NEW YORK (TheStreet) -- The Supreme Court has decided to hear the case King v. Burwell, according to multiple media outlets. The lawsuit challenges the federal government's right to subsidize the health insurance premiums of Americans who buy health insurance through the federal exchange set up by the Affordable Care Act, or ACA. The outcome of the challenge could cripple the healthcare act in its current form.
BACKGROUND: In one section, the ACA said that certain citizens who buy insurance through exchanges set up by states would be eligible for subsidies. However, 34 states declined to set up such exchanges, and the federal government has set up an exchange that provides subsidies to eligible citizens in those states. The plaintiffs in the King v. Burwell case say that the law does not permit the federal government to pay such subsidies. The Obama administration argues that other sections of the law suggest that subsidies should be available to Americans who buy insurance from the federal exchange.
ANALYST OPINION: Citigroup analyst Gary Taylor wrote in a note to investors that if the Supreme Court agrees to hear the lawsuit this session, as is now known to be the case, that a decision will likely come next May or June. Given this scenario, stocks that benefit from the ACA are likely to underperform for the next six months, Taylor predicted. Taylor identified the following stocks as dependent on ACA subsidies. He listed them from most dependent on the subsidies to least dependent, as follows: Community Health (CYH - Get Report) , Tenet (THC - Get Report) , LifePoint Hospitals (LPNT) , Envision Healthcare (EVHC) , Team Health (TMH) , HCA Holdings (HCA) , and Universal Health (UHS) .
PRICE ACTION: In afternoon trading, Community Health is down 4% to $48.59, Tenet Healthcare is down 2% to $50.21 and Lifepoint is down 1% to $68.39.