By Burt White Chief Investment Officer, LPL Financial
Jeffrey Buchbinder Market Strategist, LPL Financial
Weekly Market Commentary, Posted June 12, 2015
The upcoming Supreme Court decision regarding premium subsidies for the Affordable Care Act (ACA, aka Obamacare) may create a buying opportunity for the healthcare sector. We believe the odds favor the status quo (all subsidies legal regardless of the state), meaning that any selling pressure related to the risk of losing insured patients may present a buying opportunity. However, a court ruling in favor of the challenger (against the administration), which would likely be met with even more selling pressure and remains a possibility, may create an even better entry point for the sector.
Later this month, in the case of King v. Burwell, the Supreme Court will rule on whether ACA premium subsidies (via tax credits) are legal for individuals with Obamacare policies in states that chose to use federal health insurance exchanges rather than setting up their own state-run exchanges. When the law was written and subsequently passed in 2010, the hope in Washington was that all states would set up their own insurance exchanges for their citizens. Were this achieved, it would have eliminated the question of whether any subsidies that made insurance premiums more affordable were legal. The law is quite clear about the legality of premium subsidies in states with exchanges. However, the law is ambiguous about states that opted not to set up exchanges, which is the crux of this case.
WHICH WAY WILL IT GO
Our sources in Washington see 60% odds of the status quo (a ruling in favor of the administration), while we believe, based on the points below, that the odds may
even be a bit higher. A favorable ruling for the administration could be based on three potential arguments:
1. The court may think the intent of the law and the broad context — including consideration for the conditions under which the law could reasonably function economically — are enough to essentially prove the IRS’s intention and uphold the status quo. The section of the law that allows for the federal government to set up an exchange if a state does not, points in this direction.
Get the Full Market Report Here: Market Commentary 06082015