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A Reckoning Approaches: Supreme Court and Obama's Healthcare Reform Law

NEW YORK (TheStreet) --In the next two weeks, the Supreme Court of the United States (SCOTUS) will announce its ruling on the Patient Protection and Affordable Care Act (ACA), the massive legislation better known as President Obama's healthcare reform bill. Following the government's uninspired performance during oral arguments before the Court earlier this year, Wall Street has shifted dramatically, from consensus that the law will be upheld to a more fragmented view that at least parts -- if not all -- of the ACA will be repealed. (Some of these scenarios are bullish and others bearish, which explains why many professional "generalist" investors remain on the sidelines.)

Given the many complicated issues at hand, this ruling is very difficult to predict. This week's column will briefly outline six possible outcomes and my view on the likelihood of each, as well as the implications for healthcare stocks under each scenario. A word of caution: I'm not a legal expert and even those experts I've spoken with have all issued provisos alongside any opinions. Further, given limited space, this discussion will necessarily be oversimplified.

As a quick refresher, the ACA brings healthcare coverage to all Americans through both a Medicaid expansion -- which I will ignore, since I highly doubt SCOTUS will excise this provision, due to the far reaching complications -- as well as an individual and employer mandate, to obtain or provide coverage, respectively. Among other things, the 2,700-page law also regulates the profitability of managed care companies and the variance in coverage costs for individuals within a plan.

I'm going to focus mostly on the implications for hospitals and managed care, since those are the subsectors most exposed to the ruling. (The biotechnology and pharmaceutical sectors have only limited ACA-associated risk.) My primary goal is to summarize possible outcomes, the impact of those scenarios, and to enable readers to react quickly once the ruling is announced.

Although I'm not endorsing any one view with a high degree of confidence, I'm cautiously bullish, especially since Wall Street appears so uncertain. (For what it's worth, my view on the broader market is far less optimistic. The global economic crisis does not seem likely to be solved easily despite the bailout of Spain's banks this weekend, and even further quantitative easing will eventually lose its impact.) The scenarios outlined below are mostly positive for healthcare stocks; the hospitals seem to have the highest downside risk.

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