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Wall Street Finding Obamacare Hard to Game

10 April 2012 in Trading Ideas

The relatively steady performance by healthcare stocks so far this year isn’t helping investors determine what sort of impact can be expected following a Supreme Court decision later this spring on the validity of recent federal health insurance legislation.

Shares of Aetna (AET), UnitedHealth  (UNH), Humana (HUM) and Wellpoint (WLP) all trended higher in late March, amid the broader market’s rise that ended with a total first-quarter gain of with a 12.2 percent . According to The Atlantic, one potential reason for the upward movement in healthcare stocks is that, whether or not the law, known officially as the Patient Protection and Affordable Care Act, is upheld or struck down, healthcare companies could benefit.

According to Forbes, many investors see the outcome of the law, known informally by many of its detractors as “Obamacare,” as incalculable, leading many to purchase equities that could win in either situation.

Money Morning reports that analysts have been struggling to decide how Obamacare could influence the healthcare sector before it was even passed.

“For most companies, the bill is neither very good nor very bad,” Dan Mendelson, CEO of Avalere Health, told NPR before the law’s passage in 2010. “Across each of the different segments there are pieces that will be good and pieces that will be more challenging.”

What some have speculated could hurt the sector, however, would be a scenario in which the part of the law that requires people who would not otherwise be covered to maintain minimum insurance (the so-called individual mandate) is eliminated, but the rest of the statute remains in place.

According to the Washington Post, if there were no penalty for not purchasing health insurance, it raises the potential that only people with high healthcare costs would buy policies. This would raise the cost of health insurance, and in turn premiums, which could possibly result in fewer clients and less revenue.

Although healthcare stocks, as measured by the Healthcare Select Sector SPDR exchange-traded fund (XLV), have been relatively sluggish in the first quarter of 2012, the sector has been performing well in recent weeks, according to Investing Daily.

How do you think healthcare stocks will respond to the Obamacare debate?