D-Day for Obamacare: Trading the Outcomes
Investors are bracing for the historic ruling on Obamacare, officially known as the Affordable Care Act, which is widely expected to come down on Thursday.
And although the ruling may be ripe with confusing and complicated language, if you're an investorwhat you need to know is fairly simple.
Effectively there are three outcomes:
- Uphold Whole Law
- Strike Down Individual Mandate, Uphold Parts of the Law
- Strike Down Whole Law
Now the question becomes, who wins and who loses in each of the scenarios?
For insights CNBC’s Fast Money traders turned to a range of resources including top ranked analyst Mark Schoenebaum of ISI Group.
Here’s what we learned.
Uphold Whole Law
If the law is upheld entirely, as it stands now Americans would be required to get or have health insurance by January 1, 2014 under the so-called individual mandate or pay a penalty.
According to US News and World Reports, that would require over 18 million people to buy some kind of policy. In turn CNBC's Fast Money traders say it should benefit insurance providers such as United Health Aetna and Cigna in the form of millions of new, guaranteed customers.
Trader Steve Grasso, director of institutional sales trading at Stuart Frankel, believes it will also benefit hospital stocks such as HCA Holdings. According to a report in Barron’s, if the court upholds the entire law, hospital stocks could jump at least 15% on the day of the decision.
“Hospitals treat patients whether they can pay or not, and in some cases they have a problem with collection and losses. If the whole law is upheld, those bills get paid,” says trader Josh Brown, author of The Reformed Broker blog.
Strike Down Individual Mandate, Uphold Parts of the Law
Striking down the individual mandate - the requirement to buy insurance - but keeping most of the legislation in tact, is believed to be the most likely outcome.
And it could be the most bearish for stocks.
If the individual mandate is struck down the big loser would be hospitals – because the percentage of patients who can’t pay their hospital bills wouldn’t change.
However, if the rest of the law stands, Mark Schoenebaum of ISI Group says a hidden impact could be a drag on earnings across biotech and pharma broadly, because the fees and dings in the legislation would remain in tact.
For example, the legislation imposes an annual fee on health insurance providers based on each company’s share of the total market. And beginning in 2013, Obamacare imposes a 2.3 percent excise tax on medical device manufacturers.
Also, it could be a problem for insurance companies. Unless other parts of the legislation were struck down too, the law would still require insurers to offer policies to people with prior medical conditions such as diabetes and cancer.
Strike Down Whole Law
If the whole law is struck down, biotech and pharma could rally anywhere from 1-10% in the short term, according to Schoenebaum. Again that’s largely because the assorted fees and charges in the legislation would no longer be looming over the sector.
And according to the website Daily Finance if the whole law is struck down, it would benefit companies that took health care charge-offs due to a complex Medicare tax benefit. Although that may sound a little wonky, Sean Williams of the Motley Fool says that’s $1 billion in savings for AT&T.
However, this scenario does have a downside. It could have a negative impact on projected drug sales next year because fewer people would have insurance.
Posted by CNBC's Lee Brodie
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Trader disclosure: On June 27, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Stephen Weiss is long QCOM; Stephen Weiss is long AMLP; Stephen Weiss is long AMTG; Stephen Weiss is long VZ; Stephen Weiss is long T; Stephen Weiss is long VOD; Stephen Weiss is short X; Stephen Weiss is short MT; Stephen Weiss is short JCP; Stephen Weiss is short JEC; Karen Finerman is long AAPL; Karen Finerman is long BAC; Karen Finerman is long JPM; Karen Finerman is long WMT; Karen Finerman is long TGT; Karen Finerman is long MSFT; Karen Finerman is long M; Karen Finerman is short SPY; Karen Finerman is short IWM; Karen Finerman is short MDY; Guy Adami is long C; Guy Adami is long GS; Guy Adami is long INTC; Guy Adami is long MSFT; Guy Adami is long AGU; Guy Adami is long NUE; Najarian short (PBI); Najarian has long call spreads FB; Najarian has long call spreads MMR; Najarian has long call spreads ARNA; Najarian has long call spreads CF; Najarian has long call spreads POT; Najarian is long DDMG; Najarian is long COGX; Najarian is long CBOE; Najarian is long CME
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