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Health Care Poised to Weather Obamacare's Fate

Editor's note: As part of our partnership with Nightly Business Report, TheStreet's Joe Deaux will join NBR Monday (check local listings) to look at health care stocks ahead of the Supreme Court's decision on Obamacare.

NEW YORK ( TheStreet) -- Investors will soon realize not all health care stocks are equal as the Supreme Court prepares to decide Obamacare's fate.

The good is for companies like Aetna (AET - Get Report), Cigna (CI - Get Report) and Coventry (CVH), which profit across the three major segments of Medicare, Medicaid and commercial health insurance. The bad is for the Medicaid HMOs like Amerigroup (AGP), Molina (MOH - Get Report) and Centene (CNC - Get Report).

"The companies that would be worst affected if the law were thrown out entirely ... you'd expect probably the Medicaid players, which would be Molina, Amerigroup, Centene, to fare poorly, given that they were hoping to take advantage of Medicaid expansion, which almost certainly wouldn't be resurrected if the law were thrown out," said Matthew Coffina, senior health care analyst at Morningstar.

Some estimates have found that between 16 million to 20 million new Americans would be eligible to enroll in Medicaid if the Supreme Court upholds Obamacare.

Word on the Street

If Obamacare as a whole gets thrown out, Medicaid HMOs would lose a large revenue opportunity they had expected to begin in 2014.

Medicaid enrollment would rise in 2014 because the law stipulated a shift in income eligibility; simply, the government would extend its low-income health insurance program to earners with a higher annual income than what is currently allowed.

The catch here is that these companies exposed to Medicaid expansion likely already have the possibility of Obamacare's failure baked into their stocks, but fundamentally it's not going to hurt the business model.

"So that's not currently in their earnings -- they're not going to benefit today in their actions -- but come 2014 it would be a tailwind to revenue growth and profit," said Chris Rigg, senior health care analyst at Susquehanna Financial Group. "In the investment community there's a discounted value of that future revenue stream in the share prices today, and that discounted value goes away ... if health reform is overturned."

Rigg pointed out that about 32 million people would receive health coverage because of reform. Almost half comes from small group and individual insured.

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