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In a narrow decision, the U.S. Supreme Court upheld President Obama’s highly debated healthcare law on Thursday. By a 5-4 vote, the court said the mandate portion of the law was valid under Congress’ constitutional authority “to lay and collect taxes” to provide for the “general welfare of the United States.” The penalty for failing to carry insurance possesses “the essential feature of any tax,” producing revenue for the government, Chief Justice Roberts explained, according to the WSJ. It was a surprising move that boosted several health-related stocks, but dragged on others.
So-called “Obamacare,” formally known as the Patient Protection and Affordable Care Act, is the biggest overhaul of the $2.6 trillion healthcare system in decades. The President signed the law in 2010 and the Supreme Court ruling leaves the bulk of the law intact. The decision had an immediate effect on health-related companies.
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As the chart above shows, hospital stocks were the biggest winners today. Health Management Associates Inc. (NYSE:HMA) and HCA Holdings Inc. (NYSE:HCA) were both halted on the news, but surged 8.6 percent and 9.55 percent higher once trading resumed, respectively. Meanwhile, Community Health Systems Inc. (NYSE:CYH) and Tenet Healthcare Corp. (NYSE:THC) gained 7.7 percent and 6.6 percent, respectively. The general thinking is that now more insured people will visit hospitals, and those hospitals will see a decline in delinquent customers.
Insurance companies did not participate in the healthcare rally today. Shares of Aetna Inc. (NYSE:AET) and Cigna Corp. (NYSE:CI) both fell more than 3 percent in afternoon trading, while WellPoint Inc. (NYSE:WLP) dropped 5 percent. Stifel Nicolaus & Co. analyst Thomas Carroll explained that insurers will see “additional people coming through a more regulated channel, thus driving lower margins.” WellPoint shares hit their lowest level since February 7, 2012. Medical device makers such as Medtronic Inc. (NYSE:MDT) and Boston Scientific Corp. (NYSE:BSX) also declined as the industry still faces a 2.3 percent excise tax on domestic sales beginning next year.
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