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Health Insurers Keep Ear on Supreme Court

Stocks in this article: UNH CI AET

NEW YORK ( TheStreet) -- Health insurers will be paying close attention when the Supreme Court convenes Wednesday to once again tackle issues related to Obamacare.

The court won't issue a formal decision until June , but traders will try to decipher which way the wind is blowing from the justices' questions.

"I think the stocks have been up and down a bit as people tried to infer something from the oral arguments," said Matthew Coffina, senior health care analyst at Morningstar. "Today Tuesday the stocks started out sort of down just 1% or 2%, because, again, it's hard to infer much from the questions the justices are asking."

Wednesday brings the discussion of "severability" to the fore as the justices will have to determine if the individual mandate, if struck down as unconstitutional, can be separated from the rest of the Obamacare legislation.

Part of the deal health care companies like UnitedHealth Group (UNH), Aetna (AET) and Cigna (CI) have to comply with under the Patient Protection and Affordable Care Act, otherwise known as Obamacare, is to provide care without regard to pre-existing conditions.

The Supreme Court heard oral arguments Tuesday on the individual mandate provision of the Patient Protection and Affordable Care Act and early reports pointed to reservations that the justices could lean in opposition to the legislation.

"I think it is true that if most questions in life are matters of degree ... the young person who is uninsured is uniquely proximately very close to affecting the rates of insurance and the costs of providing medical care in a way that is not true in other industries," Justice Anthony Kennedy, considered a swing vote on the bench, said in the oral arguments.

If the Supreme Court ultimately decides in June to strike down the individual mandate and uphold the pre-existing conditions stipulation, it would likely create an unfriendly scenario for the health care industry as they'd have to provide care for people that didn't qualify before the Affordable Care Act.

"The issue of severability is ultimately an issue of what Congress intended," said Greg Magarian, a law professor at Washington University in St. Louis who clerked for former Associate Justice John Paul Stevens.

The best scenario for health care stocks, said Morningstar's Coffina, is that the justices uphold the law entirely; at worst, the whole law falls. But Coffina said the companies will remain healthy, regardless.

"It's not necessarily a main driver of results for these companies," he said.

-- Written by Joe Deaux in New York.

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