A Supreme Court decision set to be released may determine the fate of Obamacare—and it could also have a significant impact on health-care stocks.
The case is King v. Burwell, and the overriding question is actually a quite narrow one regarding whether the letter of the law permits the government to offer health-care insurance subsidies through federal exchanges. But if the Supreme Court rules for the plaintiffs, who are challenging the executive branch's interpretation of the law, the impact on the structure of Obamacare could be grave.
According to forecasts, several million Americans could be set to lose their subsidies and their health insurance coverage.
There could also be a significant impact on health-care stocks. According to Societe Generale's head of U.S. strategy, Larry McDonald, the marketplace is anticipating that the plaintiffs will lose the case, meaning that Obamacare will remain intact. That outcome would be seen as beneficial for hospitals and health-care providers.
"I think the risk-reward against the hospitals right now is probably a good one," McDonald said in a Wednesday "Trading Nation" interview. Conversely, "the risk-reward of being long them is bad, because a lot of good news is priced in."