Tuesday, June 12, 2012

“Individual mandate" likely ruled unconstitutional; will bring down ACA

Intrade is now showing a 70% probability that the “individual mandate” in ObamaCare is ruled unconstitutional by the US Supreme Court. The last time we discussed this issue (in March) the probability for 2012 was 34%.

Depending on what happens to the rest of the law, there may be a material impact on the healthcare sector. It’s hard to envision how HMOs, hospitals, and other care providers could even function if they are forced to sign up only the sick customers without the requirement (the mandate) for the healthy ones to sign up as well. That means if the individual mandate is struck down but the rest of the law is deemed constitutional, the Obama Administration will have no choice but to roll back most of the Affordable Care Act (unless they choose to destroy the HMO industry and hospitals in the US). The legal question of whether the mandate is severable from the rest of the law is therefore moot.

ISI Group: - While it is a close call, we expect the Supreme Court will strike down the individual mandate. The court could strike down the entire law, but the better bet is it strikes down just the mandate. If the court strikes just the mandate, it would hurt HMO stocks the most as this would threaten the viability (and profitability) of the individual market. It would also hurt hospitals and other providers. If the court struck the whole law, traditional HMOs would benefit, but Medicaid HMOs and hospitals would likely sell off.

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