (NYS: HCA) , for instance, was forced to set aside more than $2.8 billion in bad debt expensing for fiscal 2011.
However, if the ACA passes, for-profit hospital operators like HCA Holdings, Community Health Systems, and Tenet Healthcare will no longer have these worries, as all citizens will be covered either through existing or expanded Medicaid programs, or through their own insurance provider. That means the bad debt expenses that are a constant crutch to hospital growth will slowly be eliminated, and hospital earnings should increase dramatically from their current levels.
3. Medicaid providers
There's a very fine line here between managed health-care companies that are going to have their profitability capped by Obamacare, and Medicaid-related solutions providers like Molina Healthcare (NYS: MOH) and Centene (NYS: CNC) , which rely on government-sponsored Medicaid to cater to low-income families and will see a boom in business.
Currently, Medicaid-solutions providers Molina and Centene are dealing with high costs and razor-thin margins. If Obamacare passes, an analyst at Wedbush Securities estimates that 18 million new Medicaid-approved patients will be seeking providers. That would ease many investors' near-term concerns about Molina and Centene's underwriting costs and bring in a considerable amount of new business.
Let's get this party started?
Now that you know who stands to benefit from Obamacare's passing, the only question left to be answered is how the Supreme Court will rule.
What do you think? Will Obamacare pass, fail, or survive in pieces? Share your thoughts in the comments section below, and let us know what other companies you think are ripe to benefit.
With the U.S. elections also 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 in our latest special report which stocks could benefit based on which candidate wins. Get your free copy!
The article 3 Sectors That'll Break Out the Champagne If Obamacare Is Upheld 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.Motley Fool newsletter services have recommended buying shares of Pfizer. 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'll always cover you.
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