The way Wall Street is watching the Supreme Court these days, you'd think Ben Bernanke was chief justice. The reason, of course, is that the high court is about to hand down one of its most important rulings in years, on the constitutionality of the Affordable Care Act, known informally as Obamacare. Aside from its vast social ramifications, the ruling has implications for funds heavily invested in health insurers. How companies held by those funds fare in the future depends on what the court rules, and it could go in any of several directions.
The critical issue before the court, which held hearings on the case in March, is the so-called individual mandateâ€"the requirement that anyone able to buy health insurance do so. The mandate is effectively the keystone of the whole law. It promotes universality (everyone into the risk pool), without which the phenomenon of "adverse selection" guarantees that a disproportionate number of expensive, unhealthy people dominate the insurance rolls. It's also what makes other provisions of the lawâ€"like "guaranteed issue" (insurers must offer policies to anyone who wants one) workable.
The 26 states now challenging the mandate say it's unconstitutional because it forces individuals to engage in private commerce, and levies a penalty on those who could buy insurance but don't. The administration argues that the mandate is necessary to prevent free-loading. The court could let the whole law stand as passed by Congress, or it could:
Overturn the mandate only: That would seem to leave insurers with the worst of all worldsâ€"a requirement to take all comers without a reciprocal obligation that all comers join the risk pool before they get sick. The administration has asked the court to throw out guaranteed issue if it rejects the mandate, but there's no way to know if the court will comply.
[See Top-Rated Healthcare Funds.]
The mandate "is the key part of the healthcare law," notes Christopher Davis, Morningstar's lead analyst for healthcare funds. "All of the other provisions in [the law] are dependent on having the individual mandate, so insurers could really fare poorly without it."
If so, investors might feel the impact on funds like the Fidelity Select Medical Delivery fund (FSHCX), whose top 10 holdings feature six big insurers comprising about 40 percent of the fund's total portfolio. Other funds with significant insurer holdingsâ€"though not as significant as the Fidelity fund'sâ€"are Hartford Healthcare Fund A (HGHAX), the Fidelity Adviser Health Care (FACDX), and the Allianz RCM Wellness A (RAGHX).
All four are up by 7 percent to 10 percent year-to-date. Davis says healthcare is Morningstar's best-performing sector, up 14 percent for the year, compared with 5 percent for the SP 500.
Throw out other provisionsâ€"or the whole law: A broader rejection could cut both ways for insurers. The Affordable Care Act expands Medicaid eligibility and provides subsidies for other low-income people to buy insurance. Repealing those aspects would presumably hurt insurers.
But it also tightens some rules in ways that cost insurers. Guaranteed issue is oneâ€"although that affects insurers mostly in the individual market (state laws already require guaranteed issue for group plans).
[See Top-Rated Heathcare ETFs.]
Another requires insurers to spend a minimum percentage of their premium revenue (80 percent on individual and small group plans; 85 percent on large group plans) on actual healthcare, as opposed to administration and profit. Large insurers generally meet the new standard already, but some carriers don't. Just last week, the Department of Health and Human Services announced that insurers will return $1.1 billion to consumers this year as a result of the new rule, which requires that they rebate the amount by which they fall short of the new minimums. (It's unclear where the rebates would stand if the whole law were struck down.)
The ideal outcome for insurers might be overturning the mandate and coverage provisions, but leaving the rest of the law intact. As health-policy consultant Robert Laszewski wrote on his blog this week, insurers would be free from the adverse-selection problem and they could continue to underwrite ("cherry pick," some call it) risk, deciding whom they want to cover. Meanwhile, they'll benefit from subsidies that take effect in 18 months.
Tidak ada komentar:
Posting Komentar