Hospital and medical equipment stocks are jumping on Thursday's Supreme Court decision to uphold federal subsidies under the Affordable Care Act.
Plaintiffs in the case, King v. Burwell, argued that the federal tax credits were not allowed under the specific letter of the law. A ruling in their favor would likely have meant that nearly 6.4 million Americans would lose their federal subsidies, and potentially their health insurance.
However, the court upheld the status quo, with Chief Justice John Roberts writing for the majority that "the combination of no tax credits and an ineffective coverage requirement could well push a State's individual insurance market into a death spiral," and "It is implausible that Congress meant the Act to operate in this manner."
Health care stocks responded to the decision immediately and enthusiastically. Hospital companies led the pack, with Tenet, HCA and Community Health each surging some 10 percent. Medical equipment companies like Intuitive Surgical and Edwards Lifesciences jumped sharply as well, and health insurance stocks are seeing gains as well, albeit milder.
With health care insurance intact for many Americans, "the big winner here is hospitals, because they're getting paid—rather than having to provide their service for free," said Fred Weiss, who manages mid-cap growth strategy with Atlantic Trust Private Wealth Management.
He added that the excess volume of patients is also great news for medical equipment companies, both because more people will learn of conditions they wouldn't have known about through medical visits, and patients will naturally be more willing to get expensive operations if they're not paying for them out of pocket.