Analysis: HMO investors breathe easier about health law ruling

Fri Mar 30, 2012 11:56am EDT
 
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By Lewis Krauskopf

NEW YORK (Reuters) - Now that the Supreme Court has given a glimpse of how it will consider the healthcare overhaul, more investors in health insurance stocks are breathing easier about the eventual ruling.

Wall Street is less worried about the worst-case scenario for insurers: that the court strikes down the individual mandate requiring people buy insurance, but keeps in place provisions that could force insurers to cover more sick, high-cost Americans.

Investors also increasingly believe the whole law may be tossed out, analysts said, which could boost health insurer stocks in the near term. Several analysts pointed to UnitedHealth Group as a stock that should do well regardless of the ruling, while Aetna Inc has been a strong performer this week.

The high court heard three days of arguments over the law championed by President Barack Obama this week, with close scrutiny paid to every question posed by its justices.

Legal and political commentators saw shared support for the law among the court's four liberal appointees, but question whether Obama's administration will win over one of five conservative justices needed to keep the law intact.

As the nation waits for a ruling in late June, the thesis for healthcare investors has changed slightly, analysts and fund managers say.

In the worst-case scenario, the court strikes down the individual mandate, which requires people buy insurance or face a penalty, while maintaining provisions that force insurers to offer coverage regardless of health status.

Insurers have said that the mandate is necessary to ensure that healthy people are in the insurance pool, because without it they would only see an influx of sick, high-cost consumers.   Continued...

 
In this courtroom illustration, U.S. Solicitor General Donald Verrilli (R) speaks at the lectern to members of the U.S. Supreme Court in Washington March 27, 2012. REUTERS/Art Lien