But for all the progress, there is one potential threat—a legal challenge at the Supreme Court, in the form of a case named King v. Burwell. Investors are watching it closely to see how it may affect the future of the health care program.
The case challenges the legality of the government providing insurance subsidies in states on the federal health exchange. The plaintiffs argue that the ACA wording only allows for subsidies to be paid on state-run exchanges.
While the High Court won't hear arguments until next year—with a decision not expected in June or July—a ruling against the administration could disrupt the exchange marketplace. The new Congress, under a republican majority, is not likely to legislate a fix.
"Had we not had such a favorable material win in congress, as well as the gubernatorial elections," Gupte explained, "I think it might have been more easy to implement the workarounds that are being discussed."
Gupte said the impact is likely to weigh on hospital stocks more than on insurers, because hospitals have seen a big Obamacare bump already. With more patients covered by insurance, health-care systems have seen an increase in patient volume, and some reduction in uncompensated care.
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"They are also disproportionately skewed as far their footprint to the federally facilitated marketplaces," Gupte observed. "So, the downside risk in 2016 would be material."
Susquehanna analyst Chris Rigg said hospitals could still see strong volumes if more states choose to adopt expand Obamacare Medicaid eligibility. But he sees the King v. Burwell case weighing on hospital stocks over the next six months.
"In the event King prevails, we believe there are compelling arguments both for and against additional states facilitating their own health insurance exchanges," Chris Rigg wrote in a recent note to clients. "However, we think rationalizing potential political outcomes is imprudent given that today's political environment is inherently irrational."