Hospitals, Insurers Sink as Obamacare Ruling Jolts Investors

(Bloomberg) -- Health-care stocks were among the worst performers in the S&P 500 selloff Monday as hospitals and insurance stocks sink on a judge's ruling Friday that Obamacare is unconstitutional.

A judge sided with Texas late Friday in a lawsuit alleging that Congress's decision in 2017 to kill a related tax penalty essentially voided the entire Affordable Care Act. While many analysts expect the ruling to be reversed by higher courts, the news adds to volatility in a sector that had barely recovered from political overhangs this year and yet remains the top performing sector in the S&P 500.

U.S. hospitals, which are most at risk from the latest ruling, fell as much as 4.4 percent to the lowest since March 1. The drop in the Bloomberg Intelligence Hospitals Index is led by Community Health Systems, Tenet Healthcare, Quorum Health and HCA Healthcare. Tenet was downgraded by Baird after the ruling, while analyst Matthew Gillmor recommended buying HCA and Universal Health on the weakness.

The S&P 500 Managed Care Index fell 2.3 percent to the lowest since Oct. 29, led by Centene, WellCare, Anthem and Cigna. Molina plunged as much as 13.5 percent, the most since February 2017.

“Texas just really messed with us,” Jefferies health-strategist Jared Holz said in a note. “We now enter 2019 with a (new) overhang.”

Health-care investors already were licking their wounds from Johnson & Johnson's $45 billion plunge on Friday related to a Reuters report about asbestos in baby powder.

Centene and Molina are bearing the brunt of the selloff in managed care given their exposure to Medicaid and Obamacare markets, also known as the public exchanges. Both insurers have a total ACA exposure of more than 40 percent of EPS, followed by WellCare Health at 10 percent, JPMorgan analyst Gary Taylor reminded investors in an email late Friday.

Unpaid Bills

Across publicly traded hospitals, earnings exposure to the health-care law is as much as 10 percent, Leerink Partners analyst Ana Gupte wrote in a note. She cautioned that facilities could see a drop in patient volumes and a rise in unpaid bills if people lose their health insurance.

See More: Ruling Striking Down Obamacare Won't Affect Health Coverage, Yet

The Monday selloff threatens to diminish or erase payers' and providers' gains this year, with S&P 500 Managed Care Index still up 14 percent and the Bloomberg Intelligence Hospitals Index up 1.5 percent.

Other subsectors, including medtech, pharma and biotech, are also feeling the aftershock. “This could all be an excellent buying opportunity depending on magnitude of moves and the next steps around another court entering a stay,” Holz wrote.

To contact the reporter on this story: Tatiana Darie in New York at tdarie1@bloomberg.net

To contact the editors responsible for this story: Catherine Larkin at clarkin4@bloomberg.net, Kevin Miller, James Ludden

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