A Tale of Two Supreme Courts on Obamacare

NEW YORK ( TheStreet) -- Health insurers continued to rally Friday on indications that even if the U.S. Supreme Court struck down the Affordable Care Act (ACA), they wouldn't face long-term hitches.

But investors shouldn't be too quick to jump to conclusions from inferences to the justices' questioning from this week.

"People ended up now thinking that the whole thing would get struck down, ultimately because the Supreme Court says we're not going to go through 2,700 pages" of legislation, said a health care analyst, who spoke on background.

Health insurance stocks closed higher Friday along with the broader U.S. indices. UnitedHealth Group ( UNH) was at $58.98, up 87 cents or 1.5%; Aetna ( AET) climbed to $50.17, up 61 cents, or 1.2%; Cigna ( CI) jumped to $49.26, up 29 cents, or 0.59%; Coventry ( CVH) was at $35.57, up 97 cents, or 2.8%; WellPoint ( WLP) rose to $73.81, up $2.19, or about 3.1%; and Humana ( HUM) closed at $92.49, up 95 cents, or about 1%.

Jefferies & Co. initiated coverage on three managed-care companies Friday, doling out buy ratings for AmeriGroup and Centene Corp, and a hold rating on Molina Healthcare. Among the reasons the firm gave for bullishness about the sector were a robust Medicaid RFP pipeline, dual eligibles and the possibility of 2014 Medicaid expansion.

It's possible, though, that the ACA will be struck down, which could wipe out Medicaid expansion. It's also entirely feasible that Obamacare will be upheld in June -- a scenario that would seemingly contradict the reason for Friday's rally.

Here's why investors and Americans shouldn't assume either outcome.

There's enough uncertainty to claim Chief Justice John Roberts and Associate Justice Anthony Kennedy will uphold Obamacare.

"If you're Roberts, who left himself with wiggle room, who asked hard questions on both sides, ... I think Roberts is sensitive to the role ... of the courts and public opinion about the courts, and those are enhanced to the extent the public doesn't think it's a purely partisan decision," says Hank Greely, a Stanford University law professor who clerked for former Justice Potter Stewart in the late 1970s. Greely discloses that he has publicly supported Obamacare.

A widely held assumption about Roberts is that he typically leans as a conservative justice on the Supreme Court who would almost certainly strike down the individual mandate of Obamacare (and thusly, the entire law). But Roberts is beholden to the legacy of his leadership on the Supreme Court and is likely well aware of this case's importance.

Kennedy, who is considered the swing vote for this case, could just as easily uphold the law as he would decide to oppose it.

"He could be looking at this as, 'OK, let's just think in terms of what the federal government is doing here, whether it's really out of line with the federal government has done in other situations,'" says Greg Magarian, a Washington University in St. Louis law professor who clerked for former Justice John Paul Stevens.

Magarian, like many others, thinks if the court upholds Obamacare that it would be by a 5-to-4 decision; however, Greely says that it would be 6-to-3 if upheld, because he believes Roberts would go along with Kennedy on the issue.

The Supreme Court could just as easily strike down the law as a whole.

Kennedy and Roberts did cast serious doubt about individual rights and the powers of the federal government.

"Even liberals -- even the Ruth Bader Ginsburgs -- if they're intellectually honest they'd have to say, 'Well, even we acknowledge that there have to be some checks on what Congress can do and can't do," says Jack Burkman, a Republican strategist in Washington. Burkman thinks the court will decidedly oppose Obamacare either 7-to-2 or 8-to-1.

Justice Antonin Scalia made one of the most cited comments this week at the oral arguments when he mentioned the need for broccoli. Everybody must buy food to survive, Scalia argued, so there's a market for food. He continued that since everybody is in the food market, the government, by his interpretation, could force people to buy broccoli.

Central to the argument against Obamacare is where the court can draw a distinct line that would set a viable precedent for the future. If the court upholds the ACA, the justices almost certainly asked themselves how their decision would be used in future cases that chose to invoke the precedent being set.

"I think it's really up in the air which way they're going to go," says David Di Martino, a Democratic strategist in Washington. "If you believe the predictions you're hearing, I'm happy to sell you a bridge in Brooklyn if you're interested.

The justices made some sort of decision on Friday, and the fate of Obamacare is likely already sealed, but we won't know for certain until June. There's not a firm message to draw based on what Americans and investors have heard.

"If I could get 50-50 odds, I'd put a buck on the mandate," says Greely.

Law professors, lobbyists and business analysts all have a bet, but none of them seem to be making the same one. Until June, investors will likely have to gamble on the ideologies of one or two Supreme Court justices.

-- Written by Joe Deaux in New York.

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