This is where Aetna, Cigna and Coventry enter. These companies wouldn't lose out on as much revenue because small group and individual insurance make up relatively small percentages of revenue for them.
"There aren't any companies anymore that sort of make 100% bet on small group and individual business," said Dave Shove, health care analyst at BMO Capital Markets. "Almost 30% of
is small group and individuals; a company like Humana it's about only 5% or 6% of their business; Cigna it's maybe 1% or 2%."
Rigg said he thinks the diversified health care stocks could move 10% higher or more if Obamacare is struck down entirely.
"Because of all of these things we talked about at the outset: minimum medical loss ratio, the uncertainty around exchanges, rate review -- just that regulatory burden is lifted," Rigg said.
Minimum medical loss ratio is like the inverse of gross margin, or your cost of goods divided by revenue. The percentage in the small group and individual business has to be at least 80% and in a large group market at least 85% or else the company has to rebate the money to consumers, Rigg said.
In this case, the law would have capped the gross profit percentage of these companies.
So what if the whole law is upheld?
"I would probably speculate that the [health care] stocks would trade up in that scenario," says Morningstar's Coffina. "We think the companies are worth, in general, more than they're trading for."
Coffina said uncertainty surrounding the fate of Obamacare is one factor holding these stocks back.
If Obamacare survives June, it looks like investors won't have much to worry about, and even if it falls, the long-term outlook for the sector would appear to be fine. Just watch out in the near-term for those companies that stood to benefit from the expanded base of Medicaid participants.
-- Written by Joe Deaux in New York.