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TheStreet Open House

What the Obamacare Ruling Means for Health Care Stocks

Stocks in this article: CYHTHCUHSHCACVHUNHAETBSX

Stocks that could possibly benefit include: Community Health Systems (CYH), Tenet Healthcare (THC), Universal Health Services (UHS) and HCA (HCA).

  • Health insurers that will gain access to millions more new patients.
  • As I said in a previous article, "Insurers hate the idea of being forced to extend insurance to high-risk patients. Yet, they agreed to take on these patients as long as all patients -- high-risk and low-risk -- were enrolled. Insurers realized that if they had to cover any patients seeking coverage, without all being required to participate, then people would simply wait until they got sick to apply for insurance. "

    Stocks that could benefit from this ruling include Coventry Health (CVH), United Health (UNH), Humana (HUM) and Aetna (AET), although I would caution against buying these stocks strictly because of this news, as some experts feel differently about whether these stocks would benefit, and it will likely take a while for this to play out before we really know for sure.

    Losers

    On the flip side, any companies that sell medical devices or pharmaceuticals are faced with a stark reality. Reimbursement pressures are rising and will get even more severe. A key goal of the health-care overhaul is aimed at utilizing the lowest-cost treatment option, assuming outcomes are equal.

    As a result, look for medical-device makers to start investing only in new products that have lower price points than products that are currently on the market (or at least yield vastly superior outcomes that save money in terms of post-treatment follow-up). Boston Scientific (BSX) is a specific stock in this sector that got hit on news of the ruling.

    Pay close attention to stocks in these two sectors, as a number of other challenges are facing them, and this could be the kind of thing that causes a wave of selling.

    Risks to Consider: As I alluded to earlier, it's difficult to say exactly how all this will play out. As someone who's watched this very closely, I can only offer my best informed guess. You will need to study a stock closely, judging it by its own fundamental merits, in addition to the context of Thursday's ruling.

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