As deal talk dominates, could Obamacare case rattle health stocks?

A couple sit with an insurance advisor with UniVista Insurance company, as they sign up for the Affordable Care Act in Miami.
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A couple sit with an insurance advisor with UniVista Insurance company, as they sign up for the Affordable Care Act in Miami.

Investors have been bullish on hospitals since the passage of the Affordable Care Act, with the promise that greater insurance coverage would lead to less debt for uncompensated care.

If the Supreme Court invalidates Obamacare subsidies for millions of Americans on the federal health exchange, analysts say health-system profits could take a hit—even as the sector is currently dominated by merger and acquisition speculation.

Yet experts also say that, given the nature of health-care funding from the government, it may not be as big a blow as some might expect.

"Although hospitals have been benefiting from the Affordable Care Act, it's been much more weighted to Medicaid expansion," said Megan Neuberger, managing director and corporate health care credit analyst at Fitch Ratings.

Read MoreObamacare insurers get help for high-cost claims

Neuberger and most analysts say the expansion Medicaid coverage to low income adults has been a bigger factor helping hospitals reduce treatment for patients who can't pay. At least from a creditworthiness perspective, a high court ruling against the federal exchange subsidies won't be a big negative when it comes to fundamentals, Neuberger added.

"At this point, for vast majority of hospitals and health systems, the proportion of patients they are seeing that are health exchange enrollees is just not enough to move the needle from an earnings perspective, one way or the other," she said.

One thing that would register on earnings, however, is merger activity—and big health-care companies are in an acquisitive mood. On Saturday, Anthem made a third offer to purchase Cigna, upping its bid to nearly $54 billion on an enterprise basis, while Aetna made a takeover offer for Humana, according to The Wall Street Journal.

Deals, either consummated or speculated, may compete with Obamacare for influence over health care's fundamentals.

Supreme-ly important, or not?

Obamacare supporters outside Supreme Court
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"The industry has really been under this cloud of uncertainty since early 2010. Investors understand the situation with ACA very well, and I think take a long term view of the ramifications for the industry." -Megan Neuberger, managing director, Fitch Ratings

In King v. Burwell, the issue before the Supreme Court is whether the wording of the Affordable Care Act makes it illegal for the federal government to provide subsidies for people who obtain their insurance in the 34 states of the federal exchange, healthcare.gov.

The major publicly traded hospital operators, Tenet Healthcare, HCA, and Community Health Systems, have a large number of facilities in those states—many of which have not signed onto Medicaid expansion.

Still, equity analysts say the impact of a ruling for the King plaintiffs would not result in a major hit to profits.

Read MoreSupreme Court ruling could lead to Obamacare 'death spiral': Sinai CEO

"We believe that at this point the ACA is more of a sentiment driver than a profit driver," Chris Rigg wrote in a note to clients, following a meeting with management from Community Health Systems.

He says hospital executives told him a high court ruling against the government would translate to 2-3 percent negative impact on cash flow, but they expect that the government will act to mitigate the impact of the ruling.

"The company believes several states will revisit the Medicaid expansion decision," Rigg said, adding that Community Health "estimates that the states with the highest probability of expansion are Alabama, Alaska, Mississippi, North Carolina, Utah, and Wyoming, where roughly 16 percent of the company's licensed beds are located."

'In some cases, a positive'

Wedbush health analyst Sarah James expects that a ruling invalidating subsidies would initially weigh on sentiment, and cause a pullback in hospital stocks—most of which are trading at or near historic. However, nearly two-thirds of exchange consumers surveyed by her firm say they could buy commercial insurance elsewhere if they lose their subsidies.

"If this is correct, we see the greatest recovery potential for Community Health, HCA, and Tenet Health," James wrote. "If consumers found insurance elsewhere, it would lower the EBITDA risk, and, in some cases, could present a positive margin mix shift, in our opinion."

For a hospital operator LifePoint Health, with 20 percent exposure to Obamacare exchanges, James estimates that close to 3.4 percent of the company's cash flow could be impacted if patients lose their subsidies. Still, if two-thirds of its patients find coverage elsewhere, the impact would be just over 1 percent, she said.

Fitch's Neuberger says hospitals have adjusted to the cuts in reimbursement and changing payment models that were built in to Obamacare, and are benefiting from the rebound in the economy. Many are finally starting to see stronger patient volumes after years of consumer wariness following the Great Recession.

Read MoreSticker shock? Big Obamacare bills without subsidy

"That has been over the past couple of quarters more of a benefit than the ACA," she said. "People finally feeling comfortable going back to the doctor's office, going to the hospital to have elective medical procedures ... more confident using their employer-sponsored health insurance."

It's not that the Supreme Court ruling doesn't matter, but Neuberger says credit investors have gotten used to the controversy surrounding Obamacare.

"The industry has really been under this cloud of uncertainty since early 2010," she said. "Investors understand the situation with ACA very well, and I think take a long term view of the ramifications for the industry. I'm not so sure that's true on the equity side."