Health Care Stocks Could Get Banged Up by Obamacare Ruling

NEW YORK (TheStreet) -- Health care stocks are likely to take it on the chin -- at least temporarily -- if the Supreme Court rules against a key component of Obamacare later this month.

The high court is expected to rule soon on King vs Burwell, a challenge to the Affordable Care Act that could effectively gut Obamacare by eliminating federal subsidies and making health insurance prohibitively expensive for nearly 8 million Americans.

The question for investors is whether the health care industry can absorb that kind of a loss in premiums, prescription purchases, hospital billing and doctor fees if the justices rule against the government.

Jefferies & Co. analyst Brian Tanquilut believes a decision against Obamacare would drive health care stocks -- primarily those for publicly traded hospitals -- down at least 10%. But Tanquilut also cautions that this knee-jerk reaction would be short-lived, for two reasons.

First, mitigation efforts by both the federal and state governments "will kick in pretty quickly as politicians will figure out how to comply with the law" while maintaining subsidies for individuals, Tanquilut says.

Second, hospital stocks already have been trading at a discount due to concerns about the pending Supreme Court decision.

"Once there is a new bill from Congress [to comply with the court decision], these stocks will begin to react positively," Tanquilut predicts.

And while hospital stocks have the most sensitivity to the decision, they also stand to gain the most from a decision in favor of the government.

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