The following is a commentary from InvestingAnswers.com writer David Sterman on Thursday's historic Supreme Court ruling on Obamacare.
Cooler heads have prevailed. A showdown between the executive and judicial branches of government looked to usher in a new era of intra-governmental rancor that our Founding Fathers sought to avoid.
But the Supreme Court's decision to let much of the Obama administration's health care law stay intact is a victory for anyone that wants to see policy makers in Washington move forward -- not backward -- in addressing many of our nation's major's fiscal challenges.
Opinions vary widely on the merits of the far-reaching legislation, with detractors on both sides of the partisan aisle -- albeit for differing reasons. Yet many agree that healthcare is in need of some sort of fix.
For roughly two decades, we've been spending a rising percentage of our GDP (gross domestic product; in short, how much goods and services our nation produces in a year) on healthcare. By some estimates, that percentage has reached 17%. And that growth has come without a commensurate increase in the quality of care we receive.
Chances are, the plan will need to be tinkered with as some anticipated benefits fail to materialize. For example, hospitals will be rewarded (or punished) as they move to meet goals of improved patient outcomes. Quickly and radically improving the delivery of hospital-based health care is more daunting than you might think.
Yet even if the plan achieves all of its goals, a range of health care industries will benefit or suffer from the legislation.
Many uninsured consumers have found themselves in bankruptcy court after a stunningly large medical bill drained their assets. This has been a key source of financial insecurity for many families, and once they have health insurance, they might conceivably be in a better position to spend money on items other than healthcare -- which could, in turn, boost the broader economy through higher retail spending.
Among the biggest winners are hospitals that no longer need to shoulder the burden of uninsured emergency room patients that can't pay their bills when they come due. (These hospitals will also benefit from an increase in higher-margin elective surgeries as more patients get coverage).
Hospital chain operators like Tenet Healthcare (NYSE: THC), HCA (NYSE: HCA) and Vanguard Health Systems (NYSE: VHS) had all seen their stocks fall by 30% -- or more – in the past year. Now a strong rebound seems likely.
They will gain access to millions more new patients. As I said in a previous article, "Insurers hate the idea of being forced to extend insurance to high-risk patients. Yet they agreed to take on these patients as long as all patients -- high-risk and low-risk -- were enrolled. Insurers realized that if they had to cover any patients seeking coverage, without all being required to participate, then people would simply wait until they got sick to apply for insurance."
Stocks that could benefit from this ruling include Coventry Health (NYSE: CVH), United Health (NYSE: UNH), Humana (NYSE: HUM) and Aetna (NYSE: AET), although I would caution against buying these stocks strictly because of this news, as some experts feel differently about whether these stocks would benefit, and it will likely take a while for this to play out before we really know for sure.
People Seeking Basic Check-Ups
For Americans who already have insurance, the ability to have basic check-ups without incurring co-pays or other out-of-pocket expenses means catching medical problems before they spiral out of control.
Medical Device Sellers and Pharmaceutical Sellers
These firms are faced with a stark reality: Reimbursement pressures are rising and will get even more severe. A key goal of the health care overhaul is aimed at utilizing the lowest-cost treatment option, assuming outcomes are equal. As a result, look for medical device makers to start investing only in new products that have lower price points than products that are currently on the market (or at least yield vastly superior health care outcomes that save money in terms of post-treatment follow-up).
Boston Scientific (NYSE: BSX) is a specific stock in this sector that got hit on news of the ruling.
Pay close attention to stocks in these two sectors, as a number of other challenges are facing them, and this could be the kind of thing that causes a wave of selling.
The Investing Answer: Over the long term, expect consumers to have plenty to grumble about when it comes to healthcare. Phrases such as "health care rationing" and "death-care panels" have been used to unnecessarily spook consumers. Yet at the end of the day, we will need to adjust to the reality that an increasing number of medical procedures get rejected, simply because we can't afford them while providing coverage to more people for the same price. The fact that society is rapidly aging -- the number of octogenarians and nonagenarians are expected to rise steadily over the next 30 years—means that end-of-life healthcare decisions will be made in the context of fewer available financial resources on a per capita basis.
The Supreme Court's ruling doesn't mark the beginning or end of our nation's ongoing healthcare crisis, but is simply another mile marker along the way. Over the next five or 10 years, look for further discussions about how to improve or alter the delivery of healthcare as it becomes increasingly apparent that cost pressures have not fully gone away.