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UnitedHealth, WellPoint Fall, While HCA, Tenet Rally on Obamacare Court Decision

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The high court ruling is good news for hospitals, but investors in managed care companies were hoping justices would overturn the law.

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MINYANVILLE ORIGINAL Hospital stocks are rallying and health insurers are falling as President Barack Obama's health reform law was largely upheld by the Supreme Court in a 5-4 decision Thursday.

The big surprise in the ruling is that the so-called individual mandate -- requiring that most Americans purchase health insurance -- was ruled constitutional. Chief Justice John Roberts joined the court's liberal justices in declaring that the mandate was essentially a tax and Congress has a right to impose it. Without that provision, the law would have lost a large part of its funding.

Shares of UnitedHealth Group (UNH) fell 4% to $57.08, WellPoint (WLP) dropped 6% to $65.17, and Aetna (AET) sank 5% to $39. Humana (HUM) also slid 3% to $76.96, and Cigna (CI) was down 5% to $43.14 Thursday morning.

Health insurers had much to gain or lose from the court's decision. While the law preserves the market for private managed care companies, it carries a tax on the insurers and dictates coverage for everyone. Under the law, insurers also are prohibited from denying people coverage based on pre-existing conditions and can't charge these people higher premiums or exclude certain treatment benefits. (The ban on pre-existing condition denials is only in effect for children but will be extended to adults by 2014 under the law.)

Hospitals, on the other hand, should benefit from the law as more insured people theoretically means less bad debt. Hospitals treat a number of uninsured people who wind up in their emergency rooms with no means of payment. The court did limit the law's ability to extract more Medicaid dollars. The US government can expand Medicaid, but states can opt out. A portion of the law penalizing states that opt out was struck down by the court.

Hospital stocks jumped after the ruling was announced.

HCA Holdings (HCA) climbed more than 8% to $28.86. Tenet Healthcare (THC) rose 8% to $5.36. Community Health Systems (CYH) surged 12% to $28.44, Universal Health Services (UHS) rose 5% to $41.05, LifePoint Hospitals (LPNT) was up 7% to $41.21, and Health Management Associates (HMA) jumped 9% to $7.51.

Medical device makers such as Medtronic (MDT), St. Jude Medical (STJ), and Edwards Lifesciences (EW) face higher taxes and get little in return from the law.

Market leader Medtronic fell 1% to $37.45, while St. Jude dipped 1% to $38.30, and Edwards moved down a percent to $100.70. Boston Scientific (BSX) slid 2% to $5.51.

Among the big biotech companies, Gilead (GILD) fell almost 3% to $49.87 and Biogen Idec (BIIB) dropped 2.5% to $139.58. Amgen (AMGN) and Celgene (CELG) also fell.

The law includes a tax for drug companies as well, but the pharmaceutical makers may also benefit from expanded insurance coverage.

Pfizer (PFE) and Merck (MRK) fell about 1% each. Abbott Laboratories (ABT) and Johnson & Johnson (JNJ), companies that sell both drugs and medical devices, each trended downward. Abbott dipped 1% while J&J fell less than 1%.

Twitter: @brettchase

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No positions in stocks mentioned.
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