On Jun 17, the Supreme Court came out with a favorable ruling on the Affordable Care Act, which was challenged in 2017 as being unconstitutional.The Republicans had filed against the ACA, wanting it to be scrapped.
The court now delivered a verdict that supported the law. The justices noted that the provision on which the law was objected to does not pose any harm. The provision was related to penalty for failing to buy health insurance. The individual mandate penalties were reduced to $0 in 2017 as part of the then tax bill. Texas and more than a dozen other Republican states then filed a suit, arguing that that the reduction of penalties rendered the law unconstitutional and that it should be written off.
The justice argued that since the individual mandate penalties were slashed to zero, the provision therefore poses no threat to the opponents who defied it.
The recent win will help the law continue to grow in popularity. Democrats now control the US Congress with President Joe Biden lending full support to the ACA and further aiming to strengthen it by adding wider healthcare coverage.
The Law Escapes Earlier Attacks
This was the third time that the law was upheld since it was enacted by President Barack Obama back in 2010. Earlier, the law was challenged on because of its provisions regarding individual mandate and insurance subsidies.
The Supreme Court had defended the law in June 2012 when it upheld the constitutionality of its individual mandate that required individuals to pay a financial penalty for not obtaining insurance coverage. Again in 2015, the ACA (also called Obamacare) survived confrontation as the Supreme Court sustained the provision relating to health insurance subsidies to all qualifying Americans.
The court’s decision this time turned out be stronger as the law got seven votes in favor and two against its prevalence. Such solidarity behind the law established the fact that it is here to stay, thereby making healthcare more accessible and comprehensive for all the Americans.
A Brief Throwback
Insurers and hospitals are key beneficiaries of the ACA. When the law was enacted in 2010, insurers had perceived that it will restrict their profitability. Some of its provision like providing insurance to individuals with pre-existing condition and maintaining minimum loss ratios opposed insurers’ interest. Therefore they lobbied against the law, observing that it will affect their revenues and profitability.
There was no denying the fact that clauses were put to rein in the age-old practices of insurers who acted on their whims and chased only profitable business. But over time that the ACA has existed, numerous regulations that got introduced created a level playing field.
Insurers witnessed greater membership as the ACA made it necessary for all Americans to buy health coverage. Medicaid expansion and insurance subsidies to eligible individuals brought a denser population under the insurance net, which reflected on the revenue and membership growth of all major health insurance companies.
The ACA generated one of the largest expansions of health coverage in U.S. history. Earnings and stock prices of health care companies have increased a lot more than the broader market since ACA was implemented in 2010.
After initial resistance, the ACA was finally embraced by insurers as its benefits outweighed its bottlenecks.
Since March 2010 when ACA came into effect, shares of
UnitedHealth Group Inc. ( UNH Quick Quote UNH - Free Report) , Centene Corp. ( CNC Quick Quote CNC - Free Report) , Molina Healthcare, Inc. ( MOH Quick Quote MOH - Free Report) and Humana Inc. ( HUM Quick Quote HUM - Free Report) have gained 1104%, 1444%, 1584% and 782%, respectively, compared with the Zacks S&P composite’s growth of 324.8%. This share price rise explains insurer’s success story with ACA. Image Source: Zacks Investment Research Time for Insurers/Hospitals to Rejoice
Biden vowed to expand Obamacare, a central promise of his presidential campaign. Everytime the law came under scrutiny by the ex-president Donald Trump and the Republicans, insurers would turn jittery. Even a remote possibility of the law getting defeated was seen as a headwind to membership and revenue growth.
But the climate of fear has faded now with Biden at the helm. He vowed to expand Obamacare, a central promise of his presidential campaign. Insurers will be a happier lot now that the ACA is saved. The legislators will also aim to build and expand the law.
The very first glimpse of the favorable effects of this legislative support is already evident as just after assuming office, Biden had opened a special window on Feb 15 for the purchase of subsidized health policies via health insurance exchanges. This offer was originally available until May 15 and later extended to Aug 15. Subsidies are also given to eligible individuals to make insurance affordable and increase the number of purchases.
Companies like Centene with a sturdy presence on the health insurance exchange already upped its estimates for 2021 membership on the back of gains from the special enrollment period. Likewise, Molina Healthcare lifted its revenue projection for the current year, citing gains from the same.
Hospital companies like
HCA Healthcare, Inc. ( HCA Quick Quote HCA - Free Report) , Community Health Systems Inc. ( CYH Quick Quote CYH - Free Report) and others will also benefit as the increase in insured patients will curb its uncompensated costs of care. Hospitals have long struggled to collect bills when patients aren’t covered under insurance. The proportion of charity care, bad debt and uncompensated care already thinned owing to the ACA, especially for those states with expanded Medicaid programs. Bottomline
The political, legislative and regulatory trends are long-term positives for the health insurance industry. Biden’s other healthcare-related ideas, such as lowering the Medicare eligibility age to 60 from 65 and making the present subsidies on offer permanent will expand the health coverage umbrella. Thus health insurers will gain more business with greater number of people getting insured.
Among the stocks mentioned above, UnitedHealth Group carries a Zacks Rank #2 (Buy) while the rest have a Zacks Rank #3 (Hold) at present. You can see
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