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Healthcare Stocks Take a Hit on Texas ACA Ruling

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Monday, December 17, 2018

Late last week, a federal court judge in the state of Texas grabbed headlines when he declared the Individual Mandate clause in the Affordable Care Act (ACA, aka “Obamacare”) unconstitutional, thus challenging the constitutionality of the ACA overall. The reasoning stems from last year’s federal corporate tax cut, which took the individual mandate down to $0 meant it no longer constituted a healthcare “tax.” That “tax” was the original reason for ACA being upheld by the Supreme Court in 2012.

Throwing out ACA as healthcare law in the U.S. would create plenty of tremors within the healthcare industry — to say nothing of Insurance, Pharmaceuticals, and related business sectors — but whether or not the law will be thrown out is still very much in question. More than a dozen states are now engaged in appealing this decision, and Democrats on Capitol Hill (congressional Republicans have brought the repeal of Obamacare to a vote more than 60 times, to no avail thus far) are calling for a vote on the law, confident it will be upheld by a plurality of federal law makers.

Despite its initial unpopularity, the ACA now covers tens of millions of Americans, with important clauses such as requirements to cover those with “pre-existing conditions” cited as reasons the general public has largely come to support the healthcare policy. Midterm elections often pivoted on this issue, demonstrating support for the ACA in the Democratic party winning back the U.S. House for the first time in eight years.

That seeds of doubt have been sown into the viability of Obamacare is what is hampering stocks in the overall healthcare space this morning, although it matters greatly which sub-industry you’re invested in: Hospital stocks, like Tenet Healthcare (THC - Free Report) and HCA Healthcare (HCA - Free Report) and both down more than 6% in today’s pre-market; HMOs such as UnitedHealth (UNH - Free Report) and Humana (HUM - Free Report) are trading roughly 2% lower ahead of the opening bell, while Medical Info Systems companies like Zacks Rank #1 (Strong Buy) HMS Holdings (HMSY - Free Report) is down only 0.7% so far this morning. Keep in mind we’re once again looking at an opening pretty deep into the red across the board.

Combine this with an expected interest rate hike mid-week from the Federal Open Market Committee (despite heated protests from President Trump, among others) and an Empire State headline for December that came in basically at only half of expectations — 10.9 versus 21 consensus and the 23.3 reported for November — and we again see a stock market struggling to find meaningful gains. Hopefully our recent volatility will somehow help send investors into buying mode today or at sometime during this final trading week before Christmas.

Mark Vickery
Senior Editor

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